You may have heard of the large department store chain called J C Penney in America… I have been there several times in person but of late when I go to America I tend to go to others like Nordstroms (the best customer service) or Barneys (high end, interesting product range). Anyhow J C Penney is a great example of how a business can get it wrong and “tank” really quickly, perhaps to the point of no return…
Well… Back in 2011 they were finding times relatively tough, indicative of America in 2011 (if not now too). So they looked to a change in CEO, a guy called “Johnson” (often a good move, if you get the right CEO who is better than the previous one). JC Penney was a business based on mark-downs and historically sold 90% of their product at a tag like “Was $14, now $6″… The guy who came on board was the previous head of Apple retail stores, so a very smart fellow no doubt. People (investors) were excited that he might bring some “Apple magic” to JC Penney. Now you would think they would know better given that JC Penney has been around for over a century operating a similar way (albeit, the discounting was worsened by the recession) and it was relatively speaking, “a million miles” from the Apple retail experience (imagine something between The Warehouse and Farmers in NZ or Target and Myers in Australia, if that). First thing he did was change the brand… A la (looks cool enough but you need to do a lot more than just change your logo to change a business):
Among Johnson’s early ploys was getting rid of what he called “fake prices” – the business of constantly marking down price tags. This, he said, was a problem, because not only did it dilute the JC Penney brand, it caused confusion because the company was sending out all kinds of flyers and coupons that customers had to make sense of. He came up with a plan to get rid of the myriad promotions in favour of a regime that promised “fair and square pricing”. One widely cited example was that of a US$14 ($16) T-shirt. Ordinarily, JC Penney would mark it down to, say, US$6. But Johnson decided that instead of discounting, it should just be priced at US$7. What could be simpler?
Along with the streamlined pricing model came a plan to revamp the stores, with numerous mini-stores inside the big department store-sized space. Speciality brands would thus lure in customers looking for a pair of jeans from a well-known jeans manufacturer, or a pair of shoes from a renowned shoe maker.
Well… Crucially, he didn’t road-test his pricing ideas. The late Steve Jobs famously disliked market research when coming up with new Apple products and Johnson seemed to be applying the same ethos to JC Penney. All in all (after only 17 months), it didn’t work. Customers deserted the company in droves, with sales slumping by 25 per cent in 2012. He had evidently gone too far, too fast, and alienated thousands of loyal customers.
The main shareholder in JC Penney outlined his disappointment when he told an investment conference that “one of the big mistakes was perhaps too much change too quickly without adequate testing on what the impact would be”. The turnaround plan, he added, had been “very close to a disaster”. And now JC Penney burns through close to USD $1 billion a year on current results… Ouch.
Moral of the story… We all need to change our businesses… We can all learn ideas and “stuff” from other best practice businesses. You need to really think through the changes that you make in your business and remember that Rome wasn’t built in a day. Of course some businesses effectively have a gun to their head (cash flow wise) and are fighting for survival and need to try things but… just make sure that you have thought about the worse case also and definitely do that market testing via talking with customers, trialling the changes in a part of your business and watch the impact and feedback. And remember to talk to others (outside of your business) for their common sense, layman view on the changes that you are proposing… Think, think, consider, re-consider, trial, review, re-consider, finalise, launch, review immediately, make changes if you need to from learnings and keep watching the impact. If you feel you have made a business mistake with a change it is not too late to change your mind, you could even go back to the way it was if that was better – just make sure your customers are with you and will remain with you. As Peter Drucker said “the aim of being in business is to create a customer”. Without customers… Ouch!
(Note, thanks to the “Independent” for various JC Penney info)
Cheers all… Contact Zac for business coaching…