JC Penney's Johnson Forgot the First Rule of Retail
Ron Johnson, fired as chief executive officer of J.C. Penney this week, failed not because his vision was necessarily wrong, but because in executing it he forgot the first rule of retailing: To sell people things, you first have to get them into the store.
The frequent sales and coupons Penney's used before Johnson arrived are just one possible way to do that.
Wal-Mart, after all, built its business by offering branded merchandise at everyday low prices. Although it runs sales, it doesn't depend on them. Instead, Wal-Mart consistently offers low prices on consumer packaged goods that require frequent replenishment. Customers come in for toothpaste, Tide and toilet paper and walk out with T-shirts, candy and discounted DVDs as well. The impulse items make the company hyper-productive, but the staples drive traffic. And for all the headlines Target attracts with its designer collaborations, that chain, where Johnson first made his mark, pulls in regular customers much the same way.
Penney's, however, doesn't sell consumables. It's strongest in home goods - -linens, pillows, window treatments -- that often last for years. So Johnson's strategy of simplifying pricing and cutting back on sales required offering customers some other reason to come into the store. The usual alternative is fresh new merchandise. By quickly turning over their inventories, fast-fashion retailers like Zara or Forever 21 and discounters like TJX's Marshalls and T.J. Maxx give customers a reason to check in frequently.
Penney's under Johnson got rid of its sales before it introduced new merchandise or changed its store layouts to include enjoyable places to linger -- another potential draw. What might have worked as a long-term strategy flopped because of the way it was executed: Penney's eliminated the old reason to come in without providing a new one.
For all the operational incompetence this mistake suggests, it does offer hope for Penney's future. Plummeting sales don't necessarily imply an alienated customer base. If someone who used to make two trips a month still faithfully visits a store, but only once a month, that change alone can account for a big drop in sales.
"My belief is that they were losing trips, that their customers didn't say, 'Oh, I hate Penney's.' They just didn't have a reason to go to the store," says Edward Fox, a marketing professor at the Cox School of Business at Southern Methodist University and director of its J. C. Penney Center for Retail Excellence. (The center is endowed by the company but operates independently.) "They retained their Penney's card -- they still use their Penney's card -- but the treasure hunt was gone."
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