Tuesday, May 14, 2013

JC Penney Does Not, Do You?

imageIt is amazing how businesses forget the very basics, like who their customers are. But DEE GILL on Y-Charts makes that case for J.C. Penney and it is rather convincing. In 2010, J.C. Penney fired their longtime CEO Myron Ullman to bring in Ron Johnson, then the head of Apple's retailing operations. Ron Johnson did what had made him successful at Apple: Crisper ads, bright stores, and fresh merchandise. But after a short 17 months on the job J.C. Penney board decided to fire Ron. Reason: Lack of results, retail sales were down by 25 percent and the stock had lost half of its value. What went wrong?

You can definitely count on many more reasons that the company's failure to understand and work with its customers, but that seems to be the biggest with their inability to align their business strategy with their operations being the other real culprit! Johnson clearly wanted to change the customer profile from budget conscious to hip-couture buyers with bigger purses, but did not quite get his methods right. J.C. Penney was no Apple, it did not have die-hard customers ready to spend a few hundreds of dollars every few months just to get the new “experience” Apple might come up with: People do not quite wait in lines for their linen and bed-sheets after all, but that was lost in his drive to modernize. Given time, the strategy may have worked. But the abruptness of it all, pulling out the coupons in one fell swoop, for example from a discount retail chain created a clear mis-alignment of expectations among its customers and the retailer. And as the the long built perceptions of its customers crashed, so did their sales!

Mary Buffett, in her blog on Huffington Post writes, “The challenges that mass market retailers have faced over the last generation have accelerated mightily in this Great Recession. While stores like Wal-Mart were able to anticipate how their core customer would shop through market research and state of the art supply chain management, venerable brands like K-Mart/Sears and JC Penney stumbled. Some analysts predicted that some might even join the retail graveyard alongside Montgomery Ward's, Woolworths, or Mervyns.”

As I see it, this is another case of failing to understand the complexity of retail and the need to align the business strategy with the attendant functional strategies. Clearly, Johnson wanted to change the target customer profile of the company and betted on it being his main business strategy to turn the retailer around. But somewhere, the connection between the professed business strategy and the attendant functional strategies in marketing, merchandising, pricing, and supply chain broke. This may have been simply a communication failure (inability to elaborate the strategy to get the stake-holders’ buy-in) or a lack of credibility (coming from Apple, it may have been harder for people to believe these tactics would work, resulting in people’s resistance to aligning themselves with the strategy), or worse yet a lack of understanding how the business strategy affects a company’s operations.

Retailing has evolved over the years and unfortunately become more complex. It used to be about the merchandise only, but then Wal-Mart came along and the game changed to supply chain operations. Amazon pushed the envelope on the customer  experience (same-day deliveries and over a million products assortment!). The technology enabled the always-on commerce (omni-channel retail) with always-on social channels where continuous, transparent customer feedback determines the fate of brands and retailers. Successful retailing today means tying it all together neatly, in a nice little bundle. And that is what a retail CEO must do to survive, grow, and sustain and it takes more than a single-trick pony to do that. 

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Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon.

© Vivek Sehgal, 2013, All Rights Reserved.

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