This morning, I decided to use a journal post to analyze the revival plan revealed yesterday by J.C. Penney Co. (JCP) CEO Ron Johnson. Johnson, who has been at the CEO post only since June, is credited for the retail success both with Apple Inc. and Target. Department stores are facing a gloomy outlook, expecting to lose more market share and projecting sales growth of only 1.7% (down from 3.4% previously) as reported by Bloomberg Industries. Prior to Johnson’s announcement, the chain’s largest shareholder, William Ackerman, vowed that this moment “would be the most important for retailing in 25 years”. Investors were not as enthusiastic and share prices bounced around during and after the announcement.
After reading over the strategy announcement and some trade articles, I summarize that the plan consists of three components, each of which drives off of the other. The three components, based on my interpretation, are brand management, store layout, and pricing.
Brand Management
The department store chain currently has 400 brands under its roof, most of which are private-labels that the company created. Johnson’s plan is to reduce the number of brands to about 100. With less brands, it will be easier for stores to organize them in a marketplace or ‘store-in-store’ type format.
Store Layout
The brand restructuring will allow for better store organization. In recent years, J.C. Penney partnered with the Sephora brand going to the extent of “building” a small Sephora store within the larger store. Results have found sales per square foot were three times higher than the average of the rest of the larger store. The store-in-store or marketplace concept helps to keep the shopper focused and encourages traffic as consumers seek premium brands.
Pricing
Brand management and store redesign will help JCP restructure its pricing. The company found that it held over 600 sale-type events a year which was confusing to consumers. In addition, they found that products sold at up to a 50% discount. With this information, JCP plans to lower price entry points by as much as 40% and structure sale events around a monthly theme (e.g., ‘back-to-school). The company’s hope is that this new pricing, along with the store redesign, increases consumer traffic to at least one visit per month. Current research indicates that shoppers visit a JCP store on average of four times per year. I can vouch for that. I can only recall entering a Penney’s a handful of times last year whereas I am in a Target and/or Wal-Mart store at least once a month.
The JCP revitalization plan is expected to be fully implemented by 2015. While the Wall Street reaction to the announcement has been lackluster, I believe the plan has some merit. Instituting a simpler pricing structure along with an alignment with premium plans should regenerate consumer interest toward the chain. Similar plans have worked for Target, Macy’s and Kohl’s so we shall see if JCP can compete or fail.
Resources:
Clifford, Stephanie. “J.C. Penney to Revise Pricing Methods and Limit Promotions” The New York Times January 25, 2012 (accessed January 26, 2012) http://www.nytimes.com/2012/01/26/business/jc-penneys-chief-ron-johnson-announces-plans-to-revamp-stores.html?partner=yahoofinance
Townsend, Matt. “J.C. Penney Plan Chills Investors Seeking Apple Magic: Retail” Bloomberg January 26, 2012. http://www.businessweek.com/news/2012-01-26/j-c-penney-plan-chills-investors-seeking-apple-magic-retail.html
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