Mgmt591 - Research Paper – Oranizational Change at Jcpenney
Business and Management
Submitted By Chell33
Mr. James Cash Penney Jr. was born on September 16, 1875 to the parents of James Cash Penney and Mary Frances Paxton in Caldwell County, Missouri (Elizabeth, 2010). Mr. Penney got his start in retail business on April 14, 1902 by becoming one-third partners in a New Golden Rule Store. His partners were Thomas M. Callahan and W.Guy Johnson (Elizabeth, 2010).Mr. Penney partners sold their interest in three Wyoming stores in 1907. Four years later, January 17, 1913 the J.C. Penney was incorporated. It started out with 34 stores and 20 shareholders (Elizabeth, 2010). The shareholders were store managers, former partners, Mr. Penney as the president and major shareholder. JC Penney became a public traded listed company on the New York Stock Exchange in 1927 (Encyclopedia Britannica, Inc, 2012).The headquarter is located in Plano, TX, and operates in the United States and Puerto Rico, with more than 1,100 stores and counting. JCPenney merchandises include Women’s, Kid’s, Home, Shoes, Men’s Clothing, and Bed & Bath. My role is an organization consultant. I will provide new idea to JCPenney on how they can become more profitable to consumers again. To improve sales and their image, JC Penny close their catalog business, outlet stores, exit the drug store business, and closed under-performing stores (Booten, 2011). With this reformation, many people were laid off.
JCPenny had set the top company priority as making sales for the quarter. With downsizing, JCPenney changed their image and logos. Figure 1 display the logos for JC Penney over the years. The problem that JC Penny is facing is consumer spending. The majority of their customers were middle-class American who lost their job in the Recession of 2009. With most companies, JC Penny did not change with the time. It was struck in their old ways of during business. As a major department store, you have to change along with the consumer buying power. To help with turnaround, the company’s Board of directors hired Ron Johnson as the new CEO effective November 1, 2011. To improve sales, the company new market price strategy was “Every Day, and every first and third Friday of the month was “Best Prices”. The “Best Price” was to match consumer pay day period for the month (D’Innocenizo, 2012). “A red tag indicates an “EveryDay” price, a white tag a “Monthly Value” and a blue tag a “Best Price”” (D’Innocenizo, 2012). Ron job was to improve sales and make the company a more profitable again. Figure 2 displays the financial summary for the last five years for JC Penny.
As you can see from Figure 2, the sale for JC Penny has been declining for the last five years (JCPenney. (2013) SEC Filing). This is the reason why Mr. Johnson was hired, to improve sale for the company. With his background of over 25 years of retail from Apple to Target and now JC Penney, the board felt he was the man to turnaround sales at the company with his experience (JCPenney. (2011) Company News).
James Cash Penny founded the JC Penney in 1902. The company originally called the Golden Rule. The name given because Mr. Cash he wanted everyone to be treated with respect. In 1963 and 1994, the first JC Penney catalog debut. In addition, in 1994, the company launches its internet site, www.jcp.com (JC Penney, 2013 History).
On June 14, 2011, it was announced Ron Johnson would be the new CEO of JC Penny effective November 1, 2011. Mr. Johnson brings over 25 years of experience from retail. His former jobs were at Apple and at Target. His background includes a MBA from Harvard Business School, and a BS in Arts at Stanford in Economics (JCPenney. (2011) Company News). Mr. Johnson announced to the consumer that he was changing the way JC Penney does sales with consumer. Price will be slashed on the 1st and 3rd Friday of every month to go along with consumer paycheck and how the price will be slash. The price slash is base on the last year sale of the item. For example, “a woman’s St. John Bay blouse is regular priced at $14.99 and the “Every Day” price of $7 (D'Innocenzio, 2012).”
To accommodate the new price plan and free some money, JC Penney laid off 350 workers at its headquarters in Plano, TX. The company lost a 20% of revenue in the first quarter due to the price changing. According to Mr. Johnson, the lost was due to poor communication on the new price strategy that he announced. Presently, the company is offering a three-tier plan, which calls for reducing prices by 40% from a year ago, offering deeper month-long discounts and clearance events (AP and wire source, 2012).
I think Mr. Johnson miss the five stages of merchandising which were conceived by John Geisse, the founder of Target stores. The five stages of merchandising are:
“First Stage – Testing – This is an important moment when a new color, a new silhouette or neckline is tested by putting it on a rack or table in the department. Some merchandise will go to the next stage; other merchandise will go to the outgoing stage (see below) because it did not sell.
Second Stage – Incoming – Once it has been determined that the merchandise has customer appeal, the buyer will add more styles to a color, a new silhouette, or an entirely new fashion to make a bigger display of the merchandise. This happens because the test (stage one) has provided evidence surrounding a new exciting trend.
Third Stage – Pre-Peak – Now there is real excitement – the merchandise will be advertised and the store buying staff can be proud of having discovered a new item – maybe even a best seller.
Fourth Stage – Post-Peak – At this stage the item is being copied and probably cheapened because prices will be very competitive. However, the merchandise is still in demand.
Fifth Stage – Outgoing – Some merchandise moves to this stage very quickly if it did not sell. Some other merchandise gets to the outgoing stage because of seasonality – snowsuits in the summer will not sell, bathing suits in the fall have a very limited appeal and they must be allowed to go out of stock. (Some stores pack away merchandise for the next year, but the customer can spot the fact that the merchandise has seen better days.) This is a very important stage of merchandising – the proper timing of markdowns helps preserve some profit margin. Store merchants have to track the rate of sale of an item and then determine when to take the first, second, and final markdowns.” (Walter, 2013)
The fiscal year for JC Penney ended on February 2, 2013, and on March 20, 2013, JC Penney Annual Report for 2012 came out. Figure 3 displays the sale revenue for 2012.
As you can see from the financial summary, JC Penney lost a lot of revenue from 2011 to 2012 (JC Penney, Annual Report 2012).
Not too happy with JC Penney performance Mr. Johnson pay fell 96%. He only received a base salary because JC Penney did not make sales for 2012. His salary for last year was $1.5 million. He used the corporate jet for $344,213, home security for $29,889, and IT services for $3,235 (Abram, 2013).
Mr. Ron Johnson was announce as the new CEO effective November and along with his new position he change the way JCPenney does business with consumers. He announced a new pricing plan and did away with JCPenney 100 year old pricing plan. JCPenney ran 590 promotions in 2011; consumers ignored 99 percent of them. As such, Johnson only wants 12 promotions (Minato, 2012). In the process of introducing the new pricing plan, retail staff commission ended, and employees were laid off from the home office. From my research, Mr. Johnson ignored what consumers wanted, did not test the market, and alienated core customers. Shoppers buying power for IT and retail are very different. Most people get excited about Apple products, but with retail, there has to be a sale in order for the customers to come in your store to shop. You cannot compare an IT store to a high-end department store. That is like mixing apples and orange together.
Unfortunately, Mr. Johnson only last a year and five months at JC Penney. The board of director was not happy with his performance and the sales for 2012. The company did not make sale for the four quarter although the stores were busy around Christmas time. The board voted on Monday, April 8, 2013 to have him replace by his predecessor, Myron E. Ullman III (Clifford, 2013). When Mr. Johnson became CEO, the JC Penney stock was $29.92, now the stock is $15.45. I found an article, “The 5 Mistakes That Led to Ron Johnson’s Ouster at JC Penney”, that explains what happen to Mr. Ron Johnson. The five mistakes are: 1. He Misread What Shoppers Want 2. He Didn’t Test Ideas in Advance 3. He Alienated Core Customers 4. He Totally Misread the JC Penney Brand 5. Overall, He Didn’t Seem to Like or Respect JC Penney (Tuttle, 2013)
The table below displays the solution and the Pros and Cons Solutions | Pros | Cons | 1. A test market for the new pricing plan and keep the old pricing. | Test provides satisfying results and the company can implement the new strategy throughout the company | The test failed in the market and the sales for the area declined | 2. Keep the coupons | More shoppers and sales for your store | The coupons are not the correct percentage | 3. Advertisement on TV and radio | Your company’s name is being heard through the public. Everyone has a radio or TV they can watch or listen to. | No consumer will know who you are and what products your company sells. |
My prefer solution is test the market in regards of the pricing strategy verse the old. I would test my home base first and see how the consumers like the new or the old pricing. I would gather all my data, have a meeting with the board of director, and give a presentation on my finding. If the findings were good then I would start the new pricing in all stores. If the data were incomplete, I would find another strategy to use.
In order for option 2 and 3 to work, you have to test your market first. If your market does not have coupons, then your store does not have consumers shopping for your products. Think of it this way, a fashion show. Before a designer sell their clothes in a department store, they have a fair show, so the buyer can view what the collection looks like. If the buyer likes what they see, then you will see the clothes in the store. If the buyer does not like the clothes, then the clothes will not be sold in the store. Whether we like it are not, consumers have the buying power. This is the reason why, the new media talks about the consumer spending power. If the consumers are not buying, companies are not making a profit.
During the research on JC Penney, it taught me to pay attention to the consumers. As a consumer, I have the buying power and if I do not like your ideas, I can voice my concerns through customer surveys. Do not make any changes with my company without have some form of data to back it up. As a new manager or CEO of a company, I would advise all my employees to take the OCI (Organizational Culture Profile). Also, pay attention to previous reports because the information could help if you want to make some changes at your company.
Associated Press (AP) and wire source (2012, July 10). J.C. Penney lays off 350 workers. Retrieved March 20, 2013, from http://usatoday30.usatoday.com/money/industries/retail/story/2012-07-10/JC-Penney-shares-fall-350-workers-laid-off/56133388/1
Booton, Jennifer (2011, January 24). J.C. Penney to Close Stores, Exit Catalog Business. Retrieved March 20, 2013 from http://foxbusiness.com/markets.2011.01/24/jc-penney-close-stores-exit-catalog-biz/
Brown, Abram (2013, April 4) Did J.C Penney CEO Johnson Take A 96% Pay Cut? A look At His Finances. Retrieved April 5, 2013 from http://www.forbes.com/sites/abrambrown/2013/04/03/did-j-c-penney-ceo-johnson-take-a-96-pay-cut-a-look-at-his-finances/
Clifford, Stephanie (2013, April 9) Chief’s Silicon Valley Stardom Quickly Clashed at J.C. Penney. Retrieved April 15, 2013 from http://www.nytimes.com/2013/04/10/business/how-an-apple-star-lost-his-luster-at-penneys.html?pagewanted=all
D'Innocenzio, Anne (2012, January 25).Money: J.C. Penney slashing prices on all merchandise.
Retrieved March 28, 2013, from http://usatoday30.usatoday.com/money/industries/retail/story/2012-01-25/penneys-price overhaul/52787388/1 Edwards, Jim (2012, January 26). JC Penney Adopts New Logo—Its 3rd In As Many Years. Retrieved March 20, 2013, from http://www.businessinsider.com/jc-penney-adopts-new-logoits-3rd-in-as-many-years-2012-1?op=1#ixzz2RG6IM91P
Elizabeth, M. L. (10/1/2010) J.C. Penney. American National Biography, 1,2
Loeb, Walter (2013, April 8) J.C. Penney Has a Black Hole And Doesn’t Even Know It. Retrieved April 8, 2013 from http://www.forbes.com/sites/walterloeb/2013/04/08/j-c-penney-has-a-black-hole-and-doesnt-even-know-it/
Minato, Charlie (2012, June 16). The JC Penney Disaster Timeline: How Ex-Apple Guru Ron
Johnson Is Destroying The Company. Businessinsider. Retrieved April 1, 2013, from http://www.businessinsider.com/the-jcpenney-disaster-timeline-how-ex-apple-guru-ron johnson-is-destroying-the-company-2012-6?op=1#ixzz2PHQhkawY Nolen, Jeannette. (2010). The Britannica encyclopedia. Retrieved March 20, 2013, from http://www.britannica.com/EBchecked/topic/450063/JC-Penney-Corporation-Inc
JCPenney. (2013) Retrieved from March 20, 2013 from http://www.jcpenney.net/Our-Old-Company/About-jcpenney/Our-History.aspx
JCPenney. (2012) SEC Filing Annual Report 2011. Retrieved March 20, 2013 from http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-sec JCPenney. (2013) Company News: J. C. Penney Company Names Ron Johnson as Its Next
Chief Executive Officer, Effective November 1. Retrieved March 28, 2013, http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=1573712&highlight=
JCPenney. (2013) SEC Filing Annual Report 2012. Retrieved April 4, 2013, from http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-sec Tuttle, Brad, (2013, April 9). The 5 Mistakes That Led to Ron Johnson’s Ouster at JC Penney. Retrieved April 9, 2013 from http://business.time.com/2013/04/09/the-5-big-mistakes-that-led-to-ron-johnsons-ouster-at-jc-penney/