Breakout

JCPenney’s 3-Step Survival Plan

Jeff Macke
Breakout

Former retail titan JCPenney (JCP) is in trouble. The 1,100 store mall staple is in the middle of a radical redesign under CEO Ron Johnson, who led the roll-out of Apple's wildly successful retail locations prior to coming to JCP. In an investor presentation at the beginning of 2012, Johnson promised to do nothing short of re-invent the department store concept. But it hasn't worked out that way.

JCP stock is down more than 40% in 2012, sales are collapsing, and employee enthusiasm has deteriorated to the point that the company was forced to announce in an SEC filing that morale was an actual threat to operations. It doesn't have to end this way, however. JCP can save itself, but only if it acts fast and with a decisiveness that has so far eluded the chain during its revamp.

In the attached clip, OptionMonster.com co-founder Jon Najarian and I discuss the future of JCP and whether or not Ron Johnson is the right man to lead a rebirth of the venerable chain. Here's a three step process that gives JCP its last, best chance to save itself:

1. Clearly Define What JCPenney Is

As evidenced by JCP's early ad campaigns, communicating Johnson's vision to the consumer was an immediate challenge. Beyond being arguably the most grating advertisement in television history, JCP's foray into national TV spots was notable only for promising shoppers a non-promotional strategy the company quickly ditched.

JCP's current reputation is that of a lower tier department store catering to an older clientele. As is common in retailers trying to save money, the stores haven't seen remodels or even reasonable upkeep in years. The displays are rundown, the carpets are threadbare and the crowds are sparse. No one expects much service, and they get what they expect.

Johnson's vision is that of an upbeat destination with a series of "stores within a store." Vendors like Levi's will have a chance to set and control their own displays in return for staying in stock. He envisions a central area of the store where customers would be able to have lunch, surf the Internet or just hang-out before buying more stuff.

The prototype stores are a work in progress. The legacy stores are deteriorating relics getting even less attention now that management has moved on to a bigger idea. Unless they've been into their local JCP recently, customers don't know if they're walking into the store of the future or something from 1965.

A merchant can stand for one thing. For instance, WalMart and low prices or Amazon and best on-line experience. Not even the JCP seems to know what it stands for. Mall-based stores aren't carnival fun houses, surprises aren't welcome.

2. Get Rid of Old Stores

JCP has 1,100 stores scattered nationwide. In his last earnings conference call, Johnson himself said JCP is a tale of two companies: the remodeled stores where results are weak and the legacy stores where business is horrendous.

There are 700 stores that JCP has yet to remodel. Those stores are in limbo, stuck between two entirely different concepts. Shoppers come in for the first time and complain about having been lured into store under false pretenses of recent ads. Existing customers have the sense that they are being phased out entirely, mostly because they are.

The employees themselves are on the front lines dealing with both the young and angry and the old and abandoned customers. They have no job security and little idea whether or not they have a future if and when the new CEO's vision makes it to their location.

Johnson and his executive team need to make some tough decisions. The "future of department stores" won't fit in just any mall. JCP is locked in leases and owns property that simply can't be brought up to date. Getting out of those properties will be an expensive proposition, but staying in them leaves JCP stuck between dramatically different concepts.

Disgruntled employees and rotting stores are an organizational cancer that Johnson can either remove or leave to run its inevitable course.

3. Stop Talking

Beyond the terrible ads, Ron Johnson has been on national television promising stores with wi-fi, free haircuts, in-store courtyards and everything but a personal masseuse. He hasn't delivered on any of it.

JCP has somehow figured out a way to alienate literally all existing and potential customers. The way to undo the damage is start delivering more than what was promised.

Customers are tough. When they get good service they tend to keep it to themselves, but when they feel ripped off or lied to they tell everyone. JCP has changed its reputation with shoppers from being a dowdy place to shop to being a store that lures people to the mall with undelivered promises. The store's relationship with its customers has been damaged. The only solution is for JCP to go out and make good on the promises.

Business 101

Flawed or not, JCP and Johnson have laid out a plan. The pity is the company on its current path will run out of money and customers before anyone knows if the new model can work. There's nothing fancy about the recovery plan but it's going to take huge effort and a discipline not seen at JC Penney since long before the arrival of Ron Johnson.

As Jon Najarian notes, there's a chance Ron Johnson was never the whiz JCP thought they were getting in the first place. In the attached video, Najarian notes that Johnson worked hand in hand with the late Steve Jobs while developing Apple stores. Thanks to Apple's balance sheet, Johnson also had what amounted to a blank check. Neither is the case now.

Ron Johnson was far from alone in creating the Apple stores. "He's the guy that comes up with the concepts inside the stores and now he's expected to be the interior designer" says Najarian, "maybe that's not as good a combination as they hoped."

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