Ron Johnson was brought in as JCPenney’s new CEO last year largely due to his experiences with two of the most phenomenal success stories in retail in recent history: Target and Apple Store. What does it mean that Johnson’s handpicked righthand man at JCPenney, former Target executive Michael Francis, abruptly left the company after barely nine months on the job?
On Monday, JCPenney issued a brief statement announcing that Francis, the retailer’s president, in charge of marketing, merchandising, and product development, was no longer part of the company’s so-called “dream team.” The news came amid a turbulent period for JCPenney, in which a major overhaul of its pricing system has resulted in months of subpar sales, as well as widespread confusion among customers.
While JCPenney provided little explanation for Francis’s departure, analysts offered plenty of commentary. Charles Grom, of Deutsche Bank, describes the departure of Francis as “a catastrophic blow” for the retailer. Shares of the company’s stock tanked on Tuesday, dropping below $22—after selling for over $40 in February.
Brian Sozzi, an analyst for NBG Productions, told the Associated Press that Francis may be something of a scapegoat, a fall guy for JCPenney’s ongoing failures with customers:
“Since Ron Johnson was unlikely to fire himself due to early turnaround missteps, he appears to have decided to swing the axe over the head of the person he hand-picked as president,” Sozzi said.
Even before the departure of Francis, analysts were hammering JCPenney. Last week, Morgan Stanley’s Michelle Clark wrote that, for the most part, shoppers think that the JCPenney of old actually offered better value than the “fair and square” model introduced a few months ago. Of the consumers who have been inside a JCPenney since February, when the pricing makeover was introduced, “more cited higher prices (rather than lower) at the dept. store,” wrote Clark. “In fact, only 16% of shoppers associated ‘Best Prices’ w/ JCP and cited prices as being lower. Furthermore, customers cited bargains as harder to find and fewer aisles w/ deals.”
JCPenney’s has been arguing that this perception is just plain wrong. In April, the retailer began an ad campaign called “Do the Math,” which was intended to show that its current system offered prices that are cheaper—and obviously, less of a hassle—than combining a sale with a coupon. Ron Johnson has said that the company’s brochures and ads have been “kind of confusing” for customers, especially the retailer’s use of the term “month-long value.” That’s the phrase that’s been employed for goods that are specially discounted for the month. Most retailers would just say that such goods are simply “on sale.” But JCPenney wanted to stay away from the use of the “S” word, and it paid the price in the form of not only confusing shoppers, but pushing them away because of the dearth of sales and discounts. In early June, though, after months of dismal sales, JCPenney relented and reintroduced the word “sale” in ads. JCPenney has also recently added a few more special “Best Price Friday” promotions—the name it uses when some items are placed on clearance—as well
If shoppers are confused, then there are clearly problems with marketing and advertising. These were Francis’s departments, so it’s understandable he had to go.
But what if the problem is bigger? JCPenney’s plan is a bold one—a reinvention of traditional retail, really. It asks a lot of shoppers. Johnson has said that consumers are “insulted” by pricing strategies involving high MSRPs, coupons, and non-stop sales, but he may be overestimating shoppers, or at least JCPenney shoppers. Maybe the retailer’s core shoppers don’t want “fair and square” prices after all.
No matter how clear or muddled the marketing message, JCPenney’s message seems to be one that some shoppers don’t want to hear. They like playing games and hunting for deals, and the markdown from the original price is how they keep score. By eliminating coupons and most “sales,” JCPenney has been saying it doesn’t want to play games anymore. That sounds wonderful, but among certain shoppers, it’s the equivalent of grabbing the ball and taking it home. No more games, no more fun—and not much reason to visit JCPenney on a regular basis anymore. If, for the most part, a store’s prices are going to remain the same tomorrow, and next week, and the month after that, there’s not much incentive to browse the aisles for special deals today.
Not all observers are giving up on Ron Johnson and the dramatic makeover of JCPenney, however. Liz Dunn, of the Macquarie Groupon, is on record as saying JCPenney’s pricing strategy is “risky,” but her recent assessment was that, even with poor in-store sales numbers, the retailer’s changes have been working:
JCP is attempting a full scale overhaul with in our opinion a great team, dramatically improved product, new messaging and a new store environment. They are doing it all at once because that is the way to accomplish change most quickly. They are taking two steps back on sales in 2012 to take a leap forward in future years.
The comments above were issued in early June, when Francis was one of the core members of the “great team.” If Johnson and JCPenney do manage to turn things around and the retailer’s sales take off in the years ahead, and if one day people regard JCPenney with awe the way they do the Apple Store, it’ll be a truly amazing makeover. Shocking, really. The idea of reinventing old-fashioned retailer pricing is a big challenge, and JCPenney is taking on this challenge with merchandise and store designs and infrastructure that are largely deemed old-fashioned as well.