• Can JCP’s Ron Johnson Bring the Target and Apple Magic to the Struggling Retailer?

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    Ron Johnson, CEO of JCP (J.C. Penney’s for everyone who has not adopted the company’s new branding) has an impressive resume of retail successes. He is recognized for bringing high design products such as the Michael Graves lines into Target Stores and most notably, launched the Apple store concept and Genius Bars throughout the country. Now that he has taken the reigns of JCP, he is working to reenergize the company that, quite simply, was in need of a new strategy. Stephanie Clifford of the New York Times wrote:

    While many shoppers go to Walmart for price, Target for cheap style, high-end stores for luxury treats and the Web for ease, stores like J. C. Penney have faded into the background.

    Of the new JCP strategy, Dave Brennan, professor of marketing at the University of St. Thomas, Opus College of Business stated that  Johnson is working to reposition to an upscale department store more comparable to Macy’s. The J.C. Penney strategy had previously been comparable to Kohl’s. Their primary consumer is aging and the business model is tired. In addition, they are working to reduce the pitfalls that come along with promotional pricing. Prices had traditionally been inflated in order to accomodate the price decreases during sales. Rather than the unpredictable sale pricing, JCP has adopted an everyday stable pricing strategy with limited sales and markdowns on a consistent schedule. Consumers will know what to expect for pricing on the merchandise rather than taking the risk of going in when their favorite items are not on sale. This also creates staffing efficiencies for the company as they do not need as many staff in order to facilitate pricing change.

    By dissecting areas of the new retail strategy, it becomes clear that Johnson has brought elements of his past experience into JCP. From the store layout, branding and leadership team, the new JCP has a foundation for a successful rebirth with concepts pulled from both Apple and Target’s success.

    Johnson clearly has a good understanding of the target demographic for both Target and Apple stores. This is not the same demographic as the J.C. Penney of old. These changes are positioning the company to be more closely aligned with department stores like Macy’s in terms of merchandising and target market. Johnson is trying to attract new customers to JCP, specifically, skewing to a younger crowd who are brand and trend conscious but also on a budget. This is starting to sound a lot like Target.

    JCP stores are being revamped to be cleaner and more orderly with new in-store displays. Are there any stores more orderly than an Apple store? The same could be said about Target when comparing to other discount retailers.According to Forbes, Johnson had an epiphany when working for Steve Jobs at Apple. Products should not be displayed by classification but instead by lifestyle. This lifestyle concept can be seen in the new JCP with the addition of stores within the store. According to the Dallas Business Journal, in-store shops will include Arizona Jean Co., IZOD, Liz Claiborne, jcp, Levi’s, Sephora and Buffalo. They also plan to include stores by Martha Stewart, Jonathan Adler, Michael Graves, Bodum and Terence Conran in 2013. This plan follows in the footsteps of Macy’s, who has gradually added some store within a store concepts.

    Have you ever noticed that apple products are priced to the dollar – $199, $699, $999? My observation after going into the new JCP is that they are using the same strategy. Gone are the days of $24.99. Simplifying pricing has been the most promoted change for JCP. Rather than having a new reason for a sale every week, JCP is sticking to an everyday low price approach which is supplemented by monthly values. Walter Loeb of Forbes commented,

    The industry is watching to see whether it works, and so far, the consumer is confused, the traffic is minimal in the stores, suggesting that at the current rate it will take a herculean effort to convince the consumer that the products are at sharp prices, are timed right and are wanted.

    JCP’s C-suite has connections with Target and Apple. Michael Francis, former chief marketing officer of Target, is now president of JCP. Daniel Walker, formerly the chief talent officer at Apple, is in the same position with JCP. Michael Kramer, former chief financial officer of Apple’s retail division, is now the COO of JCP. The company recently announced a series of senior management changes. These key positions bring in leadership from other larger retailers such as May Department Stores, Dick’s Sporting Goods, Nordstrom, Abercrombie & Fitch, Gap and Macy’s.

    JCP and Target even have a significant investor in common; Bill Ackerman of Pershing Square Capital Management owns a 10% stake in Target Corporation and 16.6% stake in JCP. Ackerman has also been involved with investments in Sears and several other retailers. The fact that Ackerman is willing to invest in JCP can be seen as a good sign in terms of confidence in the new strategy.

    It will likely take time for the company to rebuild and strengthen their market position. Their first quarter sales were down 20.1%. Online sales decreased 27.9% from the same period last year. On the bright side, the company’s Selling General & Administrative Expenses decreased $121M from last year due to better expense management and operational efficiencies.

    In addition to less than favorable first quarter sales, the company has faced some criticism over their hiring of Ellen DeGeneres as a spokeswoman for the company. Similarly, consumers who liked the old J.C. Penney concept have expressed their concern with the company direction. Other critics have challenged the everyday low price strategy saying that alone is not enough to get people into the store.

    With a solid leadership foundation and a new direction, it will be interesting to see what happens with JCP in the future. What do you think of their new strategy?

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