The Failure of Ron Johnson and JCPenney: Changing a company versus building a company…

It seems like everyone is jumping on the Ron Johnson “failure” bandwagon the last few days.  Being that he was a fellow hometown kid from Minnesota and having earned his retail chops at Target Corp I had followed Johnson’s tenure at JCPenney pretty closely over the last 17 months.  When Johnson and his team launched their “Transformational Plans” for JCP back in January, 2012 I had watched the entire 93 minute presentation.  I thought the presentation was articulate and very well thought through.  Interestingly enough just last month I had overheard my wife commenting to a friend how she had stopped into one of the newly redesigned JCP stores and really liked it.  That was the first time that I had heard her praise JCPenney in at least 10 years.  Her friend had responded that she too had visited the store and really liked it.  Having spent most of the last decade in retail I am always a little leery of the “sample-of-one” but two suggests a possible trend.

Here’s my take on where Ron Johnson and the JCPenney board when wrong:

Failure to bring customers along for the journey: At my former employer, Best Buy, we had spent several years driving our a customer centric strategy that focused on identifying our best customers.  The goals of this initiative were to offer better products and services to our best customers, shed some of our least valuable customers and identify and grow new customer segments.  This work took years to accomplish before it had permeated across the organization.  A key difference beyond the pace with which Johnson was trying to move was the scope of the changes he wanted to make.  Our Customer Centricity initiative was trying to make small strategic improvements wasn’t nearly as radical as “reinventing” our brand or customer experience.  When Johnson was building out Apple’s retail stores he was building from scratch where he had the luxury of time and he didn’t need to change customer perceptions of Apple retail stores because there wasn’t any legacy.  Changing behaviors takes time and the conventional wisdom is in years not months.

Last fall I had attended a Citizen’s League celebration last year where Ron Johnson was presenting.  During his speech Johnson recognized how long it took to change customer behaviors with the Apple Genius Bar.  They knew customers had questions but they weren’t approaching their staff at the Genius Bar.  Finally, after 18 months of trial and error they figured out how to get customers comfortable enough to sit down and ask their questions – the provided free bottles of Evian water.  Once customers saw other customers talking with a Genius they would also become comfortable.  Eventually, customers learned the behavior and Apple no longer needed to offer free water.

The difference is that when Apple was learning how to engage customers with the Genius Bar they only had a few stores.  At the time Apple was conducting rapid prototypes of trial and error.  Their goal was to fail quickly in order to see what worked and what didn’t.  This process is much more expensive and much slower when you have over 1100 stores like JCPenney.  By not bringing JCPenney’s current customers along for the journey, Johnson killed the cash flow that he needed to fund these expensive store transformations and started the clock ticking on how much time we would have from his board in finalizing the transformation and growing new customer segments.

Failure to continually communicate to all stakeholders: Johnson started off his new role by clearly articulating his “Transformational Plan” to customers, employees, and shareholders back in January 2012.  The plan got cascaded to the general public with exciting media stories about how Johnson was going to revolutionize the retail experience in service of the customer.  I have no doubt that Johnson and his team had test marketed the idea of eliminating the gamesmanship of coupons and discounting with a positive response from a broad swath of customers.  That said he must have known that there would have been a backlash from those customers who loved their coupons and steep discounts.  In a somewhat similar vein, my former employer had eliminated mail-in rebates because they were identified as a pain point by our best customers who hated them.  They would always forget to send them in before the expiration date.  With this change there was a conscious effort to communicate to customers and employees several times throughout the implementation.

Where this “champion of the customer” broke down for JCPenney was after the initial launch they focused their marketing message more on the products and less on being the champion of the customer.  As such, they were able to bring in these new customers who appreciated their efforts fast enough to replace the discount loyalists.  Whether this timing factor was part of the original plan or an unintended consequence Johnson and his team failed to adequately tell their story to the financial analysts causing concern over whether this was a temporary lag or a more fundamental concern with the new strategic plan.

Failure of the Board: While I absolutely agree that Johnson had made some mistakes in implementing his strategy and in communicating with his stakeholders I also find significant fault with the JCPenney Board of Directors.  Johnson had been crystal clear in laying out his plan and the time horizon he was anticipating for these changes to be completed.  He told the world that he wanted to get JCP customers off of the discounting drug.  In the proposed strategy there must have been some estimates of how many customers and how much in sales the company would expect to lose from the changes.  So where the estimates too low or did the board lose faith that the customers would eventually come?  Either way, I find it incomprehensible that the board members we surprised by the drop in sales.

There is a lot of speculation about what returning CEO Mike Ullman will do with the company as it is only halfway through the transformation.  Only time will tell.

Here is a small collection of the Ron Johnson / JCPenney stories from the last few days:

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