Since struggling retailer J.C. Penney launched its new marketing/merchandising strategy on Feb. 1, hoping to transform its image complete with a new Fair and Square Pricing plan, matters have gone from bad to worse. Now that J.C. Penney President Michael R. Francis abruptly left the company on Monday after a mere eight months amid sinking sales and plummeting stock, what does the future hold for the 110-year-old company?
Abe Garver, principal at Focus Investment Banking, said the timing of Francis’s resignation is “especially confusing” since J.C. Penney had paid him a $12 million signing bonus expecting him to be a major player in the restoration of the store’s image – “not to mention he was supposed to be indispensable to recruitment of new brands. Francis’s departure appears to be nothing short of a disaster for J.C. Penney customers, employees, stockholders and other stakeholders. So much for Plan A. What’s Plan B?”
J.C. Penney CEO Ron Johnson, a former Apple executive, hand-picked Francis, who had been the driving force behind Target’s successful “cheap chic” image. Francis’s responsibilities included all merchandising, planning and allocation, product development and sourcing.
J.C. Penney didn’t offer a reason for Francis’s departure. In a statement, Johnson said: “We thank Michael for his hard work at J.C. Penney and wish him the best in his future endeavors.”
J.C. Penney’s sales dropped 20% in the first quarter while ecommerce sales sank nearly 28%, to $271 million for the same time period. First-quarter same-store sales declined nearly 19%. In a company press release for the first-quarter financial report, Johnson said J.C. Penney needs to do a better job “to educate the customer on our pricing strategy and drive more traffic to our stores.”
What’s more, in the past three months J.C. Penney stock has fallen 39% — from $37 per share to $22.50.
Francis was Target’s chief marketing executive for a decade before he left last fall to take the position with J.C. Penney. When Francis was hired, Johnson said he had “the vision…to reimagine the department store experience” at the company’s roughly 1,100 locations. The new J.C. Penney has abandoned coupons and sales and embraced a virtual promotion-less environment.
At least for the time being, Johnson will assume Francis’s duties.
J.C. Penney’s three-tiered pricing plan involves everyday prices, sales that last a month, and certain merchandise marked for clearance the first and third Friday of each month and kept at promotional levels until sold.
Operationally speaking, J.C. Penney has also taken a hit: In April it announced that the Pittsburgh contact center would close July 1 after call volume was down 30% since the inception of the Fair and Square Pricing plan.
Ken Lane, principal of marketing consultancy Hathaway & Lane Direct, said the sudden resignation of Francis should not be a surprise to many industry experts.
“Much the same way that New Coke in 1985 snubbed decades of its own brand heritage, it became clear very quickly that J.C. Penney was not Target, was not Kohl’s and could not be an everyday low price proposition in a crowded retail space,” Lane said. “And while the reaction to the new J.C. Penney was not an outcry of negativity, its customer base (credit card holders, mall shoppers, online traffic) saw no reason to buy, no sense of urgency to spend and did voice disapproval by not opening their wallets.”
So what’s next for J.C. Penney?
“Someone needed to fall on their sword and it was Michael Francis,” Lane said. “J.C. Penney will regroup and be back, but it will need to more effectively address the changes in the retail landscape it faced when making these recent changes. Seemingly well-thought out on many fronts, the strategy turned out to be extremely short-sighted on others. Retail history is littered with Target wannabes.”
Lane said that J.C. Penney’s failure isn’t about the power of the brand, “but the recognition that people today shop differently – very differently. Consumers are one click away from our competition, one store away from another sale, one credit card deeper for a better offer. People did not boycott J.C. Penney the way they did New Coke. They just had other options with a sense of urgency that could not wait. The new J.C. Penney will need to create a reason to buy all the time.”
Neil Stern, retail analyst and senior partner for retail consultancy McMillan/Doolittle, said J.C. Penney’s management is attempting to pull off “the largest transformation project in retail history, changing pricing, marketing, the stores, merchandise.”
Even if J.C. Penney is successful, Stern added, “it won’t be easy as evidenced by the fairly dismal first quarter of publicly announced numbers. I don’t think J.C. Penney under-estimated the enormity of the challenge, but attempting to do all of that under intense public scrutiny is enormously difficult. I’m surprised by Francis’s departure. It’s way too early to have any scapegoats even though it’s clear that the marketing messages and communications need refinement. The company’s future still needs to be determined over the next 12-18 months when the longer term changes to the merchandise and stores can actually take place.”