Management in Action

J$.$C$.$ Penney Is Effectively Navigating Strategic and Managerial Change

J$.$C$.$ Penney was founded in $1902.$ It began as a Wyoming dry goods store and grew to be one of the largest department stores and catalogue retailers. Given the growth of Internet shopping, Penney$$s sales, along with those of other big retailers, began to fall in the $2000$s$.$ The company hired former Apple retail store executive Ron Johnson as CEO in $2011$ to turn things around.

Johnson$$s vision was to make Penney hipper, and he changed long$-$held strategies and management practices that defined the company$$s culture and identity. One of his first actions was to fire $600$ employees at corporate headquarters. He continued to cut costs over the next two years by firing $19,000$ store employees. This created a toxic environment in which people feared for their jobs, and morale plunged$\mathrm{.}138$

Johnson replaced most of the company$$s top executives with people from Apple, who brought with them a culture that clashed with that of Penney. These executives decided to eliminate Penney$$s long$-$standing strategies regarding discounting and promotional pricing. He then converted stores toward a boutique shop image and dropped many private label brands driving Penney$$s past sales$\mathrm{.}139$ Existing employees did not completely buy in to these top down strategies, creating resistance to change.

According to Fortune, $$The makeover bombed, sales plummeted, and some $40,000$ jobs were eliminated$$ during Johnson$$s tenure as CEO. Further, $$the chain$$s inventory management and e$-$commerce operations were in chaos, and Penney ended up with some $$5$ billion in long$-$term debt.$140$Johnson was fired in $2013,$ and the company hired former CEO, Myron Ullman, as interim CEO.

New Leadership

Ullman immediately brought back Penney$$s promotional pricing strategy and the private label brands. Cost cutting, however, continued as the company was near bankruptcy.

J$.$C$.$ Penney hired Marvin Ellison as the new CEO in November $2014.$ He had $12$ years of senior management experience at Home Depot and was responsible for Home Depot$$s very successful omnichannel strategy. Omnichannel strategies integrate different methods of shopping $($e$.$g$.,$ online, in$-$store, catalogues, phone$)$ into a consolidated sales approach. Penney has adopted an omnichannel growth strategy to fuel sales$\mathrm{.}141$

One condition of Ellison$$s hiring was that he would spend a year as president under Ullman. Penney wanted Ellison to learn the business and understand the company$$s culture. The two men conducted more than $60$ employee town hall meetings and visited $100$ stores. They also traveled the world, visiting vendors and partners, so that Ellison could learn more about apparel factories, sourcing, and merchandising.

These face$-$to$-$face interactions were instrumental to Ellison as he was looking for disconnects between corporate strategy and store operations. One example involved seeing senior management in stores wearing designer clothes that store employees or customers could not afford. Ellison created a policy requiring executives to wear J$.$C$.$ Penney clothes when visiting stores, along with the same name tags worn by store employees$\mathrm{.}142$

New Strategies and Goals

Ellison and his management team established a goal of $$1\mathrm{.}2$ billion in Ebitda, which stands for $$earnings before interest, taxes, depreciation, and amortization,$$ for $2017.$ This goal is double what the company earned in $2015.$ To accomplish this goal, Ellison established several strategies and action plans:

Hiring experienced senior executives to lead efforts in e$-$commerce, supply chain, information technology, and marketing.

Creating internal promotion opportunities for employees and involving them with implementation decisions.

Opening $60$ more Sephora cosmetic shops inside the stores.

Redesigning the center court areas of the stores, where the stores experience high traffic volume and sell high$-$margin products like jewelry, sunglasses, and accessories.

Investing in technology$$the company committed $29\%$ of its capital expense budget to technology.

Expanding the number of private label clothing brands.

Reducing the number of out$-$of$-$stock items by improving inventory management.

Using data analytics and Big Data to determine products desired by customers.

Reducing the company$$s dependence on weather$-$sensitive categories such as apparel and experimenting with selling appliances$$this is a new product line$$in $22$ stores.

Implement a program that ensures customers can buy online and pick up in the store on the same day$\mathrm{.}143$

Gross margins have increased and general administrative expenses have gone down $10\%$ in each of thePage $355$ last two years. Sales increased more than $3\%$ in both $2014$ and $2015,$ but the company is still not making a profit$\mathrm{.}144$The company also paid off a half billion dollars of debt in $2015,$ with plans to do the same in $2016\mathrm{.}145$

A reporter from CNBC asked Ellison if he was worried about the generic decrease in m