Obligatory Warren Buffet quote: "I've said many times that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."
I'm one of the weirdos who always shopped at JC Penney.
They were always good at stocking good quality stuff at decent prices. I happen to be big & tall guy and have a terrible time finding clothes -- I can't shop at most mall retailers at all.
The problem with the transformation is that they did too much, too fast, and didn't understand the business. Johnson didn't just stay away from HQ, he never went to a store. THe shining halo of Apple conceals a lot of problems at the Apple store as well... The place is packed, but people have no idea how to actually check out. I usually see one or two frustrated shoppers give up whenever I am at the apple store.
They did things that were great ideas, like not stuffing racks into the aisles and getting rid of the cheap gizmos and merchandising. But they did everything overnight and didn't replace the dingy old carpets that were concealed by the racks. Good ideas implemented in a vacuum don't always work out well.
And, since tall guys aren't cool enough, they slashed the inventory of clothes that fit me.
I felt bad when I bought a bunch of shirts for $10 on,ine that are priced at $40 elsewhere in the big fire sale last week.
Me too. It was fat (tall) people clothing that was more conservatively styled, which far better suits my personal wants than the chain fat peoples store.
> I'm one of the weirdos who always shopped at JC Penney.
I discovered Land's End recently. My mom bought me some clothes for a gift and I found them to be simple and decent quality. I always thought it was a catalog business for old people to shop but I guess I got old enough to no care about brands, I just like it when clothes don't fall apart at the seems after a wash or two.
> By early fall 2011, Mr. Johnson was tackling Penney’s pricing, which he thought used too many discounts. He ignored a study Penney had just completed on customer preferences, and gave merchants a one-sheet grid explaining what prices they could use.
> “Ron’s response at the time was, just like at Apple, customers don’t always know what they want,” said an executive who advocated testing. “We’re not going to test it — we’re going to roll it out.”
Uh, OK...as others have pointed out, it's a far different game selling top of the line future-thinking tech products and selling affordable clothing...and this difference would be especially pronounced in the context of this "customer doesn't know best" philosophy.
I mean, that's partially true no matter what the price point of the product is...but the difference is that when you're selling expensive products with high profit margins, you have much more runway to deliver that special thing/innovation that customers don't yet know they want. How was that not obvious to Johnson?
> it's a far different game selling top of the line future-thinking tech products and selling affordable clothing.
There is something to be said about drinking your own kool-aid (marketing). It only works for a top/luxury brands. Apple devs can keep believing they work the for the greatest company and they would be right. In most other cases it is important to not drink your own kool-aid. Keep telling customers about all the cool and hip features and products, but always be looking over your shoulder, always test, always doubt.
Before Jobs agreed to go back to Apple, he made sure he could pretty much do anything he wanted and never get fired. A lot of the changes he made were just as disruptive, if not more so, than the ones Johnson made.
Johnson tried to do that, and ran into two problems.
1 - He's not Steve Jobs, nobody is. He simply didn't have that 6th sense to make business decisions blindly and almost always be right.
2 - He didn't have that much freedom. Jobs would have stayed in power until Apple went bankrupt. They were that desperate and he had that much power.
Jobs refined one thing at a time over many, many iterations to an incredibly well thought-out polish of design and functionality. His marketing was also incredibly well thought out, carefully iterated, over a long time.
Johnson just seemed to think he could change stuff he didn't like with no iterations and no need to think it through. Plus he had no special focus, unlike Jobs with one key product at a time.
“Martha is the key,” he wrote in an October 2011 e-mail to himself.
How did this make it into the article? Was it a company-wide mail headed, "Open Letter To Me"? Is this his personal note-taking strategy, and he let the Times read it?
This email was likely unearthed during pre-trial discovery (http://en.wikipedia.org/wiki/Discovery_(law)) when Macy's sued Martha Stewart Living Omnimedia (MSLO) for breach of contract when MSLO decided to start selling its formerly-exclusive-to-Macy's products to JCPenney. It was probably found by searching for the keyword "Martha" in the emails of certain top JCPenney executives. That trial has already revealed many important emails about the Martha/JCPenney deal.
While Apple Stores was a brand new project, turnover at JCPanny required completely different strategy and most importantly managing expectations of both internal and external stakeholders i.e. customers.
This story again proves that flexibility and desire to learn matters much more than hard skills and experience. Apple approach only works for Apple.
How do these CEOs make the noobest mistake? Know your customer base! JC Penney was never an upscale department store. Did he all of the sudden think it would become one with a stagnant economy? Common sense. I think this guy lucky with Apple. He was just at the right place, at the right time.
Apologies in advance. You may have a lot of domain knowledge that I don't know about, but...
This sounds like armchair quarterbacking. It's easy on the surface to criticize, but we don't really know all the factors that lead to Johnson's decisions. I don't think it's fair to try to boil it down so much.
It's like someone criticizing a development project without knowing the budgetary or time constraints. Yeah, it would have been better to do it _this_ way, but _that_ way assumed an infinite budget and time.
Have you been in a Pennys? It's about as upscale as Dennys, and as hip as the dentist. On the other hand, it did offer consistent value and a consistent shopping experience. He tried to do in a year, what needed ten years or more to do, and failed. His failure is not unsurprising to any of us who have been in the store. Pennys, was so un-hip it almost became hip, but it rightly so had a image of dowdy women wearing housecoats shopping on a Tuesday.
I have been to Penny's many times. I don't necessarily disagree with your observation of the store, the point I was trying to make is that judging the dude on the visual data we have is unfair.
I don't know the guy, but I assume he's not stupid, so if what you believe is so obvious, it must have been obvious to him too. But, for some reason he chose a certain strategy and we don't know exactly why. We don't have all the data.
All I'm trying to say is that it is easy to criticize, but I don't feel comfortable criticizing someone who knows a lot more than me in a certain area.
It's fucking hard to be CEO and I don't feel comfortable being an armchair CEO.
What is your point? Only CEOs can criticize CEOs now?
It didn't seem like he knew what he was doing. Most people knew that he was going to land on his ass. He duly did. Criticism fully warranted, armchair or not.
We never have all of the facts. Criticism is an important way to learn from other's mistakes. Sometimes you have to make due with the limited data you have.
Also, it's actually very common for someone who has considerable knowledge in a certain area to be wrong. The market/technology/customers/etc can all pass them by, while their thought process remains stagnant.
> This sounds like armchair quarterbacking. It's easy on the surface to criticize, but we don't really know all the factors that lead to Johnson's decisions. I don't think it's fair to try to boil it down so much.
Uh, are you suggesting that Johnson was forced to conduct actions that are consistent with moving JCPenney's to an upscale bracket? Because usually that kind of move costs much more money than maintaining the status quo.
It's fair to sympathize with a CEO had no options but to keep a slowly sinking ship from sinking faster. However, I when a CEO accelerates the sinking by his own initiative, it's fair to scrutinize his decisions.
No, I honestly don't know anything about retail or Johnson (or the OP). I guess I just was bothered by this quoted statement:
> How do these CEOs make the noobest mistake?
To me it sounds unfair. It sounds like the OP thinks he/she could be a better CEO. That feels like armchair quarterbacking to me. (But I'm wrong if OP is Tom Brady or an expert in the field.)
There's a pretty solid argument to be made that if JCP doesn't go upscale, or at least some sort of mid-scale, they're going to go kaput, because they have zero chance of winning a supply chain competition with the Wal-Marts, Targets, and Costcos of the world.
Basically, yes. Some combination of Walmart, Target, Costco, and Amazon (and I'm sure others that I'm leaving out) have basically taken over the inexpensive department store market, where price is the #1 purchase-decision factor. At some point, you end up in a logistics competition, where your margin is dependent on whether your supply chain is cheaper than someone else's. Within tech, the demise of Dell illustrates the perils of being a commodity supplier.
There's plenty of profit to be had in the higher end, selling "the experience". Nordstrom, for instance, is doing just fine. Being able to walk into a store, talk with knowledgable salespeople who can get a feel for your style and desires, then recommend products that suit them is a value that some customers are willing to pay for.
Johnson's background with Apple was in creating the latter sort of experience, but it simply did not match with the priorities of the JCP customer, and was driven by the notion of "build a better store, and the customers will come", without enough research into where potential gains and losses were.
Dell isn't dead. They took a hit in recent years, but so did pretty much all PC suppliers. The market is just not growing at the same rate it used to, at least in the US.
There's nothing wrong with getting into a logistics competition. You just have to win.
Personally, I do not buy any clothes at all from "luxury" stores like Nordstrom's. I buy some clothes online, and basic clothes like socks from Target. I just don't enjoy feeling like a rat in a maze, which I inevitably do at clothing stores. And I don't want salespeople bothering me. The value of all this stuff is pennies in China, so I feel like we are really getting overcharged in many cases.
I walk by the midtown Manhattan Macy's every day on the way to work...it's not terribly tempting to go in, as all the prices are generally more expensive across the board than finding the individual brand stores online or in person. However, I am always surprised by how much stuff there is...I mean, in an existential sense. Yes, I'm always aware of the variety of consumer-targeted items through the internet, but it's something else to see it in person. Everytime I go into that midtown Macy's, I find myself just wandering all the way up to the eighth floor. Maybe that's why I don't go very often...
Perhaps Kohls is a better example. Maybe even Target. JC Penney's is like that old Oldsmobile automobile. It needs to be turned over. Perhaps even spawn another brand.
A college girl who decided I needed better clothes dragged me off to Nordstrom the other day. I can't imagine they do badly at $150 per t-shirt. We also bought a pair of $2,000 shoes at Neiman Marcus nearby for her. I guess these profit margins are what the guy was going for, but he would have been better off just dumping the old brand and building a new one, I suspect. No one goes to JC Penny for upscale clothing.
By "we" do you mean "you"? I can't imagine buying $2,000 shoes as a college student. Now that I think about it, I can't imagine buying $2,000 shoes, period.
It is a segment that is declining overall. I think that has more to do with the legal/tax/financial framework that makes big box retail grow like a weed.
By early fall 2011, Mr. Johnson was tackling Penney’s pricing, which he thought used too many discounts. He ignored a study Penney had just completed on customer preferences, and gave merchants a one-sheet grid explaining what prices they could use.
I think that in JC Penney's case, excessive discounting may not have been a merchandising strategy but rather a symptom of allocation mismatches in their supply chain, leaving them with excess inventory (and associated costs). Their mistake was hiring a merchandising guy who didn't get this and tried to eliminate the discounts without fixing the underlying allocation problems.
Ouch! It's a bad sign when you starve your team of useful data!
"He revoked access to Penney’s sales data for all but the top executives. But that took away valuable information: the buyer for, say, men’s big and tall could not see how women’s plus size was performing."
Yeah, that one really stuck out to me as well. Maybe it's just a matter of perspective, but if I were runny JCP, I'd make sure everybody down to the janitor had access to that stuff. And everybody, including the janitor, would have a channel to make sure their ideas could make it all the way to the top and get heard, if they had merit.
I bet that's it. And/or, "hey the sales are falling! Better hide that bad news" Both are bad ideas, blinding them just when they need the data.
I'd rather risk having my competitors occasionally get some of my data, than risk not sharing data freely within my own team.
The competition is likely already getting those signals anyway, and the larger your organization, the more likely that you've got many internal blind spots that you really need to address.
"But his Silicon Valley ways — evident from a showy party in early 2012 that he threw to celebrate himself and his plans, replete with a light show, fake snow and flowing liquor — jangled from the start."
SV is all about show and lights? The article is sensationalizing. Most SV companies I know are about knuckling down and delivering. Parties about a CEO? Maybe circa 2000.
There's only only place where you can (or could) get the greatest phone, laptops, tablets etc: the Apple store. They had huge margins and great demand so they acted as they didn't want to nickle and dime their customers.
Now let me see where else I can buy some decent clothes, dishes and sheets...
> Now let me see where else I can buy some decent clothes, dishes and sheets...
Actually an interesting question. I remember going to department stores, and malls more often. But thinking about it, I haven't been doing that lately. So where to do people get their clothes, dishes and sheets?
I pick stuff up on Amazon often. That would be tough with clothes having to send them back many times when they don't fit. Maybe I just reached a point when I could afford to get more quality stuff that doesn't need replaced so I just don't shop for it as much.
Is there a website for example that if I send my measurements, they can show me a couple of models dressed in a few styles, and I would pick which ones I like (like Netflix does with movies). It would figure out my style, then the would just filter or sort clothes I would like and would fit me. I would pay for that. It would save me time for example.
