J.C. Penny started off selling work clothes and shoes to mining families in Wyoming. The basis of the how the company conducts business was actually its initial name as James Cash Penney, named the company the Golden Rule, showing that they want to provide the customer a buying experience that a J.C Penney employee would want to receive as a consumer.?? (JCP.net) J.C. Penny grew from a small town store to multiple stores in the region by providing consistently high quality apparel that the whole family could depend on which attracted loyal customers. After expanding their stores throughout its existence, corporate headquarters has moved to Utah, to New York City, closer to the suppliers and consumers to decrease costs, then the latest moved to Texas because of the current lower cost of business compared to NYC.
As Ron Johnson talks about a trouble company in JCPenny’s, he seems to be the most excited and in his element, seeing the opportunity for JCP to flourish (possibly add to this). He compares JCP to Apple when first joining the company, with the same market share, but with JCP having higher market cap, revenue, profit, and six times more customers, showing JCP is not as bad as what Apple was. Johnson started off in clothing retail, because he wanted to have a job he loved to do and that has shown to provide very positive results looking at the success of the last two companies he has left, with the businesses running very successfully. The new CEO explains that J.C. Penny’s image has been tarnished from the idea of offering quality products at very competitive prices to the new perception of another discount store focused almost solely on providing the lowest price. To combat this issue along with the non-appealing store layouts and constant confusing sales and discounts, Ron Johnson has decided rejuvenate the company through mass overhauls of pricing, promotion, and personality. Although this strategy of low-cost focus is now becoming the norm in the department store industry, Johnson is not ok with this and become another forgotten department store. Johnson’s main mission for J.C. Penney that captures the overall idea of all the changes to the company is “Not to be the biggest or the flashiest department store, but to be everyone’s favorite store (Launch video). A major part of Johnson’s speech during his explanation of J.C. Penney’s new strategy, was that the company was not making any money by marking up retail 43% higher, from $28 to $40, than they did a decade ago in 2012 because the average retail price had only increased 1% from 15.80 to 15.95. He says that the customer knows the price that the product should sell at and will not purchase it until it is at that threshold. This decreases the amount of people that will enter the store on a daily basis because a customer knows it will be decreased greatly at a sale so it is worth it not to go to the store until then. Johnson says by having an everyday low price that is close to the average price paid for the item, customers will be more willing to go into the store at non sales times and not be afraid of overpaying. The strategy now for pricing is to be simple to remember and easy to understand. Johnson explained that there will not be daily emails about deals, no coupons, or the constant bombardment of discounts for select customers because that dilutes the brands J.C Penney carries along with confusing the customer about the best time to buy the item to have the best deal. Johnson says the “Fair and Square” pricing model has only three different values, everyday pricing with great deals, month long values with even lower prices and the best price which is inventory that needs to be moved off the shelf soon for the new line. By having these three price points along with also having lower average prices gives consumer confidence that they can come in at any time with no sales papers or coupons and get a good price on quality name brand clothing. The next major problem Ron Johnson wants to fix would be the layout of the store and the displays for clothing. As he first joined J.C Penny, one tour of a store made him realize that all of the racks had not been changed in 30 years and that wherever the customer went there would almost always be a discount sign displayed(quote maybe). The current displays were also using too much retail space along with limiting the amount of merchandise that could be displayed and attract other customers to that area. The quality of the brands that J.C. Penny has developed through the years is now being hidden with constant sales and unappealing presentations. To combat this problem Ron Johnson wants to use fewer fixtures for hanging clothes and put up more walls to display clothing which greatly uses less space and allows more room for merchandise. Putting up these walls allows for specific brand personality and appearance. Sectioning off a particular part of the store just for one brand gives the customer the sense that they are in a specialty store for that brand, increasing the image and less focus on the price. The final focus of the presentation dealt with how J.C Penny’s personality was going to change and be redefined. The biggest change that Ron Johnson announced was the redesign of the J.C. Penny logo. The design is now JCP inside a blue box that is framed with a larger red box. The marketing CEO says that the company does not want the outer red square to be thought of by consumers as a box but as a frame that captures all the beauty of the brand. From this new logo, the company wants to create the image of honest, simple, relevant, and inspirational(site video). With the third changing of the JCP logo in three years, the inconsistency allows customers not to be able to relate to the company as easily compared to McDonald’s that has had the golden arch for a while(http://www.businessinsider.com/jc-penney-adopts-new-logoits-3rd-in-as-many-years-2012-1?op=1). With the completely new design the company now gives not just loyal customers but customers of other retail stores a distinct logo that can be remembered and stand compared to other logos. Another part of the personality that has been overhauled is creating a theme for each month and portraying that through different channels to the customer. For each month of the year, there will be a different color portraying a specific theme. This theme color will be displayed on the outside of the building along with displays in specific areas of the store. The color theme is also used in the store catalogues to let customers understand what specific merchandise JCP will have in stock. By printing a new catalogue each month for the specific themes, J.C. Penney can emphasize merchandise that will be ideal to buy right now and what the customer can expect for the even for next week. A major change in the catalogue to show more emphasis on the quality of the products J.C. Penny carries is by having maybe one outfit per page but the whole picture is devoted to making that merchandise look desirable and increase sales through this channel. By having a consistent theme that customers can understand and that draws attention to featured products for that week or month, JCP can create keep continuous interest in the store throughout the year. The final part of the presentation also dealing with the personality aspect of J.C. Penney was the introduction of two women to join the JCP team. Ellen DeGeneres, as the new spokesperson and Martha Stewart bringing her product lines to the J.C. Penney store show a profound move to bring more media awareness to the company but also to add a brand name that is known worldwide and is synonymous with home-making and cooking.
Summary of video? Andrew Sorkin of New York Times has little faith in the business strategy of J.C. Penny with the amount of sales posted in the last quarter of 2012. With sales falling 26.1% and a loss of $123 million, this concluded the company’s poor year performance with an almost 50% drop in stock for 2012. As Ron Johnson has compared J.C. Penny numerous times to Apple, Andrew says these two companies are a little too different to say that JCP can rebound because Apple had similar financial problems at one time(NYT A does of realism for the Chief of JCP). JCP does not have innovative products that they can price at large profit margins, they operate in apparel retail which not very innovative and low on profit margins. The most troublesome problem found by Andrew is that there is still 90% of shopping space that still has to be renovated which will cost around $1 billion, which at the estimated sales declines recently, the company could run out of money (NYT). As Jason Caine analyzes J.C. Penny and their new strategy, they agree the new image has attracted customers, but he is not sure this will lead to higher market share or profits. The main concern he see in the company is that with the defined days of the month for a sale, he thinks that there will be less people coming to J.C. Penney, especially on weekends, when the three major competitors of Kohls, Macys, and Sears are always having sales (The New JCPenny- How Things are going so far). The overall growth of department stores is predicted to grow according to IBIS World. Over the next five years, revenue for the industry is supposed to grow by 1% to $207.9 billion and profit margins will increase 6.2% (IBIS World 2013). Unfortunately, margin could be higher but the convenient online shopping has lowered the level of potential profit and online retailers will have increased consumers from the advances in technology to make the experience even easier. Another major statistic that shows problems for the department store is that the industry value added, measuring the department stores industry’s contribution to the overall economy, is set to decline at an annualized rate of approximately 0.2% (IBIS World 2013).
As I approached J.C. Penny store, I first noticed the new logo had not been replaced yet and no mood lighting had been installed for the theme of the year as stated by Ron Johnson in his new launch presentation speech. Although once I walked in, I saw major improvements to the design of the store. A majority of the sections of the store, especially near the center, had prominent and easily identifiable brand sections. With the increased lighting for these sections along with no sales signs, I found myself attracted more to the look of the brand offering than my normal strategy at JCP of finding the best deal. Donna Johnson, a cashier at the J.C. Penny in Colonial Heights, is proud of the new strategy and especially the way the company has renovated the new stores. She says that customers almost every couple of days comment to her or a fellow cashier about how much more appealing the stores seems and Donna herself says, “I feel proud to be a part of this renovation because it shows the company is determined to improve” (Donna Johnson). She liked this new approach to design of the store because it reminded her of when she was a child and the beautiful displays at all department stores and thinks this will increase customer loyalty. Although Donna is a fan of the simpler pricing strategy, she does not think that has worked out as well as planned. She says, “There might be a slight increase in people on the 1st and 3rd Fridays but not much difference from the normal crowd and the new monthly events happen at the same time as most of our previous sales or discount periods”(Donna Johnson). Whether this new business model works or not for J.C. Penny’s as a whole, from Donna’s standpoint at their JCP, the management is very intent on creating the best possible atmosphere and wants a great amount of feedback from sales associates and customers. From my standpoint after this interview it shows that J.C. Penny employees are adamant about changing the perception of their store and believe in the promotion and presentation part of the new strategy.
My conclusion is that J.C. Penney’s long-term success of the strategy may be too expensive to see any real benefit or profit. The differentiation of the store design by having specific name brands in their own display section will benefit J.C. Penney’s by increasing customer attention to these beautifully displayed items that are not on sale and are bought more for quality instead of price, increasing average profit margin. Also beneficial to the store with the new layout is that J.C. Penney has doubled the money they make per square foot to $269 (NYT)
I do not agree with the main focus being on in store sales but on how JC Penny should advance their online stores. With the online retail giant Amazon constantly growing and Wal-Mart investing much more into their on-line stores, customers are going to have a hard time competing with cheaper shipping costs and rising gas prices, along with increased identity security and newer computer programs that makes shopping simple.