Tuesday, August 14, 2012
When Will The Penny Finally Drop For J.C. Penney’s Ron Johnson?
J.C. Penney showed a big 2-Q ’12 loss. Down another 23%, which is much bigger than expected. Oh, and they’ve given up on any profit outlook for the year. So it looks as if the fair-and-square-fewer-price-promotions-more-celebrity-and-any-high-tech-we-can-get approach of Mr. Johnson, ex of Apple’s retail division, isn’t quite working out the way he had planned. Which is exactly what our loyalty and engagement metrics predicted back in January.
Back then, the brand and marketing strategy was promulgated on a simpler system of price promotions, which was either the wrong question to have asked consumers (who probably shrugged and then said “zowie, yes!”) or more probably just Ron Johnson moving all those promotion dollars to the bottom line while he planned the gabillion dollar just-like-Apple redesign of the 110-year old department store chain. The long and short-term strategies indicated the re-configuration of all stores divided into boutiques. The transformation, according to Mr. Johnson, “is a marathon, not a sprint,” and ultimately promises “a new class of department store.” Or one plastered with “Going Out Of Business” signs.
Penney’s January pricing-shift confused customers who already had everyday low prices from Wal-Mart, monthly specials from competitors like Kohl’s, and clearance prices like, well, every other single retailer on the planet! So Penney’s made other pricing changes. And then cancelled advertising while they rethought strategy. Now, they’re making permanent cuts throughout the store and is jettisoning the month-long bursts of sales in what Mr. Johnson has characterized as simplifying pricing, which kind of makes you wonder what the ‘fair-and-square’ stuff was all about to begin with, beyond funny commercials.
Anyway, Mr. Johnson had a call with analysts, where he was quoted as saying, ”early response to these efforts have been very encouraging.” But one can only suppose that’s true if you define “encouraging” as same-store sales not being down 30%!
Could this failure have been anticipated? We weren’t guessing back in January, when we had newly minted Customer Loyalty and Engagement measures to inform us. If you don’t measure, attend to, and strategize off what drives behavior in the marketplace and real customer expectations you shouldn’t anticipate success no matter how optimistic or highly paid you are. Consumers have pretty much been in control of the marketplace since the late ‘90’s, and that was before computers, the Internet, and consumers talking to each other before they talk to brands.
The penny finally did drop for Mr. Johnson, who finally noted, “it is very clear that withdrawing from our promotional model to a more everyday model has been harder than we anticipated,” urging investors to keep the faith.
But you know what they say about that. While faith makes all things possible, it’s engagement that makes all things profitable.