April 12, 2013
Ron Johnson’s exit at jcpenney this week wasn’t exactly huge news to those who’d been watching the company fall off a cliff in 2012. Boards tend to notice when the losses start approaching the one-billion-dollar mark.
Now we get a deluge of analyses from retail experts and amateurs alike. I would only remind you of one basic rule of life:
Don’t believe everything you read.
I’ve been surprised at how many articles either misunderstand the retail industry or conveniently misplace the facts about the challenges facing jcp.
So what the heck, I’ll throw in my two cents as well. I didn’t work for jcp, but as some of you know, I was involved in the jcp advertising that ran on the Oscars this year and last.
To better appreciate how and why Ron failed, you have to go back to the beginning.
Ron became CEO of jcp after a long period of courtship. He was being recruited to be on the board by investor and board member William Ackman. Ron’s great successes in retail (Target, Apple) and fresh point of view were seen as a breath of fresh air. And boy, did jcp ever need that.
Under its previous CEO, Myron “Mike” Ullman, jcp was clearly on a downward slope — yes, even with hundreds of sales each year and its Sunday supplements filled with coupons. It was still profitable, but the writing was on the wall. American shopping habits were changing dramatically. Big department stores were losing their appeal as more people were either shopping online or moving toward the specialty shops in the malls. Despite a core of loyal customers, and despite that “big sale” mentality, the store was fading in the public consciousness.
Concerned about its future, jcp needed to replace Ullman with someone who could reinvigorate the brand. The stores had to continue appealing to old customers, to be sure, but if the company were to thrive, it would need to attract new customers as well.
Ron Johnson seemed to be exactly what jcp needed. Wall Street vigorously approved, and jcp’s stock price rocketed at the news of his hiring.
Just a few months later, Ron unveiled his vision for the “new” jcp at a flashy NY event for retail industry analysts and journalists. jcp would be turned into a collection of a hundred shops, featuring great quality brands. And, instead of artificially inflating prices at the start just to have a big sale later, jcp would offer honest low prices every day. Again, the stock price jumped. People who lived and breathed the retail industry loved what they saw — even as they heard Ron estimate that it would take 2-3 years to complete the company’s transformation. Re-making 1,100 stores is a mammoth undertaking.
So what went wrong? Well, that’s where all the expert opinions come in. Many of which I believe are overly simplistic or just plain wrong.
Here are The 5 Big Mistakes That Led to Ron Johnson’s Ouster at JCPenney as described by Brad Tuttle at Time.com. I have seen others link to it as “a good analysis.” I disagree.
[Ron] misread what shoppers want.
Tuttle says that despite the trickery involved, shoppers love sales. Obviously there’s some truth to that. It’s also true that people love great quality at great prices, which is what Ron planned to offer. Given the right mix of products that people love, low prices, gorgeous stores and a great marketing campaign, it’s hard to say the plan was doomed to failure. Remember again, most industry experts thought it was a winning plan when it was first unveiled. Since Ron’s vision was never realized, it’s sheer speculation that people wouldn’t have loved the new jcp. But there’s a more important reason to dismiss Tuttle’s reason #1. Even with the neverending sales and barrage of coupons offered by jcp before Ron arrived at the scene, jcp’s numbers were dwindling. Catering only to the mindset of the traditional jcp shopper was not an option. Something had to change.
He didn’t test ideas in advance.
Okay, I’ll give Tuttle partial credit for this one. Obviously, knowledge is a good thing. But let’s not forget the support Ron had for his pricing vision. The man has his expert advisors. Wall Street bought into it. And the renowned brands that Ron was bringing into the store were super-eager to be part of what they saw as a winning plan. “Oh yeah?” you say, “well, they were ALL wrong — that’s why testing is so important!” Well, my answer to that is that Ron and all the experts weren’t wrong. The vision was a great one. What wasn’t so great was the road map to get there. Hang with me for a bit.
He alienated core consumers.
This is actually part of the previous point. No further comment.
He totally misread the JC Penney brand.
This is totally silly. True, jcp has a brand. True, that brand has meaning for its customers. But very few brands remain motionless as time goes on — especially when that brand is sliding toward irrelevance. Tuttle pooh-poohs the idea of creating a collection of cool shops, saying that people don’t want “a fun place to hang out.” The reason jcp was dying is that people were less interested in going there. Despite its sales, it was boring. Ron’s plan to transform jcp into a place people might actually want to go was absolutely right on. No matter where you shop, there’s a little thing called “the shopping experience.” It dictates whether you go back to that store anytime soon. To be blunt, the shopping experience at the old jcp sucked. Ron’s plan to turn jcp into a place you’d want to visit — with cool shops staffed by specialists, free wi-fi, fast checkout, etc. — was very seductive. I believe it would have built a bigger, better and more relevant jcp brand. Ron would have been pleasing the core customers as he attracted a wave of new customers.
Overall, he didn’t seem to like or respect JC Penney.
Could not be further from the truth. jcp has thousands of employees, representing thousands of opinions. Part of the CEO’s job is to get employees to rally behind his vision. There were plenty of people at jcp who were excited about Ron’s path to the future, and there were those who were “old school” and resistant to change. No doubt one can dig up plenty of quotes from those who might question Ron’s love of jcp. Unless you hear it coming from Ron himself, it’s all hearsay.
What I heard directly from Ron was a deep, unwavering love of jcp — the brand and its people. He studied the writings of the founder, James Cash Penney, and often quoted him. And here’s a little shocker for you: good old James Cash hated sales and gimmicks. He didn’t believe in “marking up prices just so we can mark them down.” He believed in total respect for the customer — and that’s what Ron played back at every opportunity. Ron did not have a “distaste for the company” — he had a profound sadness that the brand had fallen to such low levels. His greatest goal was to restore jcp to its former status as “America’s favorite store.” Tuttle also notes that Ron had a “disdain” for the customer base, which again is absolutely 100% untrue. The creative team heard one thing from Ron consistently from our very first meeting, that our mission was to “put a bear hug around Middle America.” That’s the jcp customer. With his every idea, Ron was trying to win the love of his customers. He wanted to make their money go further, give them great merchandise and have them enjoy the shopping experience.
So — if Ron was so right about everything, why did it end so spectacularly bad?
In my opinion, there is one very simple reason. I don’t mean to minimize it, because it’s a horrific miscalculation, and I can understand why Ron would be dismissed because of it:
Ron failed because he changed the prices long before he could visibly change the stores.
He did a basic cleanup of the selling environment (eliminated junk and switched to whole-number pricing). Then, before he could widen the appeal of jcp, he took away the one thing traditional customers were hanging onto: sales and coupons.
As noted earlier, jcp sales had been sloping downhill for quite some time before Ron arrived. However, the patient was not yet in critical condition. What Ron should have done is keep the existing pricing policy in place while he more quietly built the “new jcp” in the background. He could have been bringing in exciting new brands and renovating stores more progressively, without forcing customers to go cold turkey on sales and coupons.
He ripped out the old before the customers could really see the new.
That, very simply, is why Ron’s plan didn’t work. There may be other contributing factors, but they weren’t store-killers on this level.
So what’s jcp’s future now? Personally, I’m extremely curious to learn what will happen to (a) Ron’s vision for the physical appearance of the stores, (b) his vision for the shopping experience, and (c) the relationships Ron had nurtured with some great brands (Michael Graves, Jonathan Adler, Terence Conran, Martha Stewart, etc.).
I hope jcp has the ability to right the ship. However, the company’s latest actions don’t exactly inspire confidence.
Ron was hired because the policies of the previous CEO weren’t working. He has now been replaced by that very same CEO. When it was announced that Ron was out, jcp stock rose 10% in after-hours trading. When it was revealed that Ullman was taking the job, the stock dropped 6%. It appears to be a “who is less bad” situation, rather than “who would be great.”
According to this article, Board member Ackman said last May that under Ullman, jcp was “chronically mismanaged.” This week he said Ullman is “the right guy at the right time.” Spin is a wonderful thing, isn’t it?
And what becomes of Ron? If I were him, I’d take a nice long vacation and look at the world of possibilities. Ron is one of the nicest, most inspiring people I’ve worked with. He loves retail, and he loves delighting his customers.
Hard to imagine he won’t be doing that again.