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, Tex.
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. He also teased attendees with a
brief discussion of a new JC Penney prototype that will be "heavily
informed" by his corporate alma mater that will launch in 2014.
Consumer reaction will commence Feb. 1, when the changes will
begin popping up in stores. But Wall Street has already signaled
its approval of the plan, spurring a 17% rise in the retailer's
stock and helping it hit a new 52-week high.
Still, many expressed caution.
"We believe the JC Penney team has put together a unique and
powerful strategy that could alter the industry long-term," said
Charles Grom, an analyst with Deutsche Bank. "However, management's
confidence in the near-term success of the transformation" was
surprising, Mr. Grom said. He noted few immediate changes to actual
brands and products, and added that the new pricing strategy might
not appeal to some core customers.
JC Penney's creative and marketing teams have largely remained
intact throughout the process, according to Mr. Clark. But the same
can't be said for its agency partners. The retailer ended its
relationship with Saatchi &
Saatchi in December and added Peterson Milla Hooks and Mother
to its roster. It continues to work with OMD and 360i .
"We shifted our philosophy from an agency-of -record model to a
model [where we'll] work with a collection of the most talented
people we possibly can," Mr. Clark said. An agency summit that the
company held several weeks ago hosted 80 people representing more
than 30 agencies, he added.
Beginning Feb. 1, JC Penney will embrace "fair and square"
pricing: -- everyday low prices, month-long specials and
twice-monthly sales -- and flat pricing that eliminates 50- or
99-cent add-ons. The transparent model was inspired by the fact
that only one in 500 JC Penney items sells at full price, while 72%
of revenue comes from products sold at half off or more. Polarizing
ads from Mother act as a teaser for the approach and feature the
tagline, "Enough. Is. Enough."
"The customer knows the right price," Mr. Johnson said. "We can
raise the price all we want. She's only going to pay the right
price. She's an expert."
The revised model also lets JC Penney eliminate complicated
promotional schemes. It is moving to 12 promotional events -- also
known as "months," Mr. Johnson quipped -- this year from 590 in
Instead of spending $2 million per promotion, Mr. Johnson said,
the company will spend $80 million monthly on promoting products.
It expects to save $300 million on advertising over the next four
"We've now gone to a much more brand-oriented message," said Mr.
Clark. "Every month the message resonates with what's happening
that month; then, secondarily, there are educational or informative
messages about the new JC Penney."
Working with PMH, the retailer created a personality -- inspired
by classic Saturday Evening Post images -- and color palette for
each month that will be carried throughout marketing, in-store
displays and even external lighting. "Anthemic work" will frame the
month's big consumer events, such as Valentine's Day or July 4th.
Images from those spots will carry through to a 96-page
perfect-bound book mailed monthly, and featuring products and
The new marketing plan was well-received, but even that approval
could have pitfalls.
"No matter how successful the new book and other forms of
advertising are, we do think there will be pushback in the current
über-promotional environment as consumers adjust," said
Michael Exstein, an analyst with Credit Suisse. In addition, he
said "since improved marketing is a much quicker fix than the
actual in-store experience, we think the company is at risk of
overpromising the in-store experience, at least initially, with the
new … advertising."
Competitors will be watching closely, but don't expect rivals
such as Macy's or Kohl's to follow with dramatic changes
anytime soon. JC Penney's reinvention will be time-consuming,
costly and risky, and it's dealing with "very promotional peers
whose cadence is not likely to change," Mr. Exstein said.
For example, several years ago Macy's sought to eliminate a
fraction of its ubiquitous promotions. After consumer backlash, it
returned to its tried-and-true schemes.