Penney CEO—and former Apple retail czar—Ron Johnson thought he could reinvent the department store. Instead he’s destroying it.
JCPenney, the storied if unglamorous retailer, is in trouble. Big trouble. Fourth-quarter earnings results came out on Wednesday and they were terrible. The bad news starts with a quarterly loss of $427 million, but it doesn’t end there. Comparable store sales—meaning stores that were open this past quarter and also open in the same quarter of the previous year—fell by a mind-boggling 32 percent. Henry Blodget says it may have been the worst quarter posted by any retailer ever.
It wasn’t supposed to be this way. JCPenney made a big splash in the retail world by hiring Ron Johnson, mastermind of Apple’s retail operations, as CEO. He immediately set about to reorganize the stores, and imported Apple concepts, most notably a “no discounting” policy geared around convincing customers that the everyday price is a great price. The results seemed to speak for themselves, but I was curious. After all, I’ve never given the “new” JCPenney a try. Perhaps Johnson is a visionary genius who’s reinvented the department store, and the world just isn’t ready for him. Perhaps he’s the victim of bad luck. Perhaps shareholders just need to hold on and have faith.
So I took the Metro to the Maryland suburbs for a visit to the JCPenney in the Wheaton Plaza Mall to see if Johnson really is reviving the legendary chain. There is no evidence that Johnson has remade much of anything. Everything that I always find alienating and unpleasant about the basic department store experience is still there. The store is too big and too disorganized. Products are sometimes clustered by functional category and sometimes by brand, with a confusing mix of house brands and real ones. Right at the door a sign invites you to enjoy free Wi-Fi throughout the store, which really is a change. But why would you want that? There’s no place to sit in the store and no synergy between laptop use and shopping there. Just for kicks, I had my iPhone hop on the Wi-Fi network only to discover that the connection speeds were noticeably slower than Verizon LTE.
Nobody was ever driven into bankruptcy by unreliable Wi-Fi, but that’s the Ron Johnson Era in a nutshell. Instead of building on what the people who like JCPenney liked about JCPenney, he undertook a series of essentially arbitrary changes that alienated some without drawing anyone new in.
His now-infamous effort to wean consumers off their addiction to discounts by banning sales and coupons in favor of “fair and square” everyday pricing is a case in point. No major retailer works this way. Frequent discounting is an effective tool of price discrimination—the thrifty pay less, the careless or rushed pay more—that lets retailers maximize the value of their fixed real estate investments. Not discounting works for Apple because products become obsolete long before they stop working. Thrifty customers simply upgrade less aggressively. JCPenney customers hated the new arrangement, and not surprisingly Johnson started backing down. But now he has the worst of both worlds. For a no-discounting policy to succeed, it has to be credible. But lurking amid the signs touting the fair-and-square policy I saw a “limited time only” 25 percent discount on Stafford work clothes and various items marked “clearance.”
A policy initially designed to imply that competitors were duping their customers has become the reverse. Here was JCPenney explicitly telling you that the list price is the real price and you shouldn’t expect discounts, then down the aisle—discounts!
At best you could say that Johnson, who used to work for Target, has succeeded in making the stores a bit more like Target. He’s brought in Target-style special collections like the Cosabella Amore line of lingerie (oddly placed on the floor with children’s clothes rather than near apparel for grown women) and launched advertisements that seem geared to a cooler, younger, more urban audience than JCPenney’s traditional client base of somewhat square, lower-middle-class moms.
But to what end? There’s already a Target and an H&M in the same mall for those seeking a slightly hipper experience. Meanwhile, value-conscious and practicality-oriented moms have hardly vanished from the planet. If anything, the economic difficulties of the past few years mean there are more of them.
Given the scant number of shoppers, it made some sense for the Wheaton store to have few staff on hand. But low staffing levels plus expansive floor space meant it was impossible to find help. The only salesperson I encountered was in the small prescription glasses section, tucked away behind the kids’ clothes, past the lingerie. I wandered into a fitting room where I found a janitor who was able to direct me to a men’s room. As part of rebranding, signs encouraged me to shop at JCP.com (which just redirects to the old jcpenney.com URL) and then for some reason pick up my item at any register—but it wasn’t clear where any staffed registers might be.
Out the door and across the mall I strolled, popping my head into Macy’s, Penney’s somewhat more upscale rival. It wasn’t a super-busy there, either. But near the door was a series of clearly marked sales racks. The clothing—some for women, some for men, some for children—was being diligently picked over by a series of middle-aged Latina women. The recession, the rise of Amazon, and the onslaught of Wal-Mart haven’t been good for the traditional retail sector. But Macy’s surprised analysts on Tuesday with a 3.9 percent increase in same-store sales. It’s not the coolest company around, they’re not reinventing the retail experience, and there’s no Wi-Fi. But it seems to be working.