The J.C. Penney Closeout

J.C. Penney has ousted CEO Ron Johnson and reinstated his predecessor, Myron “Mike” Ullman. “Disaster” and “debacle” are keywords tied to the retailer’s name (more about public relations in a moment.) J.C. Penney’s precipitous sales decline offers insight into several major components of marketing.

Sales Promotion: Much has been made of Ron Johnson terminating JCP’s coupons and sales, only to backtrack after customer and investor complaints and falling revenue. Such marketing tactics come under the category of “sales promotion,” short-term inducements to prompt immediate purchasing decisions. Lowering prices is a classic and prevalent form of sales promotion. Noted marketing consultant and author Laura Ries likens it to drug use, citing addictiveness and peer pressure inherent in the practice–customers getting hooked and needing more to be satisfied, marketers all discounting because “everyone else is doing it.”

Ron Johnson obviously held a similar philosophy, believing as Ries does that coupons undermine branding, causing customers to focus more on the discount than the brand and instilling the belief that the regular prices are too high. Like it or not, JCP’s customer base expects professed deals, evidenced by their abandonment of the chain when Johnson turned off the sales promotion spigot. There was nothing to fill the void, neither new types of customers nor new motivations for old customers to return.

Public Relations: During the Johnson era, JCP was often in the news but rarely in a good way. Johnson was a superstar executive lured from the Apple Stores, which have been long heralded as the epitome of retail with the industry’s highest sales per square foot. In his previous stint at Target, Johnson introduced products by designer Michael Graves, cementing that chain’s “cheap chic” positioning.

The bad PR mounted as sales plummeted, a natural consequence of Johnson and JCP both being so prominent. The causality of ceasing the chain’s traditional sales promotion was a recurring media theme. Reports of mass layoffs signaled desperation and callousness. The New York Post–never known to shy from controversy–ran an exclusive on Johnson and his executive team spending lavishly on offices, travel and perks.

JCP’s media missteps crystallized in its court fight with Macy’s over Martha Stewart. Macy’s claimed exclusivity on Stewart’s wares per agreement. Stewart and JCP countered that Macy’s contract allowed Stewart to sell branded goods in standalone stores, and that JCP’s stores-within-a-store concept met the definition. To the casual observer, JCP’s argument was shaky as was Stewart’s rationale that $300 million in annual sales at Macy’s was disappointing, prompting her to seek the additional deal with J.C. Penney. In the latest development, the judge has ruled that JCP can sell products that are designed by Stewart but do not carry her name. (I can see the salesperson now: “Psst, don’t tell anyone but Martha Stewart created this spatula.”)

Research: Good marketing stands on a foundation of research. By his own admission, Johnson failed to build this foundation. He did not test many of the concepts for eliminating sales promotion and creating stores-within-a-store. A large chain like JCP has the luxury of using select stores in key markets as laboratories for new marketing programs before launching them nationwide. Johnson squandered this opportunity. He also paid limited attention to the demographics and psychographics of his existing customer base. Bloomberg BusinessWeek reports that commanding percentages of JCP’s core customers are over 55 and earn less than $35,000 per year, making them more price sensitive and therefore favorably disposed to the company’s sales promotions.

It is not a crime to target new market segments, in the process turning away from less profitable and less sustainable segments. General Motors’ decline was due in no small part to its refusal to build cars that would appeal to younger drivers lest it alienate its older-skewing customers. Nevertheless, when targeting new segments, there must be a transition to ensure revenue. Customers must be replaced in real time, and this is often a gradual process. Netflix failed to research customer reaction and stumbled badly in its abrupt and aborted attempt to phase out its signature DVD-by-mail services in favor of streaming video.

Positioning: Johnson sought to reposition J.C. Penney as he had Target. The “cool but inexpensive” mystique of Target was unlikely yet unquestionably successful. However, Johnson’s achievements at Target and later at the Apple Store hinged on the first “P” of marketing: Product. The exclusive goods of Michael Graves and the designers who followed him to Target have been fun, practical and affordable. The originality and allure of Apple’s creations are legendary. Positioning begins with a strong, viable offering.

Johnson had no such card to play at JCP, despite recruiting Martha Stewart (painfully) and his original muse Michael Graves. “Coming soon” is the frequently seen signage for the celebrity designers’ stores-within-a-store. “Coming never” may be the final post as returning CEO Ullman is suspending the mini-stores.

To understand positioning, refer once again to Laura Ries, who cites the work of her father, Al Ries, co-author of the landmark book, Positioning: The Battle for Your Mind. Despite the unique products at Target and the Apple Stores and the lack thereof at J.C. Penney, positioning is not something done to a product. It is not something decided by a company or its marketing team. Positioning is up to the customer. Marketers must work to establish, maintain, and when necessary change positioning, but it resides firmly in the customer’s mind. In the end, JCP remained “the place you go when they’re having a sale.” When the sales stopped, so did the customers.

About Jason William Karpf

Author, Professor, Nonprofit Pro, Four-Time Jeopardy Champ
This entry was posted in Bad PR Examples, Marketing, Public Relations and tagged , , , , , , , , , , , . Bookmark the permalink.

2 Responses to The J.C. Penney Closeout

  1. Pingback: | Soul and Craft of Reporting

  2. Pingback: Repositioning Three Major Brands |

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