
Ron Johnson ousted as JC Penney CEO - anderzole
http://www.tuaw.com/2013/04/08/ron-johnson-ousted-as-jc-penney-ceo/
======
riggins
"I've said many times that when a management with a reputation for brilliance
tackles a business with a reputation for bad economics, it is the reputation
of the business that remains intact."

-Warren Buffett

~~~
drewda
That quotation is also how James Surowiecki ends his pretty decent column on
Ron Johnson:
[http://www.newyorker.com/talk/financial/2013/03/25/130325ta_...](http://www.newyorker.com/talk/financial/2013/03/25/130325ta_talk_surowiecki)

~~~
riggins
I give Surowiecki for knowing that quote.

It perfectly describes the situation.

------
siglesias
It's a sad state of affairs in American consumerism that folks are attracted
more to _discounts_ than _low prices_. Johnson's plan made sense: lower prices
to what average selling prices are during promotions and cut back on
promotions. Lower noise. Less discount anxiety. Too bad consumers aren't
strictly speaking rational in this way (1, 2).

1)<http://cl.ly/image/2y1T1L2M1s0e> 2)<http://cl.ly/image/1a3D3c1J1Z0I>

~~~
kyllo
People don't buy discounted items just because the price is low.

We buy discounted items because _discounts tell us which items to buy._

For a given product, there are usually several competing choices, and most
people don't have enough time to evaluate whether each one is a good deal for
the price it's offered at. So the easiest way to select is to just pick the
one that's on sale--or if they're all on sale, pick the one that appears to
have the biggest discount relative to the MSRP.

The discount also tells us "you should buy this now, because if you buy it
later, the price may go up."

Without this important signal, customers don't really know which one to buy,
plus there's no urgency to buy the item now, because it's always that price.

So, while Johnson's approach may have "made sense," and may have worked for
Apple products because their market position and product lifecycle makes
discounts unnecessary, this strategy really didn't play to consumer
psychology, at least in the apparel space.

~~~
siglesias
_The discount also tells us "you should buy this now, because if you buy it
later, the price may go up."_

But who cares if it's average or even poor value at the current discount? My
thinking should be, "which item offers me the best value as priced _right now_
"? I think what you're suggesting is that the "full price" gives customers a
"hint" about how much to subjectively value the item, which is also sad
because the last person I want telling me how much something should be worth
is the person selling it to me.

~~~
redwood
You're running something of a fool's errand arguing this point. Of course
you're right. It's sad on so many levels that retail stores are important,
that fashion is important, that fads, trends, and other trivialities are
important.

However if we accept that all of the above are inevitable, then we must accept
a friction-free experience as valuable. And the poster above is pointing out
that whether it's logical or not, the feeling of "I made the smart choice!" by
buying the discounted option, provides this easier experience.

At a high level human choices aren't rational which is sad, but we must accept
it.

~~~
chongli
>At a high level human choices aren't rational which is sad, but we must
accept it.

I can accept that but I have to ask: who would have the time to make a deep,
rational analysis of the value for everything they buy? At some point I think
the quick "discount heuristic" is the more rational choice because it saves
time.

On the other hand, for big ticket items (cars and houses) I'd hope people
would spend a lot more time making a rational choice.

~~~
redwood
Good point

------
georgemcbay
If they really wanted change, they should probably have rebranded completely.

I'm 40 years old and throughout my entire life, JC Penney has represented a
pretty consistent image of being a discount store where old people shopped. I
don't think anyone (including Steve Jobs) would have been able to modify that
image in my mind in a scant 2 years while keeping the brand name, the image is
just too entrenched at this point.

This leaves the store in a worst-of-all-worlds position where people who don't
currently shop there maintain the decades-old image of what the store used to
be while people who did shop there are put off by the changes.

I don't know anything about the retail clothing business but just based off
common sense I could have predicted this short-term result based on the half-
way measure of trying to redefine an iconic (for better or worse) brand
without actually rebranding. Seems pretty obvious, no?

~~~
yajoe
You are spot on. This is hardly a surprise to anyone who has been watching,
and I personally just made a little bit of money on my bet he would get fired
:) Time to share my understanding. My connection: I used to live off Legacy
Drive in the Deerfield neighborhood in Plano and hence have heard some second-
hand accounts about his behavior.

If you read anything about this guy's tenure at the company, it becomes
apparent he was riding someone else's coattails at Apple and possibly at
Target... because all he did was copy org structures from Apple to graft them
onto JCP without understanding why or how they worked at Apple. He lacked
basic retail understanding and was a typical middle-road MBA pointy-haired
boss. I just wish I understood how I could get hired to fail like he and so
many other execs do -- the pay is so much better! The joke is clearly on me.

He was no different than a 'Senior dev' copy-pasting a bunch of Stack Overflow
Java code in your team's C environment. Guess what, it was convincing at first
but doesn't work ("what do you mean C has memory leaks?").

His approach failed for many reasons, but most succinctly the failure is
because JCP is a discount brand and Apple is a premium brand. So far our
understanding of retail is that premium and discount stores operate
differently. He thought he could take premium behaviors and apply them to
discounts (in fairness, this is what he took credit for at Target, but having
talked to people in MN it seems that credit was JCP PR to explain how he got
hired).

My favorite moves from this guy (recalling from memory, apologies for not
providing HN-worthy citations):

\-- When it became clear JCP was't getting traction with the new promotion
structure ('best price' nonsense) last summer he blamed and fired his good
friend and longtime colleague who he personally brought to JCP. He had worked
with the guy for years, and somehow the execution of a bad idea was the
problem. He took no responsibility and charged ahead. Very quietly he started
dismantling his bad ideas.

\-- He stopped discount sales altogether. At a discounter. Without explaining
or convincing others that they would have cheaper prices than competition.

\-- He stopped clearance altogether. Most of my purchases at JCP over the
years have been from clearance, so people like me had zero reason to step
inside the store ever again.

\-- He never moved to Plano so he could keep attending church in CA, and he
only flew to the HQ 3 days a week (on average). Plano has an equivalent
denomination church, and I imagine his CA community would understand the
absence. Few people at the company HQ had a chance to talk to him in person. I
don't understand how you can turn around a billion-dollar corporation
remotely.

\-- He encouraged teams not to talk to each other and be secretive, because
somehow that led to a better customer experience when everyone was confused.
He asked some teams to report directly to him. JCP doesn't build consumer
products, they build store layouts and discount structures. The secrecy was
stupid when you consider he managed remotely and was a communication point-of-
failure. Some 'incubator' teams were allowed full access to disrupt normal
operations, and my understanding is that there was quite a bit of friction
that led to much lower productivity.

\-- The store-within-a-store concept was an udder failure. However, all public
reports are that sales/sq-foot were higher in these store-within-a-store and
therefore we were to infer a success. The real story is JCP took its best
selling items, put them in the innovation, and sure enough they continued to
be well-selling. Of course the per-sq-foot space sold better when the best
selling items are concentrated. However, sales for the items dropped worse at
a store-within-a-store once re-arranged alongside the rest of sales. If you
are curious about this pattern in general, you should watch what happens to
Best Buy and Samsung with their new store-within-a-store experiment. I
personally don't believe retailers should turn themselves into malls :)

\-- They had a small layoff where they targeted HQ people who watched too much
YouTube. The packet inspection company had a PR-like piece in the WSJ
advertising how well it worked to target those shirking employees. The
narrative makes sense except the positions eliminated were predominantly
__fashion buyers__ , who most likely were watching fashion shows and aspiring
fashion makers on YouTube because travel budgets had been cut that same year.

\-- The Martha Stewart trial is beyond stupid and short-sighted. I think he
should have found an up-and-coming who could produce similar quality but
CHEAPER products rather than overpay for a has-been brand. There is a reason
that Macy's is not giving Martha as much floor space as she expected.

So, this rodeo has been extremely fun to watch, and I sincerely hope the next
chapter for James Cash Penny's store is brighter. It is a good company with
good people. It should be focused on the founder's values: good value and fair
prices.

~~~
PakG1
_\-- They had a small layoff where they targeted HQ people who watched too
much YouTube. The packet inspection company had a PR-like piece in the WSJ
advertising how well it worked to target those shirking employees. The
narrative makes sense except the positions eliminated were predominantly
_fashion buyers_, who most likely were watching fashion shows and aspiring
fashion makers on YouTube because travel budgets had been cut that same year._

This is a very interesting allegation, and I would love to see additional
information about it.

~~~
salemh
The notion of " _the positions eliminated were predominantly _fashion buyers_,
who most likely were watching fashion shows and aspiring fashion makers on
YouTube because travel budgets had been cut that same year._ "

Would be interesting, but I wonder at sources. An outcry of justification of
said-Youtube viewing would probably have been heard or referenced.

The main references in articles are "back office support," corporate, and
cashiers:

This article continues the theme (that you will find on most articles) of the
YouTube volume [1]

 _Kramer shared an example: There were 4,800 employees at the HQ in January
2012, and in one month they had watched five million YouTube videos during
work hours. He said that 35 percent of bandwidth at HQ was used for "loafing
off." One big consequence was the culling of staff. Now, a little more than a
year later, 1,600 of those workers have been sent packing._

Jan, 2013 _The moves will eliminate about 5,000 department-store jobs, 300
more at headquarters and regional offices and 265 Eckerd positions — all told,
less than 2 percent of the company's work force of 290,000._ [2]

 _The latest job cuts were concentrated in about 100 stores where sales fell
the most, and the eliminations hit back office positions. A Penney spokeswoman
said none of the cuts affected staff who deal with customers._ [3]

March, 2013 [4] _J.C. Penney Co. (JCP) is cutting an additional 2,200 jobs to
trim costs as Chief Executive Officer Ron Johnson’s revamp of the department-
store chain causes sales to plunge.

_ The positions to be eliminated include back-office administrators in stores
and district offices as well as store leadership positions, Joey Thomas, a
spokesman, said in an e- mail yesterday. About 10 percent of J.C. Penney’s
1,100 stores cut their headcounts because of sales volume shifts, he said.

Johnson said last week that 19,000 J.C. Penney employees have lost their jobs
in the past year as his turnaround struggles to gain traction.*

[1] [http://www.businessinsider.com/jcpenney-coo-michael-
kramer-c...](http://www.businessinsider.com/jcpenney-coo-michael-kramer-
culture-2013-2)

[2]
[http://abcnews.go.com/Business/story?id=88710&page=1#.UW...](http://abcnews.go.com/Business/story?id=88710&page=1#.UWQwuquClOE)

[3] [http://www.huffingtonpost.com/2013/03/07/jc-penney-
layoffs-s...](http://www.huffingtonpost.com/2013/03/07/jc-penney-layoffs-
sales-decline_n_2829868.html)

[4] [http://www.bloomberg.com/news/2013-03-07/j-c-penney-
cutting-...](http://www.bloomberg.com/news/2013-03-07/j-c-penney-
cutting-2-200-jobs-as-sales-plunge.html)

------
bennyg
JCPenney (JCP now?) is SEVERELY lacking a vision. And they have been for
years. In my undergrad, I was on the school advertising team competing for
NSAC (<http://www.aaf.org/default.asp?id=123>) and JCPenney was our client. We
were tasked with creating a $100,000,000 integrated marketing campaign. All
along I knew that this money absolutely did not need to go to a marketing
campaign. It needed to go to top-down, business level reinvention. New
branding would have to be part of it, obviously, but a culture change inside
the company was a lot more necessary.

This was during the time when "New look, new day, who knew?" was their
tagline. Which was utter shit when every time you go into a store it looked
like it was in shambles, and telling people you had a new look when they could
clearly smell the same pile of dung from a block away doesn't increase
customers. It was bad.

Then about 4 weeks from competition, they release a new logo and a new tagline
(honestly we were rebranding towards a JCP moniker during our ideation phase
anyways), basically throwing us under the bus. We had to make something for
their rebrand - it had been 10 years since they did anything previously.

It's no surprise to me that anything unconventional was discarded quickly, and
Ron was booted. These people are short-term thinkers, that are entrenched with
the big-box department discount store mantra. They were getting close with
store-in-a-store ideas like MNG by Mango and Sephora taking up space inside.
It's just unfortunate that they're so worried about providing discounts and
racing to the bottom with cut-rate merchandise (even their self-created brands
like St. John's Bay had a ~4% profit margin).

The market is huge, but they are stuck in the stone age.

~~~
Zimahl
The point of those mini-stores (store-within-a-store) that make Target so
successful is that you can possibly get things that you don't have access to.
It brings people looking and those people will hopefully see your other stuff
while they are there.

JCPs that are big enough to have a Sephora are typically in a large enough
mall that already has a Sephora. What new customers are you getting into your
store then? Why go into a JCP if you just need something from Sephora? They
are also typically located in the front of the store. Go in, get Sephora, walk
out. They don't even see any of your other stuff (although I don't think the
Sephora consumer overlaps with the JCP consumer).

~~~
chucknelson
They have many more "mini-stores" than Sephora, so picking on that one to make
it look like a bad idea overall is a little unfair.

~~~
Zimahl
Yet, none of the others seemed to help their bottom line either.

------
colbyh
Whether his strategy is flawed or not is, unfortunately, not the issue at
hand. As great as it would be to discuss the technical merits of what he was
trying to achieve, it seems like Johnson's biggest failing was not properly
contextualizing what he was trying to do to the company.

For instance, JCP has been rather drastically upgrading the quality of their
menswear. They've not only started catering to a much more fashion-oriented
consumer (they even brought on Nick Wooster, who was previously at Bergdorf
Goodman and Gilt Groupe's high end retail site Park & Bond -
[http://www.jcpenney.com/dotcom/jsp/browse/marketing/promotio...](http://www.jcpenney.com/dotcom/jsp/browse/marketing/promotion.jsp?pageId=pg40023600013))
but they took a stand that such clothes should be wearable and affordable.
It's an audacious, if respectable, goal that anyone should be able to see
can't be achieved in a year or two. It took JCrew much longer than that to
make a similar transition.

Shareholders should have been very aware that things will get much worse
before they get better, as it takes time and conditioning to expunge "bargain
basement" from the brain and into something that more closely resembles a
homegrown Uniqlo. People gave Johnson credit for doing so at Target but to be
fair Target didn't gain traction on the upward move till years after he left.
He should have never put himself in a position where people were expecting
progress barely a year after taking the reins.

Turning around an entrenched company like JCP is a task that really doesn't
follow much of Apple's game plan, and I think Johnson's decade in the tech
sector might have spoiled him in estimating customer trends (especially with
regards to reconditioning behavior). It's a bummer, as someone into clothes
AND tech I feel like the JCP transformation could have been a really great
story.

~~~
smackfu
It all comes back to the pricing debacle at the start of his tenure. Getting
rid of sales and clearance was just not a good idea: it chased away old
customers and didn't bring in many new ones. That drove sales dramatically
down at the stores, and when it was reverted, it took away a lot of his
credibility.

------
ChuckMcM
I think this is an amazing example of an employee who is a bad fit. Ron was
clearly a star at Apple but he was a dud at J.C. Penny. There will be lots of
arguments about why that is, from classic operational economics to somewhat
fuzzier buyer happiness metrics, but the more interesting message is that the
problems can't be fixed by swapping out one piece.

This is true in groups too. I've seen groups lose a star player, only to have
another 'star' swapped in but with a different vibe and it all goes to hell.
This seems to be magnified with CEOs.

I know that I do not have the fortitude that it takes to be successful in a
walmart/target/costco kind of retail space. So I wish him luck.

------
Zimahl
There's nothing left to say except the people who hired Johnson are idiots. He
was successful at marketing a high-end brand as high-end and had no clue on
how to _tactfully_ re-brand a company that had been around for generations.
Especially considering it didn't need to be re-branded.

Do you know why Nike doesn't sell shoes in Target or Walmart? You'd dilute the
brand. So they bought Converse. The opposite is true as well, however. You
certainly can cause brand confusion where your old customers don't like the
changes and your new higher-end customers - well, they are still shopping at
Nordstrom.

Every step he made was fraught with clear consequences. Getting rid of
discounts. Over-streamlining stores to a point they look partially empty.
Trying to bring Target's successful ideas (like their mini-boutiques) into JCP
just on a bigger scale. And trying to steal Martha Stewart from Macy's was
just plain dumb, that's going to cost the company a lot of money.

The board should've hired a CEO from the ranks of Target, Macy's, or Nordstrom
instead of Apple. The high-end tech marketing didn't translate to middle-tier
consumer shopping marketing.

------
zacharypinter
Planet Money had a relevant/good discussion about the fallout from JC Penney's
coupon-less strategy on one of their recent podcasts:

[http://www.npr.org/blogs/money/2013/03/08/173829409/episode-...](http://www.npr.org/blogs/money/2013/03/08/173829409/episode-442-into-
the-future)

~~~
helper
Yes. Whats most interesting about it was all the customers they interviewed
that loved the old JC Penny and hated the new one.

It takes a long time to change the image of a brand. Alienating your old
customers before you have gotten new ones is a strategy for failure.

------
orangethirty
Every time my wife drags me into JCPenney, I ask myself the following
question: What is this company about?

\- Brand recognition (status)? Nope.

\- Low Prices? Nope.

\- Quality (higher than) products? Nope.

\- Cutting edge fashion? Nope.

\- Fashion for average folk? Nope.

They are simply without a defined aim. And that's why their business lacks.
Retail is still alive and kicking, but not for companies who still live in the
days of The Brady Bunch.

~~~
nathos
I'd say that a lot of Johnson's strategy addressed many of your concerns.

Personally, I shopped more at JCP over the past 8 months than the previous 15
years. There was an appealing mix of brands, quality, and fair prices that
struck a chord with me. Unfortunately, it clearly didn't work for the majority
of the mall-shopping public that has been trained to only buy when there's a
sale or coupon.

~~~
orangethirty
Edit:

His strategy seems to be based at copying what worked with Apple. Reducing
product lines, making things upscale, removing sales, etc. I don't think how
anyone who actually knew JCPenney would have thought that was a good idea.
Their brand was already ruined.

Its not the general public at fault. Past JCPenney management ruined the brand
by going coupon crazy. To the point that my wife only shops there when there
is some stupid _take 15% off, then add and additional 12% off of you buy
another_ coupon. Otherwise, she thinks its too expensive (which I do think is
right) for a department store.

This is the same kind of scenario that happens to businesses that became
Groupon addicted. People stopped buying when no Groupon was available.

~~~
jfoster
It seems to be a classic retail problem. How does a retailer hold enough sales
and issue enough coupons to beat last year's sales, but avoid making their
customers addicted to (or fatigued by) coupons and sales?

~~~
orangethirty
It's more of a market fit problem. You can use coupon almost everywhere and
not damage your brand. Bit you can't use them to cover up fundamentals flaws
in your business.

------
gfodor
I'm not completely up to date on the happenings at JCP, but my understanding
was that Ron's strategy was going to take time to be fully realized. I would
not be surprised if this is short term thinking getting in the way of a long
term strategy. Regardless, JCP shareholders should be very worried since now
they've traded a potentially flawed strategy with effectively no strategy at
all.

~~~
nathos
While I'd normally agree that shareholders can't be trusted to make sound
long-term strategy decisions, in this case Johnson demolished JCP's financials
over the past few quarters.

------
iamabraham
The problem was not that people like discounts more than low prices. It was
that the company never got rid of discounts. They advertised new low prices
and no discounts and then still had discount racks all over the store, leading
customers to recalibrate the goods in their minds as being less expensive (and
possibly "cheaper") then before while still allowing them to wait for
discounts.

The company also introduced a lot of product lines that were supposed to be
specialty brands which led to entire stores looking like disjointed flea
markets. There was no way to tell what was unique or special because
everything was branded as unique and special.

------
pmb
Dangit. I really liked shopping at the new JCPenny. Every price was rounded to
the nearest dollar (and usually the nearest 5 dollar) and included tax. I
could walk in, try the things on I needed, hand the cashier exact change, and
get out, all without needing to do stupid coupon crap. I could buy jeans and
shirts and the cognitive load was really low.

I liked not having to think really hard while clothes shopping. I liked it a
lot. But I suppose a target market of "people who hate clothes shopping due to
the artificially high cognitive load" is a pretty slim market segment.

------
michaelpinto
I liked what he was trying to do, but he may have been too upscale for what
that JC Penny as brand has become. Also the fact that JC Penny was based in
Texas is just a bad omen for a company focused on making retail fashion
exciting.

~~~
rsuttongee
What's so bad about being based in Texas? Isn't Neiman Marcus also based in
Texas?

~~~
michaelpinto
Texas is known for many things, but not fashion. Neiman Marcus is more about
luxury goods than fashion. JC Penney is more about the clothing, and even with
the lower end of the market you still have to follow trends. Also you have to
attract talent: And I just don't see people with a fashion sense running to
Texas for the opportunities. And yes you can be an exception to the rule — but
then you have to really work hard at it.

------
emehrkay
I went to JC Penney this past weekend and it was wonderful. I got some jeans
and a shirt for like 40 bucks.

They had a coupon though, it was spend 50 get 10 off. I didn't have one and
the cashier used the one at the register. She also used an iPhone to ring up
up instead of the cash register sitting in front of her.

------
ilamont
NPR had a great piece about JC Penney's about a month ago. The reporter, her
sources, and the customers she talked with made a very convincing case that in
its zeal to attract trendy fashionistas in the coastal cities, it had driven
away its long-time customers (mostly middle-aged and older) looking for deals.

Found it: [http://www.npr.org/blogs/money/2013/03/01/173203739/sales-
ar...](http://www.npr.org/blogs/money/2013/03/01/173203739/sales-are-like-
drugs-what-happens-when-a-store-wants-customers-to-quit) (I recommend
listening to the audio, which has more detail)

------
mindstab
He's a one trick pony and clearly out of touch. He doesn't really seem to have
any grasp of the market JC Penny was actually in or that discount cheap
clothes is a pretty radically different market then high end premium
electronics. (further whereas Apple was the sole supplier/manufacturer, JC
Penny was just reseller of various brands they picked). Then he executed the
one strategy he know that apparently just luckily worked for him at Apple.
Sadly, based deeply outside of reality it epically failed to execute as hoped
here and JC Penny lost half their market.

The whole thing is a little sad. Thankfully he's gone and maybe for the
company's sake they can pull out of his tailspin. If not oh well, that's also
what you get for not vetting people and just buying into their PR and dropping
a rockstar into the driver seat and giving him the keys without vetting him.

~~~
nell
He ran merchandising at Target before Apple, which was pretty successful.

He clearly made a mistake at JCP. That doesn't make all his previous successes
invalid or luck.

~~~
chucknelson
Exactly. For some reason everyone remembers Apple as his only success story,
but he was leading Target merchandising during their transformation to what
they are today.

------
bpm140
You can take a brand down-market, but it's very, very difficult to take it up-
market.

JCP stands a better shot at dominating the "discount" market, which everyone
associates it with, than combating half a century of marketing.

~~~
MartinCron
Or creating a new up-market brand, like Lexus or Banana Republic.

~~~
kyllo
Which would be an extraordinarily expensive and risky marketing effort, but
perhaps one of only a handful of possible ways to save the company at this
point.

~~~
MartinCron
Yeah, I don't think it's a good or safe idea, but it would at least be
exciting to see them try.

------
QuantumGood
When I shopped for my wedding, I had to convince both my mother and my wife
that JCP would have the highest quality at the lowest price. They disagreed, I
was proven correct.

Has long amazed me that JCP couldn't brand properly when their other
competencies were so strong.

I was absolutely aghast when I first heard what Johnson was doing. It sounded
— almost literally — insane, and never for a moment looked or sounded any
better. Marketing is marketing. Target and Apple did the marketing for him, so
apparently he never really learned what marketing is.

------
DannoHung
Shoulda never agreed to the role unless he was gonna be given 5 years of
runway. They wanted a turnaround far faster than they had capital for.

~~~
nnethercote
"during his helm as CEO, shares of J.C. Penney have plummeted by 51 percent
while the company's market cap dropped from $6.84 billion to $3.49 billion."

No board will put up with that.

~~~
DannoHung
No board should try to make a major strategic change unless it's willing to
disrupt its operations.

------
MartinCron
I have often said that wholesale website redesigns are a bad idea because they
alienate the hardcore fans while swapping one set of problems for a different
set of problems. I hadn't, before this, realized that the same might hold true
for department stores.

------
gmu3
Well I think the lesson here is don't embark on an ambitious radical strategy
without first doing some testing/sampling.

------
rossjudson
Fix JC Penney. You have 3 minutes. Go!!

~~~
daimyoyo
Jeff Bezos buys it for 15% above yesterdays closing price. Rebrands it as the
Amazon Store®. What do I win?

------
anderzole
and now a triumphant return to Apple?!?

------
asmithmd1
JCPenny is still in business?

