Quantcast
Channel: Jim Woods Strategies for Growth » Turnaround
Viewing all articles
Browse latest Browse all 2

Adam Hartung – Two Wrongs Won’t Fix JC Penney – Forbes

0
0

JCPenney’s board replaced the CEO 18 months ago.  Frustrated with weak performance, they replaced him with Ron Johnson.  He was running Apple’s stores, which had the highest profit per square foot of any retail chain in America.  Surely he would bring the Midas touch to JC Penney JCP -4.48%, so they gave him a $50M sign-on bonus and complete latitude to do as he wished.

Things didn’t work out so well.  Sales fell some 25%.  The stock dropped 50%.  So about 2 weeks ago the Board fired Ron Johnson.

The first mistake:  Ron Johnson didn’t try solving the real problem at JC Penney.  He spent lavishly trying to remake the brand.  He modernized the logo, upped the TV ad spend, spruced up stores and implemented a more consistent pricing strategy.  But that all was designed to help JC Penney compete in traditional brick-and-mortar retail. Against traditional companies like Wal-Mart, Kohl’s, Sears, etc.

But that wasn’t (and isn’t) JC Penney’s problem.

The problem in all of traditional retail is the growth of on-line.  In a small margin business with high fixed costs, like brick-and-mortar retail, even a small revenue loss has a big impact on net profit.  For every 5% revenue decline 50-90% of that lost cash comes directly off the bottom line – because costs don’t fall with revenues.  And these days every quarter – every month – more and more customers are buying more and more stuff from Amazon.com AMZN +1.61% and its on-line brethren rather than brick and mortar stores.  It is these lost revenues that are destroying revenues and profits at Sears and JC Penney, and stagnating nearly everyone else including Wal-Mart.

JC Penney needs a strategy to leverage the on-line trend

Coming from the tech world, you would have expected CEO Johnson to recognize this problem and radically change the strategy, rather than messing with tactics. He should have looked to close stores to lower fixed costs, developed a powerful on-line presence and marketed hard to entice more showrooming customers as well as those shopping from home. He should have targeted to grow JCP on-line, stealing revenues from other traditional retailers, while making the company more of a hybrid retailer that profitably met customer needs in stores, or on-line, as suits them.  He should have used on-line retail to take customers from locked-in competitors unable to deal with “cannibalization.”

No wonder the results tanked, and CEO Johnson was fired.  Doing more of the tired, old strategies in a shifting market never works.  In Apple AAPL +2.94% parlance, he needed to be focused on growth the iPad, when instead he kept trying to sell more Macs.

You can’t succeed by focusing on the past

But now the Board has made its second mistake.  Bringing back the old CEO, Myron Ullman, has deepened JP Penney’s lock-in to that old, traditional and competitive brick-and-mortar strategy. He intends to return to JCP’s legacy, buy more newspaper coupons, and keep doing more of the same.  While hoping for a better outcome.

What was that old description of insanity?  Something about repeating yourself…..

Expectedly, Penney’s stock dropped another 10% after announcing the old CEO would return.  Investors are smart enough to recognize the retail market has shifted.  That newspaper coupons, circulars and traditional advertising is not enough to compete with on-line merchants which have lower fixed costs, faster inventory turns and wider product selection.   Fighting to be the last remaining fixed store is going to be a loss-producing, painful game with no winner.

It certainly appears Mr. Johnson was not the right person to grow JC Penney.  All the more reason JCP needs to accelerate its strategy toward the on-line retail trend.  Going backward will only worsen its already terrible situation.

via Adam Hartung Two Wrongs Won’t Fix JC Penney – Forbes.

INVITE JIM WOODS TO SPEAK AT YOUR NEXT EVENT

Jim Woods, President of InnoThink Group, is a popular speaker at corporate events. He shows business audiences how to achieve competitive advantage and develop strategy into their leadership.Invite Jim Woods to speak

With 25 years experience he provides meaningful insights to create w opportunities that can launch businesses, overcome myopathy, avoid commoditization and think creatively and seize hidden marketplace opportunities.

Find out more about Jim’s speaking.

 



Viewing all articles
Browse latest Browse all 2

Latest Images

Trending Articles





Latest Images