Running Head: J.C. PENNEY 1

Can J.C. Penney Survive?

Final Assignment

Group Project

Zenaida Barredo

Alley Cheung

Kristy Ibarra-Armas

Linda Noel

Allen Zaghikian

Dr. Schiele

WMBA 506

Marketing Concepts

Woodbury University

April 25, 2013

J.C. PENNEY 2

J.C. Penney History

J.C. Penney is a 111-year old department store chain comprised of approximately 1,100

stores and 150,000 employees across the United States (JCPenney.com). The company was

founded in 1902 by James Cash Penney as a dry goods store in Kemmerer, Wyoming (Guinto,

2011). Penney expanded his store chain through a belief in the golden rule, treating his

employees fairly and keeping them happy, and practicing prudent financial management. He

believed in offering good value at a fair price to his customers and ensuring that they received

the best service possible. Penney once said, “Courteous treatment will make the customer a

walking advertisement,” maintaining the philosophy that price alone cannot foster customer

loyalty; he believed that customer interaction was required for continued success (Bhasin, 2013

and Lutz, 2013). The J.C. Penney Company went public in 1927, and Penney continued to

effectively manage and grow the company by offering stock incentives to managers and

employees, continuing to meet the needs of the middle income family, and capitalizing on the

advent of the shopping mall. After his retirement, James Cash Penney remained an active board

member of his company until his death in 1971 at the age of 75 (Spiro, 2009).

By the 1990s J.C. Penney had become the top catalog retailer in the United States (Lutz,

2013) while continuing to operate as a successful brick-and-mortar store as well. In 2004, Mike

Ullman became the ninth CEO of J.C. Penney (Guinto, 2011). He took over from Allen

Questrom, who had saved the company from near bankruptcy, but there was still a lot of work to

be done to achieve stability. Ullman leveraged the centralized company structure that Questrom

had put in place to control costs and inventory, restructured the company’s debt, and sold off the

Eckard chain of drugstores for $4.5 billion. Ullman drew from his extensive brand experience

with Macy’s and Louis Vuitton to remake the J.C. Penney brand. He introduced well-known and

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popular brands like Sephora, Mango, and Liz Claiborne into the stores, and appointed brand

managers to improve the perception of the store’s private labels like Arizona, Washington, and

St. John’s Bay. Ullman elicited feedback from employees via surveys and responded to their

concerns. Based on some of this feedback, he invested approximately $200 million in

technology to improve the in-store shopping experience and become the first big-box retailer to

provide online product sales. Ullman sought to engender customer loyalty with good service and

offer a pricing structure that would place J.C. Penney in a competitive position between discount

stores and higher-priced department stores – motives very similar to those of James Cash Penney

himself. Ullman spent significantly on advertising campaigns to promote these changes, and the

company enjoyed tremendous success until the recession hit in 2007 (Guinto, 2011). From this

point forward, J.C. Penney struggled unsuccessfully to regain its foothold due to the weakened

economy affecting its core customer base as well as increasing competition from other

department stores like Macy’s, Kohl’s, and Dillards. A pair of investors, Bill Ackman and

Stephen Roth, bought 26 percent of J.C. Penney’s common stock in October 2010. After

acquiring seats on the board, they were able to orchestrate Ullman’s replacement with Ron

Johnson, the former chief marketing officer at Apple (Guinto, 2011).

On June 14, 2011, J.C. Penney announced that Ullman would be leaving the company,

causing an increase in the stock price (Guinto, 2011). Later that same year, Johnson was

installed as CEO of J.C. Penney amid fanfare and optimism. Ackman and Roth believed

Johnson had the experience, vision, and expertise to turn the brand around. While Johnson had

driven marketing innovation at Apple with the Genius Bar, it was his experience as a senior

merchandising executive at Target that was more applicable to his new role at J.C. Penney

(Guinto, 2011). It had been Johnson who crafted deals between Target and well-known

J.C. PENNEY 4

designers like Michael Graves to produce exclusive designer merchandise at reasonable prices.

Expectation was high that he would be able to work his marketing magic at J.C. Penney as well.

In early 2012, Johnson presented his transformation plan for J.C. Penney, which included

the fair and square pricing model, new shops-within-a-store layout, designer engagement, new

exclusive lines with a focus on attracting a younger demographic, and a new logo which depicted

the company’s name shorted to its initials, JCP. The intent of the fair and square model was to

keep prices low year round rather than following the legacy model of inflated mark-ups for the

purpose of holding weekly sales, weekend sales, specialized sales, clearance and coupon offers

(Trewe, 2013). The pricing model proved confusing and unappealing to customers, and on May

16, 2012, J.C. Penney’s stock plunged 19.7% to close at $26.57, which was the lowest their stock

price had dipped since Black Monday (Brown, 2012). Profits and revenues were declining, but

opinions were mixed at this point. Many were still optimistically banking on Ron Johnson’s

marketing plans to turn the company around. At the end of October, J.C. Penney sent customers

a $10 coupon, calling it a “gift” because they didn’t want to admit they were retreating from

Johnson’s “no sales or coupons” strategy. This was in response to surveys showing that women

shoppers were not visiting J.C. Penney because there were no more sales or deals (Brownell,

2012).

The worst blow to Johnson’s strategy occurred during the 2012 holiday shopping season.

J.C. Penney’s holiday promotional offerings included one day only discounts, free photo and

haircut promotions, buttons with codes to potentially win prizes, and day after Thanksgiving

sales, showing a further retreat from the fair and square pricing model (Tuttle, 2012). However,

they were not offering the deep discounts that other department stores were, and many of the

sales held by J.C. Penney during the holiday season came with little notice, making them look as

J.C. PENNEY 5

if they were unplanned and in response to what other stores were doing (Loeb, 2013). However,

even these efforts did not attract the desired holiday traffic. J.C. Penney’s fourth quarter revenue

was down more than 28% and by the end of the year revenue was down almost 35% from J.C.

Penney's peak (Levine-Weinberg, 2013).

On April 9, 2013, J.C. Penney announced that Johnson would be leaving and Ullman

would be returning as CEO. In the fourteen months Johnson had been with the company, J.C.

Penney’s stock price had plummeted a total of 51% to a little less than $14 a share. The stock

rose briefly when Johnson’s departure was announced, then dipped again upon news of Ullman’s

return (Napach, 2013). On April 15 it was announced that J.C. Penney borrowed $850 million,

nearly half of an available line of credit, to help cover remodeling costs and to complete

merchandise orders for the important back-to-school and holiday shopping seasons

(D’Innocenzio, 2013). Currently half the stores are in the midst of remodel and the brand

transformation is incomplete. It is a real and urgent concern whether or not J.C. Penney will

survive.

Problem Definition

The history presented above demonstrated several issues with the execution of J.C.

Penney’s brand transformation plan; issues which led to its current dire market position. These

are discussed in more detail below.

Pricing Strategy Issues

Johnson and his marketing team believed that the “no discounts” marketing strategy

might result in some losses if sales-driven shoppers dropped off, but they believed that those

losses would be more than compensated for by increased sales from the new shops within the

store and the new brands being carried, by the improved margins created by reducing the number

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of sales held throughout the year, and by planned decreases in operating expenses. They also

believed this would be the start of an upward trajectory for sustained growth.

However, it turned out that the new pricing structure was confusing and provided no

comparison pricing. The core of J.C. Penney’s existing market were customers motivated by

bargain-hunting, and, repelled by the loss of discounts, coupons and sales, they turned away from

J.C. Penney in droves. By the time Johnson responded to this alarming trend, bringing back

sales, coupons and comparison price tags in an effort to woo back this alienated clientele, it was

too late for recovery. The clearance sales and other promotions were not able to generate

sufficient customer response and they damaged margins as well, resulting in an annual earnings

shortfall of $2 billion (Levine-Weinberg, 2013).

Shop Within a Store Issues

The Levi’s, Izod, and other shops within a store were actually fairly successful from a

sales perspective and also in contributing to the store’s improved appearance. However, their

individual successes may have cannibalized the success of other brands and labels within the

store. For example, Levi’s sales were successful but Lee jean sales declined, which offset the

gains realized with the improved Levi’s sales (Levine-Weinberg, 2013).

Store Transformation and Cash Flow Issues

Johnson jumped headlong into the transformation of J.C. Penney’s store designs,

incorporating such features as Levi’s denim bars, Joe Fresh and other brand shops, and

refurbished home departments, the latter of which are currently in the midst of construction.

While this would have been viewed as a smart move toward the effort of rebranding the

company and making it more appealing to existing and new customers alike, it was an expensive

endeavor. Also, Johnson did not follow a traditional methodology of refurbishing a few key

J.C. PENNEY 7

stores for the purpose of gauging appeal and traffic before proceeding with more stores. He

embarked on redesigning and remodeling too many stores before assessing the new marketing

plan’s success. This was a costly mistake. As a result, if J.C. Penney continues to burn cash at

its 2012 spend rate, the company will be out of money by Fall 2013 (Levine-Weinberg, 2013).

In response to this cash crisis, J.C. Penney’s drew $850 million from a $1.9 billion line of credit

on April 15, a large part of which was to finish construction on its home shops (D’innocenzio,

2013). This situation leaves J.C. Penney in an awkward position, with some of its stores in the

midst of construction while others are still in the legacy J.C. Penney state, and without sufficient

cash to finish the transformation nor any solid proof that this transformation will even pay off.

This situation will only add to the branding confusion that customers have already experienced,

continue to further alienate existing customers, and prevent the attraction of new customers.

J.C. Penney SWOT Analysis

The SWOT analysis previously prepared by this team has been updated based on the

most recent development and resulting circumstances.

Strengths

J.C. Penney is sadly and seriously lacking in strengths at this point in time. However,

they do possess one significant strength. J.C. Penney owns more than 400 of its 1,100 stores

(Guinto, 2011). This equates to real estate that could be sold, creating cash that could be

invested back into the remaining stores.

Weaknesses

The primary weakness at J.C. Penney is its steep decline in sales and net revenues due to

the loss of loyalty of their core demographic shoppers, coupled with the cash flow crisis. Other

J.C. PENNEY 8

weaknesses include diminished employee morale, brand confusion, low response to the new

changes, management turmoil, and a lack of clear direction for next steps.

Opportunities

J.C. Penney has many opportunities that could be pursued, but unfortunately few options

available to them in their current reality. The primary opportunity they must target at this time is

to stabilize their operations and costs before they can proceed with any other steps; they are in

damage control and recovery mode. If they can achieve this stability, their next opportunity

would be to focus on the things that are working or bring back things that worked in the past

such as catalog and online sales, coupons and promotions. These efforts present the opportunity

to rekindle customer interest and patronage, which would then lead to the extended opportunity

of adding more brands and labels, and continuing the brand transformation at a more realistic

pace.

J.C. Penney also has the opportunity to pursue a completely different recovery tactic by

taking the company private again. This might require selling some of their property to help

finance the endeavor, but it could present a way to retrench and gather the resources necessary to

revive the brand and save the remaining store locations. J.C. Penney could also consider moving

toward a more regionalized management model, where store managers would have more

autonomy to determine the best direction for their stores.

Threats

The most prevailing threat to J.C. Penney is the amount and variety of retail opportunities

available to the average consumer, crippling J.C. Penney’s ability to compete in the modern

retail environment. Their struggle to define and reach their target market was very apparent in

their 2012 performance, and the weak economy has continued to hinder discretionary spending.

J.C. PENNEY 9

Brick and mortar retail chains are declining in general, and are expensive to maintain in the areas

of both overhead and labor; J.C. Penney has incurred additional expense in its unfinished store

design transformation. With Penney’s finding itself already in a weak financial position,

surrounded by more successful competitors, and struggling to gain back a foothold in the

industry, its ability to succeed looks grim.

Target Market

For retail stores and consumer direct products, it is important to establish a solid target

market to drive inventory off shelves, bring in new customers, and keep the dynamics of a

successful business model going. For J.C. Penney this is unfortunately coming to an undesired

end. The retailer has had some difficult times in the past, but thus far has not dealt with anything

like this before. With the confusion and revamping of their target market it seems as though J.C.

Penney was unsure of what direction to go. Traditionally, J.C. Penney has attracted the older

consumer, perhaps a married housewife, or grandmother of three. Most recently with the

remodeling of their stores, J.C. Penney decided to remold their target market as well.

The change of marketing is seen to be very apparent by J.C. Penney and the market

population they want to be catering to has changed over the past couple of years. Ads and prints

from 1980 through 1990 showed that J.C. Penney’s target population was the middle aged

woman (otherwise known as the baby boomer) who had plenty of time during the day to visit

J.C. Penney stores. On the contrary, J.C. Penney is now trying to gather those customers that do

not have a sense of the department store feeling in mind. When generation Y and X want to go

shopping for clothing, they do not automatically think of a department store setting to meet their

needs. Department stores are slowly becoming eradicated. J.C. Penney faces many challenges

with the changes they have decided to make by really alienating their core customer and trying to

J.C. PENNEY 10

implement a fresh now look and feel to their stores. Chief Executive Officer Ron Johnson is to

blame for many of the mistakes that are causing J.C. Penney’s overwhelming failure. In a recent

news article in Time Magazine titled, The 5 Big Mistakes That Led to Ron Johnson’s Ouster at

J.C. Penney, the author, speaking about Johnson, states that, “There is nothing good to say about

what he’s done” (Tuttle, 2013). In the same article, Mark Cohen, a former C.E.O. of Sears

Canada who is now a professor at Columbia, had this to say about Johnson, “Penney had been

run into a ditch when he took it over. But, rather than getting it back on the road, he’s essentially

set it on fire.”

In conjunction with many other issues identified, Ron Johnson’s plan to bring in a fresh

new feel and look to the stores has seemed to cause an issue with the former customers that were

loyal and willing to continue to shop at J.C. Penney. The fingers have all pointed to the CEO,

who was let go from the company although he had tried to instill plenty of change within the

look and feel of the stores. According to the Time Magazine article, “Johnson pictured coffee

bars and rows of boutiques inside J.C. Penney stores. He wanted a bazaar-like feel to the

shopping experience, and for J.C. Penney to be ‘America’s favorite place to shop.’ He thought

that people would show up in stores because they were fun places to hang out, and that they

would buy things listed at full-but-fair price” (Tuttle, 2013). This model may have been

successful for a startup company but not one that has an established name and clientele that are

not necessarily interested in a brand new look and feel to the stores that they have grown

accustomed to.

In the same article, the writer focuses on the J.C. Penney consumer look and feel, stating

that the target market of J.C. Penney is not what Johnson wanted it to be. The author states that

“early and often during the Johnson era, critics pointed out that J.C. Penney was not the Apple

J.C. PENNEY 11

Store. The latter features cutting edge consumer tech that shoppers have grown accustomed to

purchasing at full price. J.C. Penney, on the other hand, is stuck with a ‘reputation as the place

your mom dragged you to buy clothes you hated in 1984,’ as a Consumerist post put it. The idea

that people would show up at J.C. Penney just to hang out, and that its old-fashioned shoppers

would be comfortable with Johnson’s radical plans like the removal of checkout counters almost

seems delusional” (Tuttle, 2013).

It seems that Johnson’s biggest miss in his new marketing plan was that he was

producing offerings for a new, desired clientele before they existed, while at the same time

removing the products and promotions which appealed to a clientele that did exist.

Competition Analysis

The closest competitors of J.C. Penny are Kohl’s and Sears department stores in terms of

product homogeneity, pricing and retail locations. The decline in the purchasing power of

American consumers and economic downturn compelled businesses to be creative in their

marketing mix in order to achieve sustainability and maximize profitability.

In the course of analyzing the effectiveness (or ineffectiveness) of each company’s

strategic efforts, there are three main elements that impact customer responsiveness as follows:

promotion, product and place.

Promotion

J.C. Penney, Kohl’s and Sears all utilize taglines in order to establish individuality, create

brand awareness and communicate the type shopping experiences that each company offers to

their customers. Taglines also define the mission of the individual company while establishing a

separate identity from similar organizations or businesses in the same industry. The following

are the most current taglines utilize by the three competing companies:

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• Kohl’s – “Expect great things” (Kohl’s fact book, 2013)

• Sears – “Life. Well Spent.”  (Zerillo, 2009)

• J.C. Penney – “Enough. Is. Enough.” (Olenski, 2012)

The newest tagline for J.C. Penney was created last year in an effort to reinvent the

company’s image. The tagline “Enough. Is. Enough.” was intended to liberate J.C. Penney

customers from overwhelming sales, coupons and sales promotions by offering products at

everyday low prices (Olenski, 2012). The intension was good but the choice of words created

confusion and negative impressions as to the real message that J.C. Penney wants to convey.

Kohl’s tagline , “Expect Great Things” on the other hand, reflects positive feelings and a sense

of adventure. The “Life. Well Spent” tagline of Sears is not as good as Kohl’s but delivers a

positive message compared to J.C. Penney’s tag line.

Product

One notable strategic effort that could have contributed to Kohl’s success is its consistent

merchandise mix. As reported in its 2012 fact book, women’s department stayed at 31%,

followed by men’s at 19 %, home 18%, children’s 13 %, accessories 10% and footwear at 9 %.

JC Penny’s most recent merchandise mix reported in its 2010 Investor’s Fact Book has the

following breakdown: 24 % women’s, 20 % men’s, 18 % home, 12 % accessories, 11 %

children’s apparel, 7 % footwear, 4 % fine jewelry, 4 % services and others. The distribution

has changed from its 2009 merchandise mix. Pending to the release of its 2012 Investor’s Fact

Book and based on the strategies that its former CEO Ron Johnson has implemented, there is a

big likelihood that the mix has changed. While Sears continue to experiment with different

avenues to gain footing in the retail industry, it hasn’t been transparent with its merchandise mix

for Sears domestic.

J.C. PENNEY 13

Another strategic initiative that works well for Kohl’s is introduction of new brands,

merchandise content and new concepts every year without changing its merchandise mix. The

most recent addition to its already robust line of brands, such as DesigNation, Princess Vera

Wang, Rock & Republic, has made Sears and JC Penny fall further behind. Kohl’s also carries

premium brands like Jennifer Lopez, LC Lauren Conrad, Dana Buchman, Simply Vera Vera

Wang, ELLE, Daisy Fuentes, Marc Anthony, and Candies. Sears premium lines include

Kardashian, Gloria Vanderbilt, Laura Scott, Methapor, Covington, and Jacklyn Smith. Recently

J.C. Penny launched MNG by Mango, Joe Fresh, Nicole by Nicole Miller, Marchesa,

Worthington, Alfred Dunner, A.N.A. Joe Fresh, Cosabella Amore, and Spanx.

While Kohl’s focus is on offering a variety of choices in its top two merchandise mixes,

women’s and men’s (Kohl’s fact book, 2012), Sears is busy expanding its business to business

initiative, promoting Lands' End “store within a store” and focusing on promoting its Home

Services (Sears 2012 Annual Report). JC Penny is focusing on promoting the shop within a shop

concept for MNG by Mango, Call it Spring, and Sephora. It recently hired Ellen DeGeneres as

its celebrity endorser and has a pending contract with Martha Stewart.

Place

JC Penny has been extensively focusing on store makeovers that resulted in $810 million

of capital expenditures in 2012 (Mead, 2013) and costs are still rising. Conversely, Kohl’s has

been very conservative in spending cash on its capital assets adding only one e-commerce

distribution center last year to support its growing online sales ( Kohl’s Fact Book, 2012). Sears

is expanding its Sears Market Online market place, providing repair parts for do-it-yourself

customers through the searspartsdirect.com website, and separating Sears Hometown & Outlet

stores (Sears 2012 Annual Report).

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Effect of Strategic Initiatives

As shown on the graph below, Kohl’s emerged as the most profitable compared to Sears

and JC Penny with the latter having the greatest loss in 2012. Kohl’s strategic initiatives in

regards to keeping its product mix unchanged, expansion of e-commerce coupled with

conservative spending in capital infrastructure resulted to a net income of $986 million. JC

Penny’s store makeover initiative accounts for 82.23 % share on the total loss of $985 million.

Sears ended up with $930 million net loss (Sears Annual Report, 2013).

Kohl's Sears JC Penny

-$1,000-$800-$600-$400-$200

$0$200$400$600$800

$1,000

2012 Net Income (Loss) in millions

Net Income (Loss) in millions

While Kohl’s and Sears represent competition that is comparable to J.C. Penney in scope

and business model, there are other forms of competition that pose a threat to J.C. Penney’s

success. High-end department stores, discount department stores, and a few other mid-range

stores all jeopardize J.C. Penney’s success in the retail market, as well as specialty retail stores,

and the seemingly limitless amount of online retail sites.

J.C. PENNEY 15

Marketing Research Data and Analysis

Figure 1 Perceptual Map of JCPenney and its Competitors in USA

The above perceptual map with multidimensional scaling (MDS) gives a graphical

visualization of customers’ perception of brands which are competitors of J.C. Penney.

According to Strategic Marketing by Todd A. Mooradian, Kurt Matzler, and Lawrence J. Ring,

the positions of the brands reflect the similarity of each other; “brands that are closer together are

more similar and brands farther away are less similar” (2012, pp. 235). As shown in the map,

Sears is located at the exact same location as J.C. Penney, which implies that Sears is extremely

J.C. PENNEY 16

similar to J.C. Penney in many ways, including the brand image, product varieties, or pricing

strategy, etc. Other brands such as Marshalls, Nordstrom Rack, TJ Maxx, Last Call by Neiman

Marcus, Kohl’s, and Off 5th Saks Fifth Avenue are the brands sharing similar market positioning

with J.C. Penney, as they locate closely around J.C. Penney. They are all selling average quality

goods at moderate price. Stores such as Walmart, Target, Ross, and Kmart are selling products at

relatively lower prices when comparing with J.C. Penney. However, the quality of goods from

these stores is relatively low in customer’s perceptions, too. Stores locating closer to the top right

hand corner of the perceptual map reflect a more premium pricing, and the quality of goods are

higher. This interprets that these stores are carrying more premium brands, or luxury goods. The

only store which locates far from all other stores is Burlington Coat Factory, its location tells that

it is selling overpriced low quality goods.

BCG Matrix

The BCG matrix developed by The

Boston Consulting Group is “the best

known and most often applied” product

portfolio model nowadays (Mooradian,

Matzler, & Ring, 2012). It describes the

growth rates and market shares for the

products carried by J.C. Penney. The

matrix is divided into four quadrants,

with stars (high market

Figure 2 BCG Matrix for JCPenney share and high market growth rate);

question marks (low market share and high market growth rate); cash cows (high market share

J.C. PENNEY 17

and low market growth rate); and dogs (low market share and low market growth rate). The

store-within-store concept is significant to J.C. Penney’s competitiveness, and brands like MNG

by Mango gives customers a reason to shop often at J.C. Penney. The children’s store and older

brands such as Liz Claiborne, and Worthington are not doing as well as the previously mentioned

brands, they have a relative low growth rate, yet still having a high market share which can bring

constant profits to J.C. Penney’s sales. Other designer brands are questions marks to J.C. Penney,

as their market shares are still low, making their potential unknown to the company. The jewelry

department has a low growth rate and low market share, mainly because they are expensive but

have low quality which is getting more unfavorable to both the customers and the company.

An online survey with 100 respondents has been analyzed (see Appendix A) in order to

determine the customers’ attitude towards shopping at J.C. Penney. The results show that a

majority of people from different demographics never or seldom shop at J.C. Penney, although

most of them think the company sells products carrying good value at low price. Moreover, J.C.

Penney fails to define their target market effectively, as customers generally do not like the styles

it carries, and would rather go to other department stores. These factors can draw a conclusion

that J.C. Penney is facing tough competition with other companies in the industry. If it does not

come up with a good marketing plan, it will be hard for the company to return to the black.

Strategic Alternatives – Current Situation

The conditions and mistakes created by former CEO Johnson have left J.C. Penney with

very few options to choose from in order to recover from the disastrous changes he implemented.

One way JCP is trying to recover is by bringing back the company’s former CEO, Myron

Ullman. According to CEO of Belus Capital Advisors, retail stock expert, Sozzi (2013),

“Bringing back Ullman is a big mistake” (as stated by Macke, para. 5). Sozzi believes that

J.C. PENNEY 18

bringing back the old strategy the company worked so hard to undo for the past 15 months is a

big mistake. Taking this strategy alienates their core customers, the baby boomers and puts them

in a position to plead for their business. Ullman is also faced with having half of J.C. Penney

retail stores un-remodeled, which brings on one of the biggest financial burdens on the company.

What are customers to expect of JCP now?

Jeff Macke, former Fast Money stock trading talk show host, asserts there are three

options J.C. Penney might consider that could either lead to keeping their doors open or lead to

their demise. Each option is discussed separately below with consideration of pros and cons.

Option 1 – Undo Johnson’s Work

According to Macke, the first option is to undo everything Johnson did and go back to the

J.C. Penney of old (Macke, 2013, para.10). If J.C. Penney decided to go back via the deep

discount route and mark all of its merchandise down, the pro might be the possibility of

redirecting traffic and business back to the retailer. As noted earlier, the typical customer was

interested in visiting the store for their shopping needs provided they were able to get discounts

and use coupons. The attraction for this type of consumer at this retail chain has prominently

shown up repeatedly throughout the research and analysis conducted. The con to this option is

that it will further decrease its overall revenue, which will lead to financial suicide by drying up

all of its financial resources.

Option 2 – Stick With Johnson’s Work

Macke’s second option is to stick with Ron Johnson’s plan (Macke, 2013, para. 14).

Since J.C. Penney is currently heavily invested in remodeling half of their 1,100 stores

nationwide, it would be a good move to complete their task at hand and give the stores that have

started the remodeling process their intended cleaner, slick, new look. Conversely, by doing so it

J.C. PENNEY 19

would decrease their cash flow immensely at a very rapid rate. By following through on the

previous leader’s intentions, there is a high possibility of aggravating their investors and board

since they are the ones that ousted Johnson and his plans in the first place.

Option 3 – Split the Company

Macke’s final suggestion is to split J.C. Penney into two chains (Macke, 2013, para. 16).

If J.C. Penney commits to completing the stores in which the remodeling projects have begun

and where there has already been significant investment, the pro would allow room for creating

two separate entities within the J.C. Penney umbrella. One would cater more towards the

younger generation that Johnson was hoping to attract. The remaining stores, where remodeling

has not yet started, would cater to J.C. Penney’s traditional baby boomer customers. This would

free up quite a bit of financial resources by not having to remodel any further stores. The

problem with this option is the lack of consistency with the “look and feel” of the stores.

Furthermore, the brand identity would be completely lost and further confuse all customers.

Team Recommendation

After consideration and discussions, this team devised a fourth option which J.C. Penney

could pursue, and through consensus the team felt this was the best recommendation. This

fourth option would allow each store to have its own autonomy from corporate headquarters.

This popular model has been taken directly from a very successful retailer who has

succinctly identified its customer demographics as well as psychographics, Lululemon Athletica.

Christine Day, Lululemon’s CEO, is heavily into following a laissez-faire approach to her

leadership and management style. This adaptable theme would potentially allow J.C. Penney to

save its marketability by giving each store the ability to make its own decisions on how to target

their constituency as they see fit, just as Lululemon does. The empowerment provided to J.C.

J.C. PENNEY 20

Penney store management team would speak volumes for their returning CEO, Mike Ullman.

The pro in this scenario would allow employees to engage and connect with their individual

community. The employees would know what strategic position to take with their store and

know what would work best for the community the store resides in.

The team recommendation saw a hybrid pro/con to this alternative option. The con is

that JCP is currently on the brink of losing everything as the current situation stands. Taking any

risk at this time could potentially bring J.C. Penney to close their doors much sooner than

anticipated. On the other hand, the team believes that without taking any risk there is absolutely

no possibility of achieving any kind of success. The positive outcomes of risk taking have been

proven many times over with successful companies such as Tom’s, Method, Apple, Veev,

Zappos, and One Shot just to name a few.

The overall outcome in this scenario is that it would give J.C. Penney a new “life” by

positively affecting and influencing the “body,” namely the employees of each individual store.

By giving autonomy and ownership, employees would also be held accountable for the success

of each store by means of hard work, creativity and the kind of influence that they hold in their

respective communities. Sam Golter, City of Hope’s first executive director ,was quoted saying,

“There is no profit in curing the body, if in the process you destroy the soul.” J.C. Penney’s

source of inspiration at this time may very well lie in the hands of the right employees –

particularly those with longevity. J.C. Penney must rediscover its “soul” once again by risk-

taking and investing throughout the overall “body,” vis-a-vis the right employees, if it is going to

succeed.

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Appendix A: JCPenney Customer Survey Results

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J.C. PENNEY 25

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References

Note: not all of the references below are cited in this paper, however, they were all used to gain familiarity with the history and current events of the J.C. Penney Company.

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