By now, most in the business community have heard about the ouster of Ron Johnson as CEO of JC Penney after only 17 months on the job. This was a stunning reversal of fortune for Ron Johnson who was regarded as retail Guru based on his accomplishments in transforming Target to “Cheap Chick” retailer and hugely successful launch of Apple Stores. When he was hired at JC Penney he was viewed as a savior who would rescue JC Penney from the downfall it was experiencing for several years.
However, things have not turned out to be that way. In 17 months JC Penney has been in complete turmoil. Sales in 2012 declined 25% compared to prior year representing a staggering $4.3 Billion in lost sales. In 2012 it recorded loss of $1 Billion. No other company has seen such a precipitous loss of value in this short time. So, what went wrong and what lessons can small business owner learn from this?
- Loyal Customers – Ron Johnson undertook major transformation of JC Penney that changed many things it used to stand for. Customers, especially the loyal ones, were left wondering if this is the same JC Penney that they had come to know for so many years. In trying to transform itself it alienated loyal customers from middle market. This is the biggest lesson for small business owners. You must not neglect your loyal customers in trying to attract different types of customers. After all, the new customer base is not yet proven and if the loyal ones start leaving you do not have any customers to serve. This is the reason why JC Penney’s sales declined by 25% in just one year.
- Copy of Strategy without Modifications – Ron Johnson tried to deploy many of the strategic initiatives that he had successfully used at Apple – No coupons, upscale décor, elegant catalogs and so on. While these initiatives had worked well at Apple he disregarded the differences that exist between selling high-end technology product and clothing. What worked at Apple did not necessarily translate well at JC Penney for this reason. I believe there is value in learning from other industries, however you have to modify it to fit your situation and industry. Blindly following the successful strategy of another industry or company can result in a disaster.
- Too Many Changes at Once – Within a span of one year Ron Johnson undertook number of high-profile changes that significantly impacted customers. Getting rid of coupons, stores within store concept, changes in merchandise and many other changes overwhelm their customers. Big changes are best implemented slowly and with careful testing with limited customer base. This way you will have opportunity to learn what works and modify the course, if required. People are inherently reluctant to change and forcing too many of them in a short period will leave them confused and concerned.
Now, to be fair to Ron Johnson, many of the changes he introduced were needed. Before he was hired as CEO JC Penney was losing customers and market share to its competitors – Macy’s and Kohl’s. Sales had been declining and brand was losing its cache as a result of heavy reliance on coupons. Some of the changes he introduced are brilliant and they will bring value to JC Penney in the coming years. For example, his stores within a store concept is working out well and is likely to be continued under new CEO. The quality of catalog and merchandise has improved. However, it will remain to be seen whether JC Penney can survive and regain the cache it once had with American customers.
Your thoughts?
