J.C. Penney Company Inc: inception through current operations and key evaluations

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.

Innovation

One of the things that JC Penney needs the most is innovation. The company does not appeal much to younger consumers, has trouble attracting powerful brands despite its own brand strength, and needs to bring new traffic into its stores in order to replace the customers Johnson shed when he eliminated the deep discounting. A major innovation here has to relate to the in-store experience. JC Penney is still a department store. It looks and feels like a department store, and this alone makes it a challenging proposition as far as attracting younger consumers. Johnson struggled with this in his short tenure -- he wanted to refresh the stores but could not do much about the in-store shopping experience JC Penney needs to innovate that experience, perhaps by making the stores a little more fun to be in. A coffee shop in the store is not a new idea, but a concept like that might help to provide a better shopping experience for younger consumers. Penney should also explore ways to tie its online and offline experiences together -- giving customers the ability to scan deals with their phones while in store is a pretty basic idea but it hints at the right direction for modernizing the in-store shopping experience. Create a "selfie corner" for people to take post pics while trying on clothes -- if they get good feedback in a few minutes that might affect purchase decisions. Plus, this recognizes how the new target audience shops. There are a lot of good ideas, but it starts with re-imaging the in-store experience because a fresher JCP does not want to feel like 1977.

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.