April 08, 2013

JCP

Yup, you heard the news ... Ron Johnson out at JCP (click here for details).

First of all, there are way too many people out there cheering this news.  Have you ever been fired?  How did it feel?  You pour your heart and soul into a job.  More than a hundred million dollar golden parachute may soften the blow, but it doesn't soften the impact on the ego.  Try pouring your heart and soul into a new strategy, try changing the minds of tens of thousands of employees sometime ... seriously, give it a try.  It's terribly hard work, and when it fails, it eats at you.

Second, there are way too many people out there who, based on tweets, blog posts, and articles, appear to believe they know how to fix JCP.  Good!  Why not dive into retail and prove if your hypothesis has merit?  It is way, way too easy to stand outside of an industry and point at it and beat it up publicly in an effort to generate page views that you directly benefit from.  It is terribly hard to fix real world problems.

Third, JCP wasn't exactly thriving prior to this dramatic change in strategy.  Have you looked at the five year sales trajectory?
  • 2012 = $13.0 Billion.
  • 2011 = $17.3 Billion.
  • 2010 = $17.8 Billion.
  • 2009 = $17.6 Billion.
  • 2008 = $18.5 Billion.
Here is the comp store sales trajectory:
  • 2012 = -25%.
  • 2011 = -3%.
  • 2010 = +1%.
  • 2009 = -5%.
  • 2008 = -7%.
In other words, if you go back to what "worked" previously, you're back to a compound average -3.5% comp store sales decline.  Is that the success you crave, now that the CEO you didn't like got fired?

And look at Operating Income(Loss):
  • 2012 = -$1.3 Billion.
  • 2011 = -$0.2 Billion.
  • 2010 = $0.8 Billion.
  • 2009 = $0.7 Billion.
  • 2008 = $1.1 Billion.
Not exactly a resounding four year trend prior to 2012, correct?

This was a business that was dying prior to the major changes we've all heard about.  So if you are an expert, you now have two problems to fix ... the old one, and the new one.

Fourth, many of you suggest that JCP should have "tested" their way into this strategy.  Not a bad idea.  But that's not how the real world works.  Let's say they did test ... rolled out a new strategy in all stores in California, for instance.  What do you do when the rest of the store profile is dying a slow 4% death?  Try having patience when others scream at you at 110db, spittle flying everywhere.  Human nature has little tolerance for the slow, incremental progress of testing.  Retail is very different than e-commerce, folks, regardless what the omnichannel experts suggest.

Fifth, and this is the thing nobody has an answer for ...  discounts and promotions are taxes placed upon brands for being unremarkable.  This means that JCP generated between $4 Billion and $5 Billion per year of business that was discount/promotionally driven ... one out of four items was not sold because of a love of merchandise, but because of a perceived bargain.  How does a company fix that problem while maintaining sales levels?

What we've learned in the past year is that when we train a customer to purchase via discounts and promotions, we train that customer not to shop when we abandon that strategy.  I see it all the time in my projects, now you got to see it in a real-life laboratory.

This is so important, folks.  I keep getting questions ... "What is the right promotional strategy to tickle the buying bone of the customer?  Is it free shipping?  Is it 20% off plus free shipping? Is it 40% off?  Is it a gift with purchase?"  These are valid questions.  An equally valid question is this ... what is your exit strategy when you decide that you can no longer afford to tease customers with discounts and promotions?

We've destroyed retail (stores + e-commerce + catalogs, the whole thing).  We turned it into a game where chasing a promotional strategy is more important than identifying outstanding merchandise.  The latter is terribly hard.  The prior is, unfortunately, too easy, and impacts every employee outside the marketing department.

So, here we are.  We know that what JCP was doing prior to 2012 wasn't working well.  We know that what was done over the past year-plus really didn't work - it couldn't possibly work given that the entire customer file craved discounts/promos like a drug addict craves drugs!  You have to build a customer file of full-price customers, and that is VERY hard work.  So hard, in fact, that almost nobody does it anymore.

Given where we are, it's time for you to put on your strategy hat.  In the comments section, please offer your thoughts.  I will stay away and not offer my thoughts - this is your forum:
  1. How do you get this business back to where it was - describe your strategy, and the benefits of your strategy?
  2. Once you get the business back to where it was, how do you fix the original problems that caused the business to veer in the direction it took in the past year?
  3. Show cases studies or links that defend your proposed strategy.
Thanks,
Kevin

4 comments:

  1. This is a great post - beautifully summed up by:

    "So if you are an expert, you now have two problems to fix ... the old one, and the new one."

    I too worry about the power of promotional prices - I can drive huge volumes with these but it is going to be much harder to build more business on the back of a solid straightforward proposition.

    I don;t know anything about JCP so I won't presume to dream up a winning strategy.

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  2. Eloquently put, Kevin! No surprise that this has been the the most thought-provoking assessment of Johnson's ouster and JCP's situation I've seen!

    I definitely don't have "the answer." If anything, I was skeptical that "the answer," as Johnson's strategy was articulated by the media when he rolled it out, was going to be a fix. That wasn't because I could say I had a better idea -- it's just that my sense was that JCP was struggling, some of that struggle was based on pressures largely beyond their ability to control (changing consumer behavior; the emergence of competitors with a totally different business model).

    My assumption was that there was a lot of nuance behind the scenes, that the simplified communication of the strategy was intentional...and that Johnson probably wasn't going to get the multiple years *anyone* would need to truly effect a turnaround (through a strategy -- and a near-flawless execution of that strategy -- that was well beyond my ability to comprehend).

    I wonder if, like many large companies, JCP needs to figure out what it is that can make them relevant. Where, really, can they offer real *value* to the consumer. I keep thinking of "Profit from the Core" -- which starts with really figuring out what their "core" is, and ensuring that that core is relevant. But, they're saddled with a legacy consumer base that they weren't able to make profitable, a failed shift to a new target consumer, a mall-based in-store channel...and a market now confused about who they "are." Ouch. I have no idea what that is (and, if I thought I did, it almost certainly wouldn't be right -- it's going to require very knowledgeable people putting a lot of thought and research into it to figure it out!).

    It seems like "CEO of JCP" is the next "CEO of Yahoo!" -- a thankless job (but, as you noted, with a downside that tends to include a hefty payout).

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  3. 'discounts and promotions are taxes placed upon brands for being unremarkable' - love it!

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  4. Great post, Kevin.

    I'm new to retail, so I can't show my work on multi-billion dollar company turnarounds, but I can share a little of an eye-opening book I was required to read as part of my onboarding to my new company. The book is called Winning at Retail (http://www.amazon.com/Winning-At-Retail-Developing-Sustained/dp/047147357X).

    It may oversimplify, but it stresses that retailers need focus on being one of the following: cheapest, easiest, quickest, hottest, or biggest. If you try to be all of them, you end up mediocre. That's what has happened to many retailers, especially department stores in an age of behemoth discounters like Wal-Mart, Target and CostCo who are very focused on having an "Est" position. And the other catch is once a retailer realizes they aren't in one of these positions, it's way too late (sound familiar?).

    It's a very eye-opening book (if only Ron Johnson had read it :p).

    Applying Johnson's "fair deal" strategy to the ideals presented in the book doesn't put JCP in a better position than when he started. They still sell the same merchandise (not Hottest or cheapest). They are locked into their stores being at malls (not easiest or quickest) and are definitely not the biggest.

    Whoever takes over JCP takes on a unenviable task of making them relevant again. For that to happen, it will take something even more dramatic that will position them as the best in something. I just don't see it happening.

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