Imagine you are a malevolent corporate mole hired, through a stroke of luck, to run your competitor’s chain of retail stores. Already anemic, the stores need just a push to fall into oblivion, but you provide a hefty shove, by implementing the following strategies:
— Drive away the current customer base, putting a stake through the heart of customer loyalty.
— Discourage impulse buys by doing away with sale and clearance lures in the racks.
— Introduce new inventory attractive only to customers you’ve never served.
— Begin a new ad campaign that insults customers’ intelligence.
— Implement all new strategies without testing them first in a small number of stores.
Welcome to the world of Ron Johnson’s J.C. Penney’s department stores. Hired in 2011 to breathe new life into a tired old retail chain, CEO Ron Johnson has used the above tactics and more, the result being as predictable as one might expect. According to a recent Wall Street Journal article, sales have dropped by double digits, analysts are warning that “the company could run short on cash,” and stock finished last year more than 40 percent down.
But this shopper didn’t need to read the Wall Street Journal’s coverage to see the writing on the wall. I was one of the loyal Penney’s customers Mr. Johnson drove away. Before his reign, I used to regularly park at the J.C. Penney anchor on trips to the mall, even if I had nothing specific to purchase there. During my walk through the store to my ultimate destination shops, however, I’d often be lured into the racks by enticing sales and attractive merchandise. I’d buy jewelry and tops for my twenty-something daughter, jackets and evening wear for me, the occasional household item, plus shirts for my husband and countless Christmas gifts.
After Mr. Johnson took over and began implementing his plans, my Penney loyalty withered quickly. Inventory changed, and nothing pulled me to explore beyond the walkways leading to the mall entrance. Yes, the annoying almost-daily mailing of coupons stopped, but that ended up killing my desire to see if there was anything I needed at Penney’s. For my mall trips now, I park outside of another department store, one I enjoy walking through and whose racks I explore eagerly.
It takes real skill to destroy consumer loyalty so rapidly. Penney’s managed to do it at warp speed.
How could Mr. Johnson be so clueless, one wonders, when he came from positions at Target and Apple?
Maybe he learned the wrong lessons at those previous retailers.
‘What I learned about Target, at Target, though, because I was involved with kind of the movement toward design, that really middle America appreciates good design, right?,’ he said in an interview with Fortune’s Jennifer Reingold at Brainstorm Tech last year.
‘They understand the stuff when it’s presented well, and so I have great confidence that as we present a higher taste level product within our price points to our core middle America customer, that they’ll respond….
You don’t need to school us, Mr. Johnson. We here in middle America know good stuff when we see it, and we’ll buy it when it suits our lifestyles and our pocketbooks. What Target offers is good value.
I guess I shouldn’t be too hard on Mr. Johnson concerning the lessons he learned from his previous employers. After all, Apple’s marketing strategy has always included a “too cool for school” gestalt that sneers at the 90 percent of the computer-buying public who don’t opt for their machines. As cool products start appearing from other manufacturers, though, who have discovered the same “next big thing” vibe, Apple product sales now face challenges, too.
But still, it seems to me that even a freshman business major would be able to tell you that using the elitist Apple approach on a “middle America” general merchandise retailer is probably a nonstarter.
And therein lies the problem. Where has Penney’s board of directors been during this rolling fiasco? Would they have tolerated such poor performance from a departmental leader in their own businesses or organizations?
It doesn’t take a Harvard MBA to know that your average marketing manager would have been shown the door much earlier if he’d driven away current customers at the pace of Mr. Johnson while working on untested tactics for attracting new ones. Chances are such a department manager would have been gone, well, faster than Penney customers.
I don’t have an MBA from Harvard or anywhere else, but this I know: the first rule of any kind of recruitment is retention. Retain the customer base you have first, then add to it. Why didn’t Mr. Johnson know this, and why did Penney’s board fall for his Plan Nine from Outer Space strategies?
The Penney story hits my outrage buttons. But it’s not just because I was a loyal customer who hates to see this solid American retailer crumbling due to big mistakes at the top. It’s because these kinds of business failures end up sending a message that the free market doesn’t work…for the average worker (and in this case, for the average customer).
Mr. Johnson, after all, will probably do okay even if the board of directors decides to treat him like that fictional bumbling marketing manager mentioned above, showing him the door. Like most CEOs, he probably has a number of golden parachutes. So he won’t be held accountable for his mistakes in the same way that middle Americans are when they fail on the job. His bad risk will be rewarded, regardless of the outcome.
But if Penney’s fails, its workers lose, too—workers who might have performed far better every day than those at the top of the company.
Unlike the financial crisis of five years ago, most Americans—with or without “higher taste levels”—can understand the mistakes made by Penney’s leadership. They don’t need financial management degrees to know what’s going wrong with this retailer. Penney’s failures are writ large—and clear enough for even plebeians to comprehend.
So, the Penney board has not only failed their stockholders, customers and employees by going along with their new CEO’s bad ideas. They fail all of us by sending the wrong message about the risk and reward principles of free markets.
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Libby Sternberg is a novelist.
