Why the J.C. Penney shakeup is going to backfire (and what they should have done instead)

An Editorial

So Ron Johnson, creator of the Apple stores, has taken over J.C. Penney and is radically reshaping its business model. Struggling to compete in a market filled with more profitable retailers like Kohl’s, Target, and Bed, Bath, and Beyond, J.C. Penney has become desperate for a plan that will help the company survive. They think they have found just that. I think they have actually found a suicide pill.

They have adopted a new pricing strategy called “Fair and Square”, where they are getting rid of the special-sale-every-week pricing model that they have used for so long in favor of a standard pricing scheme. The new prices are lower than they were before the transition, and will be pretty much steady, apart from a once-per-month sale on the most popular items sold that month. It is essentially an “everyday low prices” promise.

They will also change their store layouts. Each store will have a “Town Square”, where important customer service functions will be located, and a “Main Street”, where instead of traditional departments, each brand will be given its own space. Gone, they claim, will be the tangled mess of decade-old racks and displays that snag jackets and purses.

This is a promotional image with a new store manager. That means this is the LEAST cluttered corner they could find. Image from the Chanute Tribune.

Lastly, they will rename their J.C. Penney Outlet stores “5-Star”, and they will be carrying new brands and changing the product lines of some brands they already carry, in order to appeal to a younger demographic.

Ah, yes. The famous 18-35 market that everyone is trying to reach. We Millenials are just now graduating college, getting jobs, getting married, and having children. We are still figuring out which brands and stores we like, while our ageing parents have already become lifelong customers of their favorite brands and stores. Plus, as the Baby Boomers age and die (sorry, it’s just a fact), they are no longer a reliable customer base to draw from. This combination of factors means pretty much every product is now going to be aimed at us, because we have the most economic power in the entire nation.

All of the changes to J.C. Penney are meant to attract us. I think we are more likely to be turned off and shop elsewhere.

Let’s start with the core of the new business model: the so-called “Fair and Square” pricing. The logic behind it is this: Customers know how much something is worth. They also know department stores routinely raise prices in order to put them on sale for what they are actually worth and claim it is a 40% discount. Therefore, customers don’t trust retailers and would rather have an “everyday low price” that matches the product’s value.

This logic has such an utter disconnect from human nature, I am truly baffled that they think this would work. First of all,  yes, customers know stores inflate prices to create false discounts. However, people like to game the system. We like to feel that we beat the store at its own game and got the best deal possible. That is why our annual taxes are such a complicated hunt for the best tax refund. It is also why Kohl’s has been doing so amazingly well. At our house, we love Kohl’s and shop there regularly. Why? They have a system in place that encourages repeat business. In addition to their sales and coupons, big purchases are rewarded with “Kohl’s cash”, a special coupon that gives an extra discount but expires in something like two weeks. This Kohl’s cash, if you make a big enough purchase, may be enough to pay for a free item! Kohl’s lets customers game their system, and rewards them for doing so.

The second problem is association. J.C. Penney’s has always been a somewhat more upscale store. I mean, it is no Macy’s or Neiman Marcus, but it is definitely more upscale than, say, Wal-Mart. Except that when people think of “everyday low prices”, what comes to mind?

I’m sorry, but people will look at the new pricing model and subconsciously think the products are downgraded in quality, simply because of the images that those words, “everyday low prices”, evoke in people’s minds.

Not that the new J.C. Penney’s prices are all that much better, anyway. Here is a pair of Levi’s jeans at J.C. Penney offered for $40-$50. This same pair is offered at Kohl’s for $58, but with a difference: it is “buy one, get one half off”. That means two pairs from J.C. Penney will set you back $80-$100, but those same exact two pairs will cost $87 at Kohl’s. In other words, there is a chance you will get a better deal at J.C. Penney, but also a chance you will pay more! Furthermore, if you have a Kohl’s coupon or Kohl’s cash to slash that $87 to, say, $77, $67, or $57, why would you even shop at J.C. Penney?

Then there is the store layout redesign. Yes, J.C. Penney has long been in need of that, what with cash registers located every which place except where it is convenient, cluttered displays and narrow aisles, but something this radical is too far. We have departments in department stores for a reason. You are shopping for shoes? You go to the shoe section. You want an outfit for your teenage daughter? You go to the teen girl’s section. You want perfume? Go to the perfume section, etc. This brand-based layout will only make finding what you want harder.

Most people that I know comparison-shop for their whatever-it-is. If they were looking for, say, dress slacks, they would go to the dress slack display, compare the prices of the different brands, and buy the one that they thought was the best price for the quality. There are some people who insist on buying only Dockers, but those are probably not the majority. I don’t want to have to hunt through the whole store to find one pair of dress slacks.

Pretty much the only good decision J.C. Penney has made is changing up their product line. All of the rest of these decisions are only going to steer customers toward their competitors.

Customers typically don’t like these kinds of radical, sudden changes. Remember when people freaked because Gap changed its logo?

Or when there was an uproar over Netflix’s decision to split itself?

Older readers may also remember the utter fiasco that was New Coke, back in the 1980s. Coca-Cola saw a huge customer backlash when they tried to introduce changes in the Coca-Cola formula, and they were forced to quickly backtrack.

Forever going down in history as the dumbest marketing move ever.

What J.C. Penney should have done was introduce gradual changes to improve their customer service. Instead of radically reshaping their layout, they should have simply gotten rid of most of the clutter, setting up more organized departments with featured, millenial-friendly brands at the front and wide enough aisles to get through to the rest of the merchandise without bumping into things. They should have also set up a single checkout area at the front of the store. They should also have done what Kohl’s and Sears did and offer carts to shoppers to encourage bigger purchases, so customers don’t have to carry all their stuff by hand. They should not have scrapped their sales system and pricing structure. If these really were a problem, they could have scrapped some of the sales at off-peak shopping times, and focused on drawing in customers with deep discounts at the beginning of the four main shopping seasons.

I predict that J.C. Penney’s sales are only going to plummet in the months ahead. They will realize their folly the hard way, and by the time they figure out what went wrong, it may already be too late to save their sinking ship.

Information from Forbes, Yahoo! Finance, and the Daily Finance.