How It All Went Wrong at JCPenney

The American economy is thriving. People are eager to drop disposable income on the latest fashions, home furnishings and d$$cor$,$ toys, and electronics$$but not at JCPenney. The retailer is deeply in debt $($to the tune of $$4$ billion$),$ and stock prices have plummeted below $$2,$ leaving the company$$s future uncertain.

Mark Cohen, the director of retail studies at Columbia Business School, calls the company a $$leaky ship.$$ Former CEOs had muddled brand identity and fled, leaving JCPenney in a continued downward spiral.

The leak sprung in the late $1990$s$.$ Sales and profits began dropping under CEO Myron Ullman, who was unable to keep shoppers when the recession hit. As the economy rebounded, it seemed that JCPenney$$s once$-$loyal shoppers were gone for good.

Ron Johnson Takes the Helm of a Sinking Ship

Ron Johnson, former director of Apple$$s retail division, took the helm in $2011.$ Johnson, who had once achieved success at Apple, was no match for the dismal scenario at JCPenney. His attempts to overhaul strategy were poorly researched and badly executed. Less than $18$ months after he was hired, Johnson was fired.

Johnson$$s Faulty Assumptions

What could possibly go wrong with a CEO, experienced at high$-$end technological retail success, being brought in to run a value$-$priced, coupon$-$driven department store? Let$$s start with Johnson$$s strength at making bad assumptions. In late $2011,$ he promised to make JCPenney $$America$$s favorite store,$$ but he started by ignoring the long$-$standing customer stakeholder base and implemented plans tied to misguided goals.

Johnson overhauled the retailer$$s advertising, logo$,$ store layout, and pricing, all without testing shoppers$$ reactions. In an attempt to target wealthy shoppers, Johnson dropped reliable brands and replaced them with brands that didn$$t appeal to the low$-$ and middle$-$income shoppers who formed Penney$$s base. He ended coupons and clearance sales, a mainstay of the Penney$$s experience. These moves were out of touch with Penney$$s core shoppers, and alienated them. According to Cohen, Johnson ditched his old audience and $$assumed a new one would appear instantly from out of the blue.$$

In moving from a company that prided itself on telling customers what they needed, Johnson had crossed over into a culture where sales were driven by what the customers said they needed. In $2012,$ the company hemorrhaged more than $$4$ billion in sales, a quarter of its sales from $2011.$ The numbers made it clear: Johnson had to go$.$

Mediocre and Stuck

Desperate to stop the losses, Penney went back to Ullman, the former CEO, in $2013.$ He immediately reinstated coupons and old$-$standby brands, which stabilized sales and paused stock declines. Still, it was difficult for JCPenney to right the ship.

While rival retailers launched digital strategies and overhauled their shopping experiences, due to its financial struggles, Penney couldn$$t compete. In an effort to once again plug the hole in the sinking ship, in $2015$ JCPenney brought in Marvin Ellison from Home Depot. Although clothing sales had always been Penney$$s bread and butter, the board of directors thought hiring Ellison would help them enter the appliance market to bolster sales. It didn$$t work, and stock continued to drop. Despite this, Ellison, partnering with Ullman as board chair, led JCPenney to $$2\mathrm{.}81$ billion in revenue in $2015,$ narrowing the net loss to $$68$ million in the company$$s second$-$quarter earnings.

Soon, however, Ellison abandoned JCPenney to run the show at Lowe$$s$.$ Ellison left the fashion unit directionless, desperately needing brands to satisfy moms and millennials. Penney$$s$,$ which had dramatically shifted its target from older shoppers to younger ones, is now moving back toward middle$-$aged shoppers.

Does JCPenney Have a Future?

To remain solvent, JCPenney needs the tide to turn$$and fast. The company must escape its massive debt and recoup a large chunk of its sales volume at a profit. A company spokesperson points to same$-$store sales growth in $2017$ as proof that Penney$$s is still in the game. The company once bought as much merchandise as it needed to fill stores, but now it is forced to limit itself to proven sales trends. Still, in $2018,$ CFO Jeffrey Davis believed that JCPenney $$can and will be a clear winner in the retail environment.$100$