What JC Penney Should Have Done -- and Still Can Do -- to Make Reinvention Work
After two tries, the triple-talented Miami Heat finally managed to win an NBA championship. Why didn't super-stars Chris Bosh, Dwyane Wade and LeBron James win in their first year playing together?
It takes time to build a team, it takes time to build a brand, it takes time to get into the minds of consumers.
Then why did we expect Ron Johnson and his team at JC Penney to turn around the brand in their first year of working together?
The law of patience.
It took Red Bull nine years to break $100 million in annual sales.
It took Volkswagen ten years to break 100,000 vehicles in U.S. annual sales. And coincidentally ten years before VW launched its first major marketing campaign starting with the "Think small" ad.
Then there's Apple. Steve Jobs returned to Apple in 1997, a year the company had revenues of $7.1 billion.
In the seven years that followed (from 1998 to 2004), Apple's revenues averaged just $6.5 billion a year. And Apple's net profit margin was just 4.6%.
But those seven years were crucial in preparing the company for the surge to follow. In the next seven years (from 2005 to 2011), Apple literally exploded in sales and profits, averaging $43.7 billion in annual revenues and 19.5% in net profit margin.
The law of press conferences.
Ron Johnson, Penney's new CEO held a press conference in January to outline his new strategy. According to Advertising Age, "The vision -- seismic shifts cutting across all aspects of the company's pricing, promotion, presentation and products -- was unveiled during a presentation in Manhattan last week. Employees learned of the changes via live feeds to stores and JC Penney headquarters in Plano, Texas."
"It's the most sweeping reinvention in the $2.5 trillion retail category in recent memory -- if not in history -- but Mr. Johnson isn't stopping there. Over the course of the next few years, he promises to shake things up further, putting departments back in department store, eventually remolding JC Penney's stores into locations with 100 unique shops."
At that same press conference, Mr. Johnson said: "We want to be the favorite store for everyone, for all Americans, rich and poor, young and old."
Here's the law of press conferences. Don't tell the media what you are going to do. Tell the media what you have already done.
In other words, hold the press conference after you are successful, not before.
The law of the opposite.
There's no one right way to do anything. If everyone rushes to one side of the teeter-totter, it's time to hop on board the other side.
In the wake of Red Bull's success, everybody jumped into the market with their own energy-drink brands, all them packaged in small, 8.3-oz. cans.
Except Monster which was the first major brand launched in 16-oz. cans. Today, Monster is a strong No.2 brand with a 35-percent market share, compared with Red Bull's 43 percent. And Monster Beverage Corp. is worth $12 billion on the stock market, a company that ten years ago was worth just $46 million.
If there's one word to define the department-store industry today it's the word "Sale." A recent Macy's ad was headlined "Weekend Clearance! 40%-70% off."
Plus 65% to 80% off on clearance sportswear, 40% to 75% off on clearance home items and 50% off (plus an extra 20%) off on clearance fine jewelry.
Forget clearance items. Nordstrom even ran a program entitled "Next season on sale now."
JC Penney found a way to be the opposite of its department-store competitors. It wasn't that hard, but it did take courage. Just run a department store with "everyday low prices."
A good idea? I think it's brilliant, but as Mies van der Rohe once said, "God is in the details."
The law of simplicity.
"Fair & square" pricing was the new strategy at JC Penney and right away the warning flags should have come out. Consumers don't want "fair" pricing. Consumers want "bargain" pricing.
Nobody says, "I paid a fair price for this wonderful new product." They say, "I got it on sale."
Some prices at JC Penney are fairer than others. A red tag indicates an "everyday" price. A white tag, a "monthlong value" price. A blue tag, a "best-price Friday" price.
But not every Friday. Only the first and third Fridays of the month. And not just on these two Fridays. "Best-price Friday" lasts as long as the goods do.
What's wrong with this scheme? It violates the law of simplicity. If you want to build a brand, you must keep the premise of the brand as simple as possible.
Penney's is now dropping the month-long specials in favor of just two options: Everyday low prices and clearance sales. A step in the right direction.
"Free shipping. Both ways" built the Zappos brand. But they didn't say, "Only on Fridays." Or only on shoes costing more than $50. Or only for your first return, not for your second.
Monster didn't launch its energy-drink brand in both 8.3 and 16-oz. cans on the basis that some consumers might want a smaller-size drink.
Acura should have been the largest-selling luxury vehicle in the American market except for one thing. Honda, Acura's owner, didn't have the courage of its convictions.
Acura was the first Japanese luxury-vehicle brand, but in addition to expensive six-cylinder models, the company also introduced inexpensive four-cylinder Acura models, in essence re-badged Hondas.
When Toyota introduced Lexus, the company brought in only expensive six and eight-cylinder models. So consumers perceived Lexus to be a luxury brand on the level with Mercedes-Benz and BMW. But what's an Acura? A brand without a strong position.
Last year, Lexus outsold Acura by 61%.
The law of Jujitsu.
JC Penney could have practiced Jujitsu, the Japanese art of manipulating the opponent's force against himself rather than confronting it with one's own force.
What "force" does JC Penney's opponents employ?
The "sale" force. Belk, Dillard's, Kmart, Kohl's, Macy's , Nordstrom, Saks Fifth Avenue and Sears are all promotionally-driven, running sales on a regular basis, the same strategy JC Penney used to employ.
Everyday low prices is an accepted retail pricing strategy used by Walmart and a number of other chains. What JC Penney might have done is to take the concept one step further to EDSP, everyday sale prices.
Mark every item with the MSRP (manufacturer's suggested rip-off price.) Then draw a line through the MSRP and mark it with the JC Penney sale price. But that 's only the first step.
The idea needs to be the focus of a long-term Penney's advertising program with a long-term consistent theme. In the past, I have suggested "Save dollars at Penney's every day of the week."
But almost any conceptual idea would work if it dealt with the real problem. Penney's needs to be perceived as the store with the same prices as the sale prices at Macy's , Kohl's, Sears and its other competitors.
The only difference is that Penney's has those sale prices every day of the week.