Is JCPenney Killing Itself With A Failed Strategy

Is JCPenney Killing Itself with a Failed Strategy?
A few years ago, JCPenney was a traditional, low-end department store that appeared to be in a
slow decline. Bill Ackman of Pershing Square Capital Management, a hedge fund investor,
bought a large stake in the company and pushed to hire a new CEO, Ron Johnson. Johnson, who
had successfully created the Apple retail store concept, was tasked with turning around the
company’s fortunes.
In January 2012, Johnson announced the new strategy for the company and rebranding of
JCPenny. The strategy announced by Johnson entailed a remake of the JCPenny retail stores to
create shops focused on specific brands such as Levi’s, IZOD, and Liz Claiborne and types of
goods such as home goods featuring Martha Stewart products within each store. Simultaneously,
Johnson announced a new pricing system.
The old approach of offering special discounts through- out the year was eliminated in favor of a
new customer-value pricing approach that reduced prices on goods across the board by as much
as 40 percent. So, the price listed was the price to be paid without further discounts. The intent
was to offer customers a “better deal” on all products as opposed to providing special, high
discounts on selected products.
The intent was to build JCPenny into a higher-end (a little more upscale) retailer that provided
good prices on branded merchandise (mostly clothes and home goods). These changes
overlooked the firm’s current customers; JCPenny began competing for customers who normally
shopped at Target, Macy’s, and Nordstrom, to name a few of its competitors. Unfortunately, the
first year of this

new strategy appeared it to be a failure. Total sales in 2012 were $4.28 billion less than in 2011,
and the firm’s stock price declined by 55 percent. Interestingly, its Internet sales declined by 34
percent compared to an increase of 48 percent for its new rival, Macy’s. All of this translated
into a net loss for the year of slightly less than $1 billion for JCPenny. It seems that the new
executive team at JCPenny thought that they could retain their current customer base (perhaps
with the value pricing across the board), while attracting new customers with the new “store-
within-a-store” concept. According to Roger Martin, a former executive, strategy expert, and
current Dean at the University of Toronto, “... the new JCPenney is competing against and
absolutely slaughtering an import- ant competitor, and it’s called the old J.C. Penney.” Only
about one-third of the stores had been converted to the new approach when the company began
to heavily pro- mote the concept. Its new store sales produced increases in sales per square foot,
but the old stores’ sales per square foot markedly declined. It appears that Penney was not
attracting customers from its rivals but rather cannibal- izing customers from its old stores.
According to Martin the new CEO likely understands a lot about capital mar- kets but does not
know how to satisfy customers and gain a competitive advantage. Additionally, the former CEO
of JCPenney, Allen Questrom, described Johnson as having several capabilities (e.g., intelligent,
strong communicator) but believes that he and his executive team made a major strategic error
and was especially insensitive to the JCPenny customer base. The question now is whether the
company can survive such a major decline in sales and stock price. In 2013, it announced the
layoff of approximately 2,200 employees to reduce costs. In addition, CEO Johnson announced
that he was reinstituting selected discounts in pricing and offering comparative pricing on
products (relative prices with rivals). The good news is that trans- formed stores are obtaining
sales of $269 per square foot, whereas the older stores are producing $134 per square foot. Will
Johnson’s strategy survive long enough for all of the stores to be converted and save the
company? The answer is probably not, because Johnson was fired by the JCPenny board of
directors on April 8, 2013, about 1.5 years after he assumed the CEO position.
What does it mean to be 'stuck in the middle' between two strategies (i.e. low cost and
differentiation strategy)? Use examples from your personal experience or from research
from credible sources (other than the text).

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Is JCPenney Killing Itself with a Failed Strategy?

Johnson announced a new pricing system.

discounts on selected products.

first year of this

from credible sources (other than the text).

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