Analysis: J.C. Penney finally cuts its losses

The brand had low customer engagement to start with now it's even worse

In 2000 the average tenure of a CEO was 10 years. In 2008 it was down to 8 ½, signaling a slightly higher degree of corporate and brand accountability by boards and shareholders. Bet you Ron Johnson, the now former CEO of JCPenney wishes the retailer had a Time Machine Department about now. He only lasted 17 months.

We can'’t imagine that anyone is surprised. The results of his efforts were dismal. Grim. jcp (Mr. Johnson “modernized” the name and logo) lost $552 million in the 4th Quarter, nearly a billion dollars for the year, and sales fell nearly 29% versus a year ago. Oh, and JCPenney shares lost half their value during Mr. Johnson’s tenure. So really, really grim.

Mr. Johnson got rid of sales, instituted low-price guarantees, got rid of brands, got rid of “fake prices,” negotiated for new brands, brought back sales and coupons, planned to redesign stores, and then brought back “fake prices.” None of which worked. To paraphrase Yogi Berra, who apparently knew as much about department store retailing as Mr. Johnson, “if the customers don'’t want to come to the store, you can'’t stop ‘em.” 

A tough business

Nobody would deny that retailing has gotten tougher in the past few years, but equally so, brands have learned that if they can create some degree of emotional engagement (in addition to the rational stuff like Merchandise Range, Fair Pricing Strategies, and Customer Service), they are bound to see positive behavior toward the brand. And yes, it'’s gotten harder for retailers to provide meaningful and engaging differentiation as regards their brands.

But equally so, it'’s axiomatic that if customers behave more positively towards you, you ought to see positive results to your bottom line. But to do that you need to have something that customers can engage with. We won’t go into all the reasons consumers engage with Apple. That would be preaching to the choir. Mr. Johnson apparently thought JCPenney and Apple were on equal planes when it came to emotional engagement, and boy, was he wrong!

Customer engagement

According to our 2013 Customer Loyalty Engagement Index, when it came to Department Stores, overall engagement levels (versus a category Ideal, calculated to be 100%) were pretty close:

Kohl’s: 84%
Macy’s: 82%
Marshall’s: 81%
T.J. Maxx: 80%
Dillard’s/Sears: 79%

But not for JCPenney. Their engagement rating – according to their own customers – was 70%, which is low in any category, but very low in Department Store Retailing.

Anyway, JCPenny announced that Myron Ullman, who had been CEO until Mr. Johnson was brought in will be coming back. In a seven year period when Mr. Ullman was in charge shares were down 15%, so about 2% a year, which is a lot better than 50%. 

Talk about cutting your losses!
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Robert Passikoff is President of Brand Keys, a research consultancy.