The Real Culprit? JCPenney's Board.

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photograph by Fishwater | Dreamstime.com

So, JCPenney canned CEO Ron Johnson after 17 months. His implosive changes cost Penney billions and shareholders 40 percent of their investments.

Yet, Johnson was only the architect and face of the disaster.

The real brand assassin was the enabler, a guy named William Ackman, aided and abetted by fellow Penney directors. Ackman manages a hedge-fund that is Penney’s largest shareholder. It was Ackman who urged the board to coax Johnson away from Apple.

Then the board allowed Johnson overnight to:
Change the brand to JCP, which maybe was a good idea.
Change store interiors, which maybe was a good idea.
Change pricing strategy, which maybe was a good idea.
Change merchandise, which maybe was a good idea.
Change logos, which maybe was a good idea.

With the exception of locations, Johnson changed overnight the most fundamental elements of JCPenney. The problem was that he didn’t tell consumers what he was doing and how it would benefit them. And the definition of customer service is communications.

He had millions of advertising dollars. Johnson is young and attractive. If he had gone on television himself and told consumers what he was doing, and why it was good for them, he might have had a chance.
Instead, he wasted the advertising. First on screaming women commercials. No words, just women screaming. Then TV spots with children and pets playing. No words. Just music. Then came Ellen DeGeneres commercials. Controversial, expensive, and funny. Not much else.

A new logo appeared for JCP that nobody recognized. A friend said, “I felt like I must have missed the first memo.”

The board allowed these changes system-wide without even one market test. “We didn’t test at Apple,” Johnson said. And Ackman ran interference for him all the way.  

Johnson’s plenty smart. But after his success at Apple, he must have thought he was bulletproof. It would be hard to find customer demographics more different from those of Apple and JCPenney. Not since General Custer has anyone risked it all with so little “intelligence.”

Re-positioning a brand is delicate. A retailer can’t change the desires and habits of its customers. It has to attract different customers while trying to hold onto existing customers. When McDonald’s added salads, it did not discontinue hamburgers.

Johnson and his Apple team had no re-positioning experience. Why didn’t the board realize that?

Only one director, the former Radio Shack CEO (now re-branding as “The Shack”) had retail stores background. The rest were active or retired executives of technology companies, a health and beauty products maker, a food processor, an airline, a TV producer, and a real estate trust, plus a college president. And, of course, hedge-fund manager Ackman.

Penney was going nowhere pre-Johnson. Survival post-Johnson is a toss-up. His strategies weren’t bad. His execution was.

Yet, it’s not Ron Johnson’s effigy stockholders should burn. The primary duties of corporate directors are to act on behalf of shareholders in a fiduciary capacity in financial and legal matters, and to provide oversight of management.

Penney’s board failed at both.

 

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