The turnaround at JC Penney has definitely not transpired as CEO Ron Johnson expected. Sales have plummeted, the firm has reported huge losses, and the company's cash position has deteriorated. Johnson came on board just a short time ago to much fanfare. He enjoyed a successful career at Target, and then he had launched Apple's retail stores with Steve Jobs. He came to JC Penney with high hopes of engineering a major turnaround. He announced a major new pricing strategy and plans for changes in the layout/design of the stores. Customers didn't flock to his stores; they fled. The stock has taken a beating lately.
What went wrong? I think Johnson made three major mistakes:
1. He changed the pricing strategy BEFORE changing the merchandising strategy. He wanted to move toward an everyday low pricing strategy, and away from constant discounting. However, he needed to change the merchandising and store design strategies FIRST before he could try to do away with promotions and discounting. Johnson needed to create a different shopping experience, and then having done that, he could have perhaps persuaded customers to shop without waiting for discounts and sales.
2. He did not manage expectations well. He was hired with great fanfare. He talked boldly of a new strategy for the retailer. Perhaps he should have remembered the old adage: under-promise and over-deliver.
3. He didn't recognize the difficultly involved when trying to change ingrained habits. His customers were very accustomed to shopping in a certain way. Asking them to shop in an entirely different manner, almost overnight, would be too much of a shock. At the same time, he didn't have the new merchandising strategy in place that might attract different customers to his stores. Habits die hard. The firm learned a hard lesson there.
What went wrong? I think Johnson made three major mistakes:
1. He changed the pricing strategy BEFORE changing the merchandising strategy. He wanted to move toward an everyday low pricing strategy, and away from constant discounting. However, he needed to change the merchandising and store design strategies FIRST before he could try to do away with promotions and discounting. Johnson needed to create a different shopping experience, and then having done that, he could have perhaps persuaded customers to shop without waiting for discounts and sales.
2. He did not manage expectations well. He was hired with great fanfare. He talked boldly of a new strategy for the retailer. Perhaps he should have remembered the old adage: under-promise and over-deliver.
3. He didn't recognize the difficultly involved when trying to change ingrained habits. His customers were very accustomed to shopping in a certain way. Asking them to shop in an entirely different manner, almost overnight, would be too much of a shock. At the same time, he didn't have the new merchandising strategy in place that might attract different customers to his stores. Habits die hard. The firm learned a hard lesson there.
