J.C. Penney's strategic challenges under Ron Johnson and celebrity marketing

JC Penney

Introduction & Ron Johnson

At this point it is hard to judge if JC Penney is a well-run company because it just got a new CEO but in recent years it definitely has not been well-run. The recently-fired CEO Ron Johnson made a few strategic moves to transition the company's store to the modern era (Heller, 2013). Among the moves made were to upgrade the clothing lines, eliminating the deep discounting and reducing the workforce, as well as technology upgrades (Ibid). The problem was that these moves alienated staff and customers, without bringing in any new ones. JC Penney went from $17.2 billion in income in the 2012 fiscal year to $12.95 in the 2013 fiscal year and it lost money both years (MSN Moneycentral, 2013). The decline in net income for 2013 was actually not as great as the decline in revenue would imply, indicating that must of the lost revenue was indeed from deeply-discounted items, and that the internal cost-cutting was largely successful. Furthermore, eliminating the deep discounting is something that in the long run would have made the company more attractive to new brands, which it needs. Some argue that this strategic move to drop Johnson was done at entirely the wrong time, since all the tough moves had been made but the new brands were not in place, leaving the company starting over with no brand identity (Stone, 2013).

Celebrities

An earlier move that JC Penney made was to embrace celebrities to appeal to a wider customer base. The appeal of celebrities in marketing is to create aspirational branding (Till, 1998). Studies have shown that two approaches are often used, a celebrity for likeability and a celebrity for fit (Fleck, Korchia & Roy, 2012). JC Penney worked with several celebrities who had branded retail lines in order to enhance the appeal of the stores. In some cases, these moves ended badly when the appeal of the celebrity declined -- as happened with Paula Deen -- and in other cases such as with Ellen DeGeneres there was controversy that swirled around the company. Celebrities can be sometimes polarizing figures, which is a consideration the company must account for when it is trying to market to a broad base. In another incident, the company ended up going to court over its deal with Martha Stewart, both companies sued by Macy's for violating an exclusivity agreement (Chen, 2006).

Online

Very few large retailers can survive without an online channel, since that channel has experienced strong and steady growth of late. While Penney still relies on its bricks-and-mortar stores, it has enjoyed some success with its online site, leveraging the power of its brand to attract consumers (Cheng, 2013). This growth is encouraging, but online sales are negligible compared with in-store sales. Furthermore, these gains are not so spectacular that they make up for declines in bricks-and-mortar sales (Oursler, 2013). The company needs to work to build this channel, but it is in absolutely no position to transition to being an online company. If Penney is aiming to do this, it probably should do so with great caution, when sales justify such a move. This is a small intrapreneurial venture, not a massive organizational overhaul at this point. From a management perspective, it would be a near impossible shift given that online sales in no way justify it.

Management Structure

If one of the biggest challenges at JCP is to foster more innovation, it needs to look at how the structure of its organization encourages innovation. Right now, it does not. Crossan and Apaydin (2010) note that innovation is an organization-wide process, rather than a one-time event. Innovation can be fostered at the functional org design level rather than the higher level, by implementing "innovation teams" comprised of the smarter, more energetic employees who work together to develop at test new ideas. This would be cross-functional teams, itself a new approach since floor staff rarely work with office staff at JCP, and they would be given time to work on innovation ideas. It is better to foster innovation at this level than with wholesale redesign of the org structure, because the company needs organizational stability at the higher levels in order to recover from the highly-disruptive Johnson debacle.

Conclusions

JC Penney is at a delicate transitional time in its development, where it is well-positioned with a strong brand, but it needs to start modernizing with online and innovation, and attract new customers. The problem is that it fired its CEO after just a year, leaving a transition unfinished, revenues tanking and the company losing money. Yet, the issues at the top need to be set aside. Its reliance on celebrities for branding has gone nowhere -- it needs fresher brands -- and the company's online presence is too small to consider an organizational shift to that business model. So at this point, JC Penney needs to focus on grassroots tactics to foster innovation, finding leaders from within to develop and champion new ideas at the store level. The company also needs a greater sense of identity, as this was shattered a little bit under Johnson, providing employees and customers alike with no real guidance. The public still values the JC Penney brand, but the company needs stability and to push forward with modernization in a manner that is less disruptive than Johnson's approach.