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MiniCase 6: JCPenney . Once a leading department store, why did JCPenney lose it market position and more than 98% of its valuation in the past decade? o Why cannot we place all the blame on "Industry Effects" alone? o What were some of the "Firm Effects"? . What was JCPenney's business strategy prior to the arrival of new CEO Ron Johnson in 2011? Cost- leadership, Differentiation, or Blue Ocean? o What capabilities did Ron Johnson bring to JCPenney in 201 1? O What strategic position did he envision for JCPenney? What tactics did Johnson use to pursue this strategic position? O Why did he fail? What lessons can we take away? . Myron Ullman, served as a temporary replacement when Ron Johnson was fired in 2013 prior to hiring Marvin Ellison as CEO in 2015. o What capabilities did Marvin Ellison bring to JCPenney? o What did he contribute until his departure in 2018? Jill Soltau was appointed CEO in 2018. o What capabilities did Jill Soltau bring to JCPenney? o What external factors were likely to be sources of challenge or opportunity for JCPenney going forward under Soltau's leadership in 2018? o What internal strengths of JCPenney could she leverage and what weaknesses would sheOnce on board with JCPenney, Johnson immediately began to change the company's strategic position from a cost-leadership to a blue ocean strategy, attempting to combine its traditional cost-leadership position with a differentiation position. In particular, he tried to reposition the department store more toward the high end by providing an improved customer experience and more exclusive merchandise through in-store boutiques. Johnson ordered all clearance racks with steeply discounted merchandise, common in JCPenney stores, to be removed. He also did away with JCPenney's long-standing practice of mailing discount coupons to its customers. Rather than following industry best practice by testing the more drastic strategic moves in a small number of selected stores, Johnson implemented them in all of the then 1,800 stores at once. When one executive raised the issue of pretesting, Johnson bristled and responded: "We didn't test at Apple." Under his leadership, JCPenney also got embroiled in a legal battle with Macy's because of Johnson's attempt to lure away homemaking maven Martha Stewart and her exclusive merchandise collection. The envisioned blue ocean strategy failed badly, and JCPenney ended up being stuck in the middle. Within 12 months with Johnson at the helm, JCPenney's sales dropped by 25 percent. In a hypercompetitive industry such as retailing where every single percent of market share counts, this was a landslide. Things went from bad to worse. In 2013, JCPenney's stock performed so poorly it was dropped from the S&P 500 index. Less than 18 months into his new job, Johnson was fired. JCPenney had lost over two-thirds of its market valuation (or $6 billion) under Johnson's leadership. The attempted overhaul of JCPenney under Johnson also left the company burdened with more than $4 billion in debt. Myron Ullman. his predecessor, was brought out of retirement as a temporary replacement. Exhibit MC6.1 shows JCPenney's stock market valuation and CEO appointments over time.Jappointed CEO $269.3 million Now. 2011 Ron Johnson Oct. 2018 appointed Jill Soltau CEO appointed CEO $2.5bn 1269.29m 2012 2014 2016 2018 2019 Source: Author's depiction of publicly available data. Under Johnson's leadership, JCPenney failed at its attempted blue ocean strategy and instead sailed deeper into the red ocean of bloody competition. This highlights the perils of Page 490 attempting a blue ocean strategy because of the inherent trade-offs in the underlying generic business strategies of cost leadership and differentiation. As a result, JCPenney continues to experience a sustained competitive disadvantage and may go out of business. To turn around the 120-year-old icon, the board appointed Marvin Ellison as CEO in 2015. With a strong background in operations management and leadership skills honed at The Home Depot, he focused on lowering JCPenney's cost structure while increasing perceived value offered to its customers. In an attempt to stem losses, in 2017 JCPenney closed some 140 retail stores across the United States out of a total of 1,000 remaining outlets. Marvin Ellison was lured back into the home improvement industry when he was appointed CEO of Lowe's in 2018.How JCPenney Sailed into a Red Ocean Frank T. Rothaermel prepared this MiniCase from public sources. This MiniCase is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, all errors and omissions are entirely the author's. Revised and updated: June 3, 2019. @ Frank T. Rothaermel. JCPENNEY WAS once one of the top department stores in the United States, with more than 2,000 locations at its peak. Indeed, the retailer was so common in the suburbs that one could not imagine a shopping mall without a JCPenney. Generations of America's children were mesmerized by its annual holiday catalog. As recent as 2007, JCPenney had enjoyed a market valuation of $18 billion. In a bit over a decade, JCPenney's market cap had fallen to a mere $269 million. Thus, the retailer lost 98.5 percent of its valuation or $17.7 billion in a bit over decade. Many observers expect JCPenney to follow Sears -once the leading American retailer-to also file for bankruptcy, which Sears did in 2018. What went wrong? Of course, all retailers are exposed to the same threat, Amazon, which has become synonymous with online shopping. Although Walmart, Target, and Best Buy all have become more competitive in recent years, JCPenney sped up its own demise with a bad business strategy. In particular, JCPenney under former CEO Ron Johnson learned the hard way how difficult it is to change a strategic position. When hired as JCPenney's CEO in 2011, Johnson was hailed as a star executive. Johnson was poached from Apple, where he had created and led Apple's retail stores since 2000. Apple's stores are the most successful retail outlets globally in terms of sales per square foot. No other retail outlet, not even luxury jewelers, achieves more. This poaching didn't come cheap: JCPenney paid Ron Johnson close to $53 million in total compensation in 2011, even though he didn't start until November of that year