Spotlight on...JC Penney “fresh air” revamp a bold vision
Few incoming CEOs have put their stamp on their new company as quickly as JC Penney’s Ron Johnson. His former life as head of retail at Apple is evident in the title of the new strategy for the ailing department store business: “In Praise of Fresh Air”.
The allusion to the clean, uncluttered look of Apple’s successful stores may be apt, but repeating the trick in the crowded environment of a department store is no easy task. What is more, all of this fresh air is going to cost money: four years of gradual transformation of the retailer’s entire look, pricing ethos and its means of selling its products.
It’s a huge task, but one which implicitly recognises just how badly JC Penney needs to up its game, following a dismal set of third quarter results and a far from glowing performance through the holiday season.
Rivals such as Macy’s and Kohl’s have been quietly snaffling market share, and even value retailers in the shape of Target are trying to muscle in on Penney’s territory by partnering with high-profile designer names and introducing shop-in-shops.
Johnson has identified two main issues, and they could hardly be bigger: the company’s pricing and promotional strategy, and the shopping experience it offers its customers.
The first of these is an instant fix: starting next week, JC Penney will introduce an everyday low pricing model, accompanied by two types of promotion: “month-long values” and “best prices”, ticketed on the first and third Fridays of each month.
The new, more streamlined model is a response to Johnson’s reported horror on discovering that the retailer staged no fewer than 590 separate promotions in 2011, selling nearly three-quarters of its products at discounts of 50% or more. Margin was being sacrificed and to no good effect – sales were barely growing.
If the new model works, it will simultaneously improve margins and profits, and also cut costs: JC Penney will no longer need to employ vast numbers of staff to constantly re-ticket sale items, and job losses have already been reported to run into the thousands across the company’s 1,100 store network.
Given Johnson’s reported reluctance to close any stores, both of these profit-enhancing factors will be necessary in order to fund the second strand of the turnaround strategy: the transformation of what Johnson calls the “shopping experience”.
Starting in August, this will take the shop-in-shop concept to an extreme level, merchandising the entire store in a series of 80 to 100 brand shops in an initiative dubbed “Main Street”.
These will include new names and partnerships with high-profile designers, such as Nanette Lepore’s new teen girls’ fashion line, L’Amour Nanette Lepore, but also revamped looks for existing brands such as Izod, Liz Claiborne and The Original Arizona Jean Company.
But Johnson is not a fan of celebrity design spin-offs, nor, it seems, of private label products, promising to slash the number of JC Penney lines to focus on a few profitable items.
The core of the store – the bit retailers traditionally fill with all manner of impulse purchase items such as cosmetics and accessories – will be “Town Square”, and will be a haven of entertainment and various attractions, including hot dogs and ice cream in the summer.
This will all take time. Lepore’s new line won’t be in stores for another year, Town Square will go live in 2013 too and it will be the end of 2015 before the entire transformation is complete.
What does it all add up to? Nothing less than, in the words of JC Penney president Michael Francis, “freeing consumers from the barrage of promotions and undifferentiated shopping experiences they have become used to and replacing it with something entirely fresh and new that is evident in every aspect of our store”. The challenge will be getting that message across, particularly when the company’s rivals are attempting their own, less dramatic, version of the same thing.
The instant reaction of the markets was less than inspiring, with the company’s share price drifting down slightly after the news was announced yesterday (25 January).
But it will be the consumer who has the final verdict on Johnson’s fresh – and certainly very bold – vision of JC Penney’s future.
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