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Tuesday, April 9, 2013

Johnson’s “Reinvention” of JC Penney: Too Much and Too Little

In April 2013, JC Penney’s board wished the CEO, Ron Johnson, “the best in his future endeavors.” His effort to “reinvent” the company had been “very close to a disaster,” according to the largest shareholder, William Ackman. During Johnson’s time at the company as its CEO, shares fell more than fifty percent. In February 2013, Johnson admitted to having made “big mistakes” in the turnaround. For one thing, he did not test market the changes in product-line and pricing points. The latter in particular drove away enough customers for the company’s sales to decline by 25 percent. Why did Johnson fail so miserably?
                                  Ron Johnson's short tenure as CEO of JC Penney was disastrous, according to Altman.   Source: Reuters

Some commentators on CNBC claimed that JC Penney’s board directors should have known better than hire someone from Apple to have so much responsibility right off the bat in a department store. However, Johnson had been V.P. for merchandising at Target before going over to Apple. Therefore, Penney’s board cannot be accused of ignoring the substantive differences between sectors. Even so, Target and Walmart are oriented to one market-segment, whereas JC Penney, Kohls and Macys are oriented to another. Perhaps had he taken the time to have market tests done at JC Penney, any error in applying what he had learned at Target could have been made transparent.

Although as the former CEO Ullman who would be replacing Johnson pointed out, customer tastes are always changing so you can’t go back to worked in the past, to “reinvent” a company goes too far. For one thing, it is risky for a retail company to shift from one market segment to another. Additionally, to “reinvent” something is to start from scratch to come up with something totally new. Even if that were possible for a retail chain, the “new front” would likely seem fake to existing customers. “They are trying to be something they are not,” such customers might say. Put another way, Ron Johnson might have gotten carried away with his notion of a turnaround.

In an interview just after Johnson’s hiring at JC Penney was announced in June 2011, he said, “In the U.S., the department store has a chance to regain its status as the leader in style, the leader in excitement. It will be a period of true innovation for this company.” A department store isexciting? Was he serious? Perhaps his excitement got the better of him in his zeal for change. But were the changes of “true innovation?” Adding Martha Stewart kitchen product-lines is hardly innovative—nor is getting rid of clearance sales and renovating store designs and the company logo. In fact, renovation is rather superficial, designed perhaps to give customers an impression of more change than s actually the case. Put another way, Ron Johnson may have had a tendency to exaggerate in the sense of gilding the lily as evinced by his appropriation of faddish jargon while coming up short in terms of substantive change. In an old company trying to be something it's not (i.e., going from a promotional to a specialty pricing strategy), there is too much superficial change and too little real change. Sometimes even upper-level managers can get carried away with their own jargon in trying to make their respective companies something they are not. It is like a person trying to be someone he or she is not. In "reinventing" JC Penney, Ron Johnson was trying to make an old woman come off as young by applying make-up and new clothes.

Sources:

Stephanie Clifford, “J.C. Penney Ousts Chief of 17 Months,” The New York Times, April 9, 2013.

Joann Lublin and Dana Mattioli, “Penney CEO Out, Old Boss Back In,” The Wall Street Journal, April 8, 2013.