Wednesday, April 17, 2013

Why did it all go wrong for Ron Johnson and JC Penney


In 2011, JC Penney hired Ron Johnson, revered as a ‘retail guru’ in Cupertino and the man behind the Apple stores.  Under Ron Johnson, Apple Retail stores became very popular, earning   revenue of $473,000 per employee2. Johnson himself earned a neat fortune during his 7 years at Apple1.

Johnson wanted to transform Penney’s image and attract swankier brands and new customers. The stores were already not doing too well so he had to implement his vision quickly. While his heart was in the right place and his ideas were good in ‘theory’, Johnson made many mistakes along the way. He was recently fired and replaced by the very person he had replaced in November 2011.

Some of the mistakes Johnson made –

1.       Tried to change too quickly

Johnson does defend himself by stating that the company did not want to wait and wanted quick results. Hence, he had very little time to test his ideas and had to implement them without prototyping or testing them. The plan backfired and Johnson did not understand the culture at Penney and its customers enough to improve the falling sales figures.

2.       Did not focus on changing the ‘internal’ culture

All of Johnson’s keynote presentations and advertisements counted for very little as his staff wasn’t ready to deliver what he was promising. I am not sure whether they even understood his radical vision. Johnson took very little time to explain his approach to the existing Penney employees. He also replaced most of the top leadership with executives from Apple. All this happened too quickly. It seemed like he came in, cleared the way and said ‘Let us handle it’. He was a retail genius and had previous experience at Apple and Target but it seemed like he never really understood the company culture. He did not even move to Penney’s headquarters in Texas. His deal included a clause which stated that he will not uproot his family from California. Though this is not uncommon in corporate America, Penney was struggling, its employees were struggling to implement their new Boss’s vision, but he was rarely seen. Many senior leaders travelled to the Penney headquarters in a private jet which increased costs, decreased the visibility of the senior leadership and created resentment among the other employees6.

3.       JC Penney is not Apple

At Apple, prices very highly controlled and distribution was limited. People were willing to pay a little extra for the excellent service and ‘brand’ image of the product. In contrast, the market in which JC Penney operated was distribution-intensive and promotion-intensive. Also, Apple could differentiate their products heavily and the distribution channels were such that the customer could not simply walk into another store and get the same product at a lower price. In Penney’s case, they could do exactly that4.

4.       Alienated JC Penney’s core set of customers

It was surprising that Johnson did not consider Penney’s core customer base at all in his strategy. His focus on getting a new set of customers distracted him from the needs and demands of Penney’s loyal customer base. Customers at Penney love their ‘deals’. And Johnson took that away from them. Even though, Penney did drop prices of everyday products under their ‘Fair and square’ policy, the reduced prices were not enough to offset gains from deals4.

Johnson chose to ignore Penney’s current business model and aggressively tried to push his ideas. There was no plan B and when the downslide began, neither Johnson nor his clueless staff equipped to reverse the slide. Johnson’s mistake was not that he tried to change and reinvent the organization, in fact it was admirable how he sought to transform the industry. He tried to change too quickly and ignored the obvious signs of failure which were in front of him all the time.

Sources

1.       Yarow, Jay. "Ron Johnson Made $400 Million At Apple In 7.5 Years." Business Insider. Business Insider, 14 June 2011. Web. 17 Apr. 2013.
2.       David Segal (June 23, 2012). "Apple’s Retail Army, Long on Loyalty but Short on Pay". The New York Times. Retrieved June 23, 2012.
3.       Lesonsky, Rieva. "Leadership Lessons From JC Penney's CEO Fiasco." OPEN Forum American Express OPEN Forum Leadership Lessons From JC Penneys CEO Fiasco Comments. Open Forum, 12 Apr. 2013. Web. 17 Apr. 2013.
4.       Ailawadi, Kusum. "The Reason for Ron Johnson's JC Penney Fiasco." US News. U.S.News & World Report, 12 Apr. 2013. Web. 17 Apr. 2013.
5.       Copeland, Michael. "Silicon Valley’s ‘Coach’ Explains Ex-JC Penney CEO’s Huge Fail."Wired.com. Conde Nast Digital, 10 Apr. 0013. Web. 17 Apr. 2013.
6.       Rosa, Steve. "Ron Johnson's Attempt To Fix JCPenney's Brand Was Completely Backwards." Business Insider. Business Insider, 15 Apr. 2013. Web. 17 Apr. 2013.
7.       Tuttle, Brad. "The 5 Big Mistakes That Led to Ron Johnson’s Ouster at JC Penney." Business Money The 5 Big Mistakes That Led to Ron Johnsons Ouster at JC Penney Comments. Time, 9 Apr. 2013. Web. 17 Apr. 2013.

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