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The JC Penney debacle: Where did Johnson go wrong?

JC Penney returns to high-low pricing, but the damage to the brand may be irreparable.

March 28, 2013 by Natalie Gagliordi — Editor of KioskMarketplace.com, Networld Media Group

JC Penney has had it rough. The beleaguered 111-year-old retailer had to swallow a net loss of $985 million for its last fiscal year, not to mention its plummeting share prices and same-store sales. And now, it seems to have an identity crisis on its hands.

JC Penney famously abandoned its long followed strategy of sales and coupons — a move helmed by its now embattled CEO Ron Johnson. The policy change proved unpopular to the retailer's core shoppers, and after months of defending his controversial policy change, Johnson finally conceded defeat and announced that the high-low sales-event strategy would return.

"While our prices continue to represent a tremendous value every day, we now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the register," JC Penney spokeswoman Daphne Avila said in a statement emailed to Reuters.

The retailer began changing the price tags on merchandise earlier this month and should be done in the next few weeks, Avila said.

So how could Johnson, who successfully ran turnaround efforts at Target and Apple, have gotten it all wrong at JC Penney? Retail experts are divided.

According to Doug Stevens, a retail analyst and author of the book The Retail Revival, it wasn't Johnson's ideas that failed but rather the way those ideas were implemented throughout the JC Penney chain.

"I think it's a case of too much too soon," said Stephens. "I think that to some extent he ripped the rug out from under [shoppers]."

Stephens said that with better communication and slow, metered changes to the store's price policy, customers might not have felt so betrayed. After all, Johnson's changes were necessary, he said.

"Like sears, JC Penney had worked itself into a rut where its core shopper was an older, extremely cost conscious, penny-pinching consumer, who was conditioned to only respond to promotions that were mostly fictitious," said Stephens. "Johnson's challenge going in was figuring out how to reverse the damage and make [JCP] contemporary and into the realm of the younger consumer. Quite a daunting challenge."

Johnson's history with Apple, while initially lauded, may have set a faulty precedent for how he rolled out the changes at JC Penney, Stephens adds.

"The problem for Johnson is he came from a place where these kinds of quick changes were permissible," he said. "With Apple having unique products, it has the license to do what it wants to do in a sudden and unilateral way. JC Penney doesn't."

But not everyone agrees that JC Penney was in need of such a dramatic overhaul. Bob Phibbs, a retail consultant and motivational speaker, said that the department store concept has proven successful by the likes of Macy's and Nordstrom.

"I don't think the department store is dead. It is poised for greatness," said Phibbs. "The JC Penney brand wasn't that bad to start with. Penney's was solid — they knew who they were and they knew who they weren't. Every pundit likes to say they were in 'desperate need' but they weren't ... and they are now."

What began as an attempt to appeal to a younger, hipper demographic turned in to an alienation of its loyal base of shoppers, those who Phibbs said eagerly awaited opportunities to hunt for a bargain. Once that opportunity was taken away, that shopper was left feeling like a "jilted lover," Phibbs said.

Even with Johnson returning JC Penney to the standard high-low pricing method, there's no guarantee the shoppers, and the sales, will return.

"I don't think the brand is going to have legs to stand after 2014," said Phibbs. "It's now such a tarnished image. I don't know where Johnson thinks the 'cool' is going to come from."

Johnson's destructive tenure as Penney's CEO could even turn him into a verb, Phibbs said.

"Twenty years from now pundits will say, 'Yeah he Ron Johnsoned it.'"

But those who haven't written the retailer off as dead believe Johnson may still be able to save the legendary brand — and keep his name out of the Urban Dictionary.

"We live in a world where we believe brand essence can be turned around in one quarter," said Stephens. "Unfortunately it took JC Penney decades to get where they are right now. It is probably a three-to-five-year turnaround effort that is going to mean a lot of loss in revenue. What it comes down to is; can they afford it?"

Photo by Sam Howzit.

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