Mini-Case Is JCPenney Killing Itself with a Failed Strategy? A few years ago, JCPenney was a traditional, low-end The old approach of offering special discounts through- department store that appeared to be in a slow decline. out the year was eliminated in favor of a new custom- Bill Ackman of Pershing Square Capital Management, a er-value pricing approach that reduced prices on goods hedge fund investor, bought a large stake in the company across the board by as much as 40 percent. So, the price and pushed to hire a new CEO, Ron Johnson. Johnson, listed was the price to be paid without further discounts. who had successfully created the Apple retail store con- The intent was to offer customers a "better deal" on all cept, was tasked with turning around the company's products as opposed to providing special, high discounts fortunes. on selected products. In January 2012, Johnson announced the new strategy for The intent was to build JCPenny into a higher-end (a the company and rebranding of JCPenny. The strategy an- little more upscale) retailer that provided good prices on nounced by Johnson entailed a remake of the JCPenny retail branded merchandise (mostly clothes and home goods). stores to create shops focused on specific brands such as Levi's, These changes overlooked the firm's current customers; IZOD, and Liz Claiborne and types of goods such as home JCPenny began competing for customers who normally goods featuring Martha Stewart products within each store. shopped at Target, Macy's, and Nordstrom, to name a Simultaneously, Johnson announced a new pricing system. few of its competitors. Unfortunately, the first year of this 136 Part 2: Strategic Actions: Strategy Formulation new strategy appeared it to be a failure. Total sales in 2012 The question now is whether the company can sur- were $4.28 billion less than in 2011, and the firm's stock vive such a major decline in sales and stock price. In price declined by 55 percent. Interestingly, its Internet sales 2013, it announced the layoff of approximately 2,200 declined by 34 percent compared to an increase of 48 per- employees to reduce costs. In addition, CEO Johnson cent for its new rival, Macy's. All of this translated into a net announced that he was reinstituting selected discounts loss for the year of slightly less than $1 billion for JCPenny. in pricing and offering comparative pricing on products It seems that the new executive team at JCPenny (relative prices with rivals). The good news is that trans- thought that they could retain their current customer formed stores are obtaining sales of $269 per square foot, base (perhaps with the value pricing across the board), whereas the older stores are producing $134 per square while attracting new customers with the new "store- foot. Will Johnson's strategy survive long enough for all within-a-store" concept. According to Roger Martin, a of the stores to be converted and save the company? The former executive, strategy expert, and current Dean at answer is probably not, because Johnson was fired by the University of Toronto, "... the new JCPenney is com- the JCPenny board of directors on April 8, 2013, about peting against and absolutely slaughtering an import- 1.5 years after he assumed the CEO position. ant competitor, and it's called the old J.C. Penney." Only about one-third of the stores had been converted to the Sources: P. Wahba, 2015, J.C. Penney still blaming Ron Johnson-era for slow profit growth Fortune, www.fortune.com, March; N. Tichy, 2014, new approach when the company began to heavily pro- J.C. Penney and the terrible costs of hiring an outsider CEO, Fortune, mote the concept. Its new store sales produced increases www.fortune.com, November 13; J. Reingold, A. Sloan, & D. Burke, 2013, in sales per square foot, but the old stores' sales per square When Wall Street wears the pants, Fortune, April 8, 74-81; S. Schaefer, foot markedly declined. It appears that Penney was not 2013, Ron Johnson out as JCPenney chief, Forbes, www.forbes.com, April 8; M. Nisen, 2013, Former JC Penney CEO says Ron Johnson is 'a attracting customers from its rivals but rather cannibal- very nice man' who will probably fail, Yahoo! Finance, finance. yahoo.com, izing customers from its old stores. According to Martin accessed April 6; B. Byrnes, 2013, How J.C. Penney is killing itself, The the new CEO likely understands a lot about capital mar- Motley Fool, www.fool.com, March 31; B. Jopson, 2013, JC Penney cuts 2,200 jobs as retailer struggles, Financial Times, www.ft.com, March 8; kets but does not know how to satisfy customers and J. Macke, 2013, J.C. Penney's last shot at survival, Yahoo! Finance, finance. gain a competitive advantage. Additionally, the former yahoo.com, accessed March 1; S. Clifford, 2013, Chief talks of mistakes CEO of JCPenney, Allen Questrom, described Johnson and big loss at JC Penney, New York Times, www.nytimes.com, February 27; M. Halkias, 2013, J.C. Penney CEO Ron Johnson says changes will as having several capabilities (e.g., intelligent, strong return retailer to growth, Dallas Morning news, www.dallasnews.com, communicator) but believes that he and his executive February 9; They're back: JCPenney adds sales, 2013, USA Today, www. usatoday.com, January 28; A. R. Sorkin, 2012, A dose of realism for the team made a major strategic error and was especially chief of J.C. Penney, New York Times DealB%k, dealbook.nytimes.com, insensitive to the JCPenny customer base. November 12. Case Discussion Questions 1. What strategy was the new CEO at JCPenney seeking to imple- 3. Why was this strategy a disaster for JCPenney? ment given the generic strategies found in Chapter 4? 4. What does it mean to be "stuck in the middle" between two 2. What was the result of change in strategy implemented? strategies (i.e., between low cost and differentiation strategies)