Lately, I have been thinking of a couple luxury themes I’d like to explore in my posts. They center around a couple main questions: Continue reading
Less than a year ago, I wrote about JCP’s “square pricing” strategy created under CEO, Ron Johnson. The pricing strategy was intended to help the retailer grow its business, however, latest indications show the company has recorded four consecutive quarters of decline.
In combating the consumer backlash, Mr. Johnson is rolling out some of the previously discontinued sales that JCP is known for. There is no indication as to how many sale campaigns the retailer will bring back, but JCP’s CEO has vowed not to return to levels where the company ran up to 600 sales promotions each year. Supposedly, the retailer is going to introduce a limited number of promotions that tie in with the core habits of its consumer set – shoppers who only buy when they need something and require high value.
It’s bad enough that most of JCP’s consumers have decided to shop at its competitors (Kohl’s, Target, Dillard’s, and Macy’s to name a few). What’s worse is that Wall Street investors have also lost confidence in the stock. After losing more than half of its value, Penney stock is now trading at around $19. The company will also find it hard to raise capital as its credit rating is in the realm of “junk status”.
There is still no light at the end of the tunnel for Ron Johnson’s (RJ) turnaround. Though I was very pessimistic (and correct) in my initial assessment in April, 2012, I wouldn’t quit on RJ just yet. You do know he turned Apple and Target’s retail performance around, right? The past is the best predictor of the future. I just might roll the dice on some JCP stock.
Where do you need to be this month?
In Boston, at the Retail and Luxury Goods Conference, at Harvard Business School. It happens every year (this is the ninth) and is never a dull event. I had some of my best professional moments there. If you can’t make it, you can trust that I’ll take notes for you.
Key Takeaway from The Luxury Doctrine (a new resource in development):
If you want to be successful, especially in luxury, you have to think of, and act like the customer, at all steps in the value chain… you have to manage the customer’s experience
– Edmund Amoye, Lessons in Luxury
For those who have been following my posts on the different luxury segments, you’ll notice that the key catalyst for success in today’s environment is innovation in managing the customer experience. If you are new to this customer-centric theme, I have a list of related posts at the bottom, to get you up to speed.
In every business there are seasons and cycles – ups and downs. At their rollout to end-users, luxury goods and services are sometimes heralded as innovative novelties and “must haves”. However, as brands permeate, manufacturers innovate, and marketing teams penetrate (I had to use that rhyme… too easy to pass up), commoditization sets in. Luckily, the Ford Motor Co. is doing something about that with its Lincoln automotive brand.
– Top View of the 2013 Lincoln MKZ Continue reading
Article Link – Penney’s Pricing Strategy takes a Toll on Sales
Ron Johnson’s bet on JCP’s new retail strategy will not come without its costs. Analysts on Wall Street are expecting JCP’s revenues to drop by “seven percent this fiscal year”. This is worse than the previously forecasted two percent drop because analysts believe “shoppers accustomed to seeing big discounts [will] go to rivals like Macy’s Inc.”. Same-store sales are expected to drop nine percent – lower than the four percent drop that was originally anticipated.
Penney’s new strategy is simple – three tiers:
- “Everyday” prices that are 40% lower than what they were charging a year ago;
- Month-long sales on select items; and
- Clearance events during the first and third Friday of each month (to coincide with employee payroll distributions)
Though the street expects dire consequences for JCP’s stock in the short term, it also believes that Ron Johnson’s plan will pan out in the longer term by eliminating “unprofitable promotions and [improving] its profit margins overall”.
If successful, this will be a major change in retailing because suddenly the promotional activity will decrease and other retailers will also have to find ways to attract customers… but this is going to take time.
– Walter Loeb, New York-based retail consultant
JCP is expected to offer more details on its performance when it reports its quarterly earnings results in May.
My View: This is a long-term bet, not a strategy that will yield postive returns in the next six to 12 months. Ron Johnson is not trying to change his strategy – he is trying to change the rules of the retail game. His bet is riding on a revamp of the entire retail experience.
Disclaimer: I do not own, or plan to buy any JCP stock in the next 48 hours.
Here’s something for MBAs interested in the apparel sector. The industry is a global one with pieces of its value chain spread across a variety of regions and countries. McKinsey Quarterly is a great, FREE resource for MBA students watching the pulse of their target industries. Click on the picture on the left to see an executive summary of this issue.
Building on the confusion of yesterday’s post, today’s entry focuses on the academic justification for a firm’s participation in the luxury segment. Though what appears below is very intellectual, it is very similar to the thoughts I had on the matter long before I ever knew I wanted to work in the luxury segment.
In his work covering business strategy, Michael Porter explains that there are two main categories, in which a firm’s competitive strengths fall: cost leadership and differentiation. Depending on the firm’s market focus (broad or niche), and the uniqueness of its products (custom or commodity) and services, Porter posits four generic strategies a firm can use to develop a competitive advantage. Continue reading
So early this morning, I got an email from JCPenney with the following message:
As you may know, Ron Jonhson (formerly of Apple and Target) now heads the retail giant that goes as far back as the era of shopping catalogs. In facing the huge challenge of transforming one of America’s most unloved retail brands, he’s definitely relying on the many lessons he learned in his 30 years of retail experience.
Today, JCPenney is rolling out a revamped pricing structure and a simplified return policy. The company is moving to “an everyday low price model” by getting rid of coupons and ineffective sales promos. Drawing on what I have learned from Ron Hess in my Customer Experience Management class, the dimensions of pricing and returns most probably have the most impact on customer satisfaction at JCPenney (which drives customer loyalty and profitability in the service-profit chain).
Though pricing is a common complaint of most customers, Ron Johnson’s approach to simplifying this satisfaction component has strong justifications. By making JCPenney’s pricing less complex, Mr. Johnson is trying to eliminate the “buyer’s remorse” felt by customers who purchase items at full price – only to find them heavily discounted in one of the 500+ yearly sales promotions at the company. Below is an excerpt from an interview with the JCP CEO on the retailer’s new policies. It was conducted by Anne D’Innocenzio of The Associated Press.
Q: How did you come up with the new pricing strategy?
A: Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product. And as I have been watching the department stores for the past decade, I have been struck by the extraordinary amount of promotional activity, which to me, didn’t feel like it was appropriate for a department store. My instinct was that it wasn’t a good thing.
Q: Won’t shoppers be turned off because they won’t see the big markdowns?
A: I wouldn’t assume they like the pricing strategy. I think they’re insulted by it.
Q: Who are you targeting?
A: We are going after all Americans. We would like to be the store for everyone.
Q: What are your plans to make the shopping experience more exciting?
A: We are going to make the store a place people love to come — just to come. Because they can get support before they’re ready to buy. They can get great support when they want to buy and they can come in after they buy. We’ll transform the buying experience not unlike what we did at Apple.
Q: When will we start to see improvements?
A: You’ll start to see the experience change month by month. Everyone thinks it’s an overnight success but it never is. I was at Apple from 2000 to 2011, but it wasn’t until 2004 that the iPod became an important part of people’s lives. It wasn’t until 2007 that Apple reinvented the phone. It wasn’t until 2009 that Apple launched the iPad. But we look at it today and we feel Apple had always been beloved. It took time and this will take time as well.
Q: What ideals have you embraced from Steve Jobs?
A: The importance of doing everything you do to your very best. And that the journey is the reward. If you do things well one at a time, you end up in a really good place. Don’t get ahead of yourself. Control the things you can.
Q: Other than Apple, which stores do you admire?
A: I admire lots of stores. Whole Foods is a great store. I just like their passion for food. It shows up in everything they do. It shows up in their packaging, their presentation and their employees. Starbucks. It truly has created a community. As I travel around the world, I just know that if I go to Starbucks I will have a great experience.