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  • What can we learn from J.C. Penney''s firing of its CEO?

    J. C. Penney fired its CEO Ron Johnson earlier this month and brought back the former CEO.  The firing is not surprising given J.C. Penney’s performance slide in the past year. Johnson, the architect of Apple retail stores, was never able to replicate his magic at J.C. Penney’s. Now J.C.Penney’s survival is at stake.

    As we wrote a few months ago in this blog post, J.C.Penney’s abandonment of its tried-and-tested “treasure hunt strategy left its customers confused and left wondering about what the brand represented. Ron Johnson failed to understand that loyalty to J.C. Penney was attributable to these price promotions. He should have continued with the old promotional strategy while experimenting with new retail models. Instead he started anew by blowing up what made J.C. Penney successful.

    Without a unique selling proposition, the new strategic plan unraveled leaving consumers to desert J.C. Penney and flock to other stores. Bottom line: companies should stay true to their core promise; in case they need to change within the framework of the existing brand, they need to shift gears very slowly in order to give consumers time to understand and assimilate these changes.

    Mr. Johnson’s new strategy called for building exclusive brands within J.C. Penney, a long-term strategy that required time. What is unclear is whether there was an online strategy without which J.C. Penney’s long-run survival is moot. While Wall Street was bullish about the new strategy of brand building, collapsing revenues made investors rethink J.C. Penney’s prospects. Once investors bailed out, the board had to make a change. So CEOs would do well to remember that while brands are built over many years, they are actually evaluated in quarters. Hence communication of proper expectations to all parties involved is critical. Perhaps things would have ended differently if Mr. Johnson had prepared J.C. Penney for a long arduous road ahead.

    _________________________
    Raj Echambadi
    Professor of Business Administration and
    James F. Towey Faculty Fellow and
    Executive MBA Academic Director