JC Penney's People Strategy: Setting the Right Climate for Human Resource Development

 The case is about JC Penney's (JCP) human resource development (HRD) strategy and also highlights learning issues related to corporate coaching. Though JCP had been coaching its employees at all levels in the hierarchy since the 1970s, it was still not considered a great place to work by employees and potential employees. The more-than-one-hundred-year-old company had got into trouble in the late 1990s and the early 2000s, but made a dramatic comeback by the end of 2004. This was the time Myron E. Ullman III joined JCP as the Chairman and Chief Executive Officer. He, along with his top management team, took various initiatives to change the climate and culture of JCP. They also started various people development initiatives. By the end of 2006, JCP was able to attract enough talent. Graduates from premier design and retail schools showed an interest in working for the company. The impact on the bottom line was also visible as JCP posted its 15th consecutive quarter of sales gains at the end of fiscal year 2006. Its share prices too showed significant growth. JCP contended that its engaged employees were making the difference. The case will help students to: (1) appreciate the importance of human resources and organisational culture as a source of competitive advantage; (2) understand the importance of a sound organisational climate and culture in attraction, retention and development of the employees; (3) understand the importance of supportive communication (sound organisational climate and culture being a prerequisite for this) to making HRD initiatives / coaching more effective; (4) appreciate the role of senior management in changing the organisational culture; and (5) understand how the culture of an organisation could be a source of sustainable competitive advantage. The case is meant for MBA / MS students as part of a business strategy / strategic human resource management / organisational behaviour curriculum. The teaching note includes the abstract, teaching objectives and target audience, teaching methodology, assignment questions and analysis, feedback of case discussion, and suggested readings and references.

J.C. Penney Co. is trying to figure out how to offer customers the promotions they clearly want without returning to the sale-driven mentality of old.

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Offer a customer 10 bucks off and they’ll probably call it a coupon, although J.C. Penney Company insists that the $10 “gift” it sent what it referred to as “a select group of core customers” is no such thing.

This might seem like semantics, especially to the shopper who just wants to pay less for towels or sneakers. From a strategic perspective, it’s actually an important distinction that gives Penney a much-needed middle ground of offering customers the promotions they clearly want without returning to the sale-driven mentality of old.

“I don’t think they’re changing their strategy,” Morningstar equity analyst Paul Swinand said. “I think they’re still having trouble with

traffic. The difficulty now is you have to change the brand perception among consumers and brand perceptions are very hard to change.”

By targeting only its biggest fans and framing the $10 off as a reward for loyalty, “They don’t have to call it a coupon the way they used to,” said Marshal Cohen, chief retail analyst at NPD Group.

“When J.C. Penney operated as a promotional department store, we relied on coupons to drive traffic during key sales events. Now that J.C. Penney is transforming to become a specialty department store, the gift serves as an invitation for customers,” the retailer's media relations director Daphne Avila said via email.

When CEO Ron Johnson announced a near-total break from promotional pricing after only three months on the job in February, analysts worried customers wouldn’t like it and would vote with their feet. For the most part, they did; since then, Penney has struggled to get traffic into stores, even as it revamps them into a series of boutiques that analysts say hold promise.

Initial shop productivity [is] encouraging,” JPMorgan Chase analyst Matthew Boss wrote in a research note last month. He noted that the in-store boutiques have 20 percent higher sales than the rest of the store, but those spaces currently take up only 10 percent of stores’ floor space. For the second half of 2012, management told investors to expect a 20 percent drop in same-store sales.

Swinand said eschewing excessive promotions is still a better bet for Penney in the long run. “if somebody walks in and is looking for a pair of jeans, they want a pair of jeans... If you throw an 80 percent off sign in front of their faces, they’re distracted.”

But even if it was counterproductive, it was a distraction consumers expected, especially in the aftermath of the financial crisis. “We conditioned consumers to only buy things during deep discounts,”

Swinand said. “We’re still having trouble getting people off of that drug.”

The $10 discount could indicate that the company is acknowledging that the pace of change is slower than it wanted, and is rethinking its strategy of going cold turkey in favor of working more gradually to wean consumers off markdowns and coupons.

Avila seemed to indicate this might be the case. “We have not yet made any decisions regarding future gifts; however we are reviewing our jcp rewards program to bring additional incentives to our most loyal customers.

If you haven’t heard that former Apple executive Ron Johnson became JCPenney’s CEO in November, then don’t worry. It just means you’re not an insane newspaper junkie or a total marketing nerd. Congratulations! When I heard the news, I wondered what sort of new ideas he’d bring to this struggling retailer. Would he bring the sleekness of Apple stores to Penney’s or increase their level of service? Well, to answer your question, he’s not only aiming to achieve these goals but several others, too!

"Look honey! Another sale!"Chances are you’ve received at least one mailing from JCPenney (probably three this week alone). Well, that’s soon to change since they’ll be ditching the hundreds of sales that they offer throughout the year and instead going with a simple approach to their pricing strategy. “Every Day Pricing” will offer customers more predictable pricing instead of the current “I’ll just wait until this goes on sale” type of mentality their customers currently have, myself included.

Johnson has quite the resume of breathing fresh air into brands already. He was a mastermind responsible for making Apple Inc.’s stores the success that they are

today and he was a former executive at Target Corporation as well. He joined Penney’s board in August and has brought in former colleagues from both Apple and Target in hopes of revitalizing this struggling retailer.

There are five points that you’ll notice the next time you go into a Penney’s or turn on the TV:1. Sale prices are now “Every Day” prices. Before you freak out and assume they’re going to jack up their prices, they’re not. Their plan is to use last year’s sales data to mark down prices on all of their merchandise this year, by at least by 40 percent or lower than last year’s prices. Example: a Liz Clairborne purse regularly priced at $49.99 could have an “Every Day” price of $25.

She's happy she got a great deal on her jeans from JCP!2. Easier pricing. As you noticed in point #1 above, JCPenney will use whole figures when pricing their merchandise. Good bye to jeans for $19.99 and hello to jeans for an even $19 or $20 instead. As someone who always just rounded up (I truly pity people who think to themselves: “it’s only $19.99?! That’s under $20! What a deal!”), I welcome this change with open arms.3. Easy-to-decipher tags. I shop more often than what’s good for me, so I know from experience that it’s annoying when retailers keep marking down their merchandise with stickers. I never know what the “final” price is, and sometimes stickers do fall off or get ripped off. JCPenney is changing that, too! Now when something is discounted, it gets a whole new tag! A red tag shows an “Every Day” price, a white tag is a “Month-Long Value”, and a blue tag shows the “Best Price.”

4. Less sales. A red “Every Day” price tag is just that — the everyday price. The “Month-Long Value” white tag will show what’s on sale for that entire month, not just for the next 6 hours, the day, the weekend…but for the whole gosh darn month. The stuff that doesn’t sell will have a blue “Best Price” tag put on it; these items will go on sale on the first and third Friday of every month. Sound familiar? That’s because these Fridays are when many of us get paid! This gets a major thumbs up from me.

Mmm, apple pie and baseball5. New logo and advertising. Their logo has changed and may have you thinking of homemade apple pie or baseball. According to their press release, “the new JCPenney logo, which combines the elements that have made JCPenney an enduring American brand, by evoking the nation’s flag and JCPenney’s commitment to treating customers fair and square.” I totally agree with this! Next, their TV ads are a bit from their norm; some feature customers who are fed up with cutting coupons and seeing the sweater they’re currently wearing on sale for a cheaper price. Ellen DeGeneres will become their new spokeswoman and a catalog will be mailed out each month. Even though I do a lot online these days, I do still love flipping through a catalog, especially one that is 96 pages. Score!BONUS: The biggest news yet! Martha Stewart mini-shops will be introduced starting in 2013 to bring in her fans to do some shopping and become a little bit more like Ms. Stewart. And in true Apple fashion, a Town Square will be built inside Penney’s to offer services and expert advice (cough* Genius bar concept *cough)?Even if you aren’t a marketing nerd, you have to admit this is pretty radical stuff forJCPenney. They’ve been around since 1902 and could use a bit of refreshing for today’s consumers. They’re the first major retailer to go through such a drastic pricing change, up almost a complete 180 degrees it seems.

Despite my enthusiasm, critics have mixed opinions on JCP’s new pricing strategy. Walter Loeb, who is a retail consultant based in New York, said that their new pricing is “visionary” and “revolutionary.” On the flip side, Charles Grom, a retail analyst at Deutsche Bank, notes that the challenges Penney’s faces will be difficult. Changing shoppers’ buying habits can’t be done overnight, and reminds us of Macy’s cutting back on their coupons a couple years ago, only to see sales fall. They reversed their decision as quickly as possible.

Time will only tell what the masses think about these new changes.

What are your thoughts? Do you like the new strategies? Does one stand out more so than another? Sound off below!

J.C. Penney Company, Inc. History

Company’s History:

With over 1,200 stores in all 50 states as well as Puerto Rico, Mexico, and Chile, J.C. Penney Company, Inc. (JCPenney) is the largest department-store retailer and catalog merchant in the United States, with licensing agreements for its products throughout the world. The company boomed in its early days in Western mining towns because it offered all goods at "one fair price" and brought fashionable goods from the East to remote towns. The company struggled through the 1970s, as upstart companies like Wal-Mart began selling goods at discount prices and long-time rivals like Sears gave JCPenney tough competition in the hardware and appliance departments. A major reorganization of the company from a mass marketer into a fashion-oriented national department store during the 1980s, along with the relocation of its corporate headquarters from New York to less expensive Texas, put JCPenney in a strong position to compete in the tough retailing climate of the 1990s.

Rapid Growth and Expansion, 1920s-50sDuring the next several years, the company's growth was explosive. As Penney's personal wealth increased, so did his charity. Though he had quietly been giving thousands of dollars to local churches and organizations, in 1923 he founded Penney Farms, a 120,000-acre experimental farming area in northern Florida for

down-on-their-luck farmers. In 1925 when the company's 674 stores generated sales of $91 million, Penney was again giving some of his good fortune back, this time in establishing the J.C. Penney Foundation to fund a myriad of family-related agencies. The next year, when the company opened an 18-story office and warehouse building in New York, Penney went back to Florida and built the Memorial Home Community, a 60-acre residential tract for retired ministers, church workers, and missionaries, adjacent to Penney Farms.

The 25th anniversary was celebrated in 1927, and founder James Cash Penney declared that the company had a good shot at achieving sales of $1 billion by its 50th anniversary in 1952. The company's managers and executives, who had equity in individual stores they ran or oversaw, traded their ownership for a stake in the company as a whole. In 1929 the company was listed on the New York Stock Exchange. When the Great Depression hit, the company coped by cutting back its inventory and trying to purchase goods at lower prices so it could pass the price cuts on to customers. The company survived the hard times largely because it had become known for its high quality goods and service, and people turned to JCPenney for the basic items they needed. The company's profits even increased during the Depression, and by 1936 sales rose to $250 million, and the number of stores grew to 1,496.

During World War II, the company sold a record number of war bonds through its stores. Materials and merchandise were scarce, yet the company increased its sales to $500 million in 1945. In 1946 Earl Sams was promoted to chairman, with Penney as honorary chairman, and Albert Hughes, a former Utah store manager, was elevated to the presidency. The company--now with 1,602 stores--opened a store in Hampton Village, Missouri, in 1949 in a "drive-in shopping district," a precursor to suburban malls. After only four years as chairman, Earl Sams died in 1950. In an unusual corporate move, J. C. Penney resumed the chairmanship instead of promoting Albert Hughes. A year before its 50th anniversary, the company reached its goal of $1 billion in sales.

In 1954 Penney created the James C. Penney Foundation (its predecessor, the J.C. Penney Foundation, went under during the Depression) to continue his philanthropy, and in 1957 he served as a charter member of the Distributive Education Clubs of America, helped create the Junior Achievement Clubs, and endowed a chair at Westminster College. At the same time, William Batten, a vice-president, conducted a study in 1957; the results indicated the company should adapt to changing consumer spending habits, especially by beginning to sell on credit instead of for cash only. The next year, Hughes became chairman and Batten

became president. The company issued its first JCPenney card and instituted other changes as a result of the study, including the introduction of major appliances, home electronics, furniture, and sporting goods.

A New Era, 1960-75In 1962 JCPenney got into the mail-order business for the first time by buying General Merchandise Company, a Wisconsin firm with a discount store operation as well. JCPenney was different from many of its competitors with its late entry into the catalog mail-order business. Other big retailers started in mail-order and then launched into retail stores. JCPenney created the Treasury discount stores from the General Merchandise discount operation. The next year, it mailed its first JCPenney catalog. In eight states, customers could order from the catalog from inside JCPenney stores; a Milwaukee distribution center supplied the goods. The company's first full-line stores, with all the new merchandise lines instituted by President Batten, opened in 1963 in Audubon, New Jersey, and King of Prussia, Pennsylvania. They were prototypes for the JCPenney stores of the next two decades.

The company needed bigger headquarters because it had grown significantly in 38 years; it built a 45-story office in New York in 1964, where the company stayed until its later move to Dallas. At the same time, Batten became the company's fourth chairman and beauty salons, portrait studios, food facilities, and auto service centers were added to full-line stores. Sales topped $3 billion in 1968; in 1969 the company added an Atlanta, Georgia, catalog distribution center and purchased Thrift Drug Company.

Two years later, when James Cash Penney died at age 95, sales for the company he founded hit $5 billion and the catalog business made a profit for the first time. Able to take advantage of the fact that disposable income in the U.S. was rising faster than inflation, JCPenney reached its highest number of stores in 1973, with 2,053 stores, 300 of which were full-line establishments. Donald Seibert was elected fifth chairman of the board and CEO in 1974, the same year a third catalog distribution center was opened in Columbus, Ohio. The company offered, and sold, three million shares of common stock in 1975, and Sesame Street joined JCPenney's fold by signing an exclusive licensing agreement for children's wear.

While the company was riding high on these achievements, the recession that began in 1974 took its toll. JCPenney's stock plunged from a high of $51 a share to $17. Earnings dropped from $185.8 million to $125.1 million. Investors believed

low-margin items like appliances were squeezing profits, and that discount and self-service home-center stores were doing a better job than JCPenney in the hardware business. The advent and strong growth of the specialty apparel store also meant tough competition for JCPenney. Like other businesses, JCPenney rebounded and had good growth in 1975, but its executives began to suspect the company needed to be restructured.

1976-85: Mass Merchandiser or Department Store?Walter Neppl became president in 1976 (Siebert was still chairman), and the company launched its women's fashion program in five markets, designed to help the company compete against specialty stores cropping up in malls. A fourth catalog distribution center, in Lenexa, Kansas, was added in 1978. By then, sales had grown to $10.8 billion, the women's fashion program was introduced in new markets, and a home furnishings line was added. As a fifth distribution center was added in 1979, in Reno, Nevada, the catalog service went nationwide. Sales of the service surpassed $1 billion, making the company the second-largest catalog merchandiser in the United States.

To continue expanding the credit policies of the company, JCPenney began accepting Visa in 1979; MasterCard was accepted the next year. The company closed the Treasury discount stores in 1980 because they were unprofitable and decided to focus resources on its JCPenney stores. In 1981 when the company's sales totaled $11.9 billion, JCPenney was the first to sell zero-coupon bonds in domestic public markets. It also reorganized its executive structure around the office of the chairman. Seibert remained chairman, Neppl moved to the new vice chairmanship, and William Howell was made an executive vice president. With these officers in place, the company launched a massive reorganization to transform the company from a mass merchant into a national department store. It would take almost a decade to achieve the goals outlined in the JCPenney stores positioning statement, issued in 1982.

The company's first order of business was to expand the fashion programs in men's, women's and children's departments, and the company divided its stores into two categories, metropolitan (based in regional shopping centers) and geographic (based in smaller communities). A sixth catalog distribution center was also opened in 1982, in Manchester, Connecticut. With the $14 million remodeling of its key store in Atlanta, JCPenney rolled out the prototype of its latest store design. Atlanta was only the beginning. In 1983 JCPenney announced a $1 billion program to give its stores facelifts and rearrange merchandise. Apparel, home furnishings, and leisure lines would be emphasized, and auto service, hard line appliances,

paint, hardware, lawn and garden merchandise, and fabrics were phased out. Its big mass merchant competitors, Montgomery Ward and Sears, continued in these lines.

Retail analysts who followed JCPenney called the company's decision difficult but necessary. These lines provided $1.5 billion in annual sales, but were keeping the company from positioning itself as a true department store. In addition, low-margin goods were preventing the company from making its profit potential. In 1983 Howell, who most recently held a vice chairmanship (along with David R. Gill, who'd started with the company back in 1953), was elected the sixth chairman of the board, and David Miller was named president. The company also introduced a communications system for broadcasting directly to its stores using satellite transmissions from headquarters. Merchandise buyers from the home office could show store managers, salespeople, and local buyers what merchandise was available, and the local employees could help select what goods would likely sell in their stores. This gave the company the cost-saving advantages of being centralized, but also allowed it to be sensitive to fashion and seasonal preferences in local markets.

Thrift Drug, long dormant since JCPenney purchased it, scored some big points in 1984, when several major industrial companies became mail-order pharmacy customers. Also in 1984, JCPenney purchased the First National Bank of Harrington, Delaware, and renamed it J.C. Penney National Bank, to assist in credit and financial services. The company began accepting American Express cards as well as Visa, MasterCard, and JCPenney credit cards, and the bank was issuing its own Visas and MasterCard’s. Thrift Drug celebrated its 50th anniversary in 1985; JCPenney's total year-end sales hit $13.6 billion.

A Dramatic Turnaround, 1986-95In 1986 JCPenney acquired Units, a chain of stores selling contemporary knitwear and by the next year the company was well on its way to achieving the goals it set forth in 1982. Moving its corporate headquarters to just outside Dallas, Texas, JCPenney was able to cut $60 million from its annual budget although about 1,250 New Yorkers lost their jobs. JCPenney's president, David Miller, added vice chairman and COO to his titles, and the company began focusing on four major merchandising groups by dividing them into separate business divisions: women's, men's, children's, and home and leisure. By the end of 1986, there were 1,482 JCPenney stores dotting the country, about to undergo a major change. In 1987 the company discontinued sales of home electronics, hard sporting goods, and photo equipment in its stores. The space that became available was then used for

women's apparel. Also in the late 1980s, JCPenney opened freestanding furniture stores, called Portfolio, on an experimental basis.