JC Penney: A Leadership Mistake?

At the end of the 1956 baseball season in the United States, Brooklyn Dodger icon Jackie Robinson received some disconcerting news. In the twilight of his career, he had been traded to the cross town rival New York Giants, who sought his veteran leadership for a roster that included the very young future Hall of Famer Willie Mays.

Veteran leadership? For a rival team? Fuhgettaboutit! Robinson refused to report to the Giants and Major League Baseball voided the deal. Robinson himself retired from the game shortly thereafter.

Was Robinson excessively worried about his professional legacy, or did he understand that veteran leaders who switch teams rarely find success in their new positions? Unfortunately for American retailer JC Penney, Robinson is no longer available to provide them with advice regarding their leadership strategy.

A Small Slice of Americana

JC Penney, of course, is a venerable American department store chain. Although it has never earned the pedigree of Macy’s or achieved the size of Sears Roebuck, it can lay claim to its own slice of American retail history.

James Cash Penney was originally an employee in a small retail organization called Golden Rule. After purchasing a minority share in 1902, he bought out his partners five years later and took command of the chain that would be renamed JC Penney in 1913.

Although Penney lost his fortune during the Great Depression of the 1930s, he managed to keep his retail empire alive. In fact, Penney’s Des Moines store hired a young employee named Sam Walton in 1940, the entrepreneur who would later establish the Walmart chain.

JC Penney peaked in size in the early 1970s, when it briefly expanded to more than 2,000 retail sites. It now operates more than 1,000 stores across the United States.

An Apple Transplant

So who is the current leader of this venerable retail establishment icon? None other than Ron Johnson, a former corporate executive at Apple who was hired by Penney to bring a little pizzazz to its facilities.

And that’s precisely what Johnson brought to the Texas based retailer. He placed new emphasis on full, “hands on” customer service and in-store boutiques. He even abbreviated the brand itself to a crisp, concise jcp.

But then Johnson decided to eliminate Penney’s traditional reliance on frequent sales events, replacing them with a standard pricing policy for all merchandise. His Fair and Square pricing strategy emphasized non-discounted prices and infrequent sales.

Standard pricing, of course, is a classic Apple strategy; it supports the philosophy that sales events tend to cheapen the image of the brand over time. But by taking away the tradition of the frequent sales event from Penney’s core customer, Johnson drove many of them away. Indeed, sales volume has plummeted under Johnson’s command, and the prospects of the retailer are eroding quickly.

An Austerity Plan

Faced with intense criticism about Penney’s sales decline, Johnson is now retreating from his “limited sales event” policy. Instead, he is cautiously reinstating special sales events on a partial basis.

But should Penney adhere to Johnson’s limited-sales plan? After all, organizations in many different industries have moved away from sales driven marketing strategies. Many automobile companies, for instance, are no longer relying on large rebate campaigns. And most airlines are forsaking fare sale strategies, opting to increase ticket prices and ancillary service fees instead.

One can characterize Johnson’s sudden abandonment of sales events as an austerity themed plan, with austerity being imposed on the firm’s customer base. Is it possible, however, that Johnson selected an appropriate austerity strategy but served as an inappropriate leader for implementing it? Would a more familiar and recognizable leader, instead of an outsider, have been more palatable to Penney’s regular customers?

Home Grown Leadership

Anecdotal evidence seems to suggest that people tend to accept austerity solutions more readily when they are proposed by home grown leaders, and not by transplanted leaders with personal histories and loyalties to other organizations. The evidence extends beyond the business sector and throughout other sectors of human endeavor.

Consider the realm of politics, for instance. On the one hand, the Italian people recently rejected the European prescription of austerity that was imposed by interim leader Mario Monti. His political rivals attacked Monti’s credibility by suggesting that his brief leadership position was too “centric” (i.e. too focused) on German political needs.

On the other hand, the popular, home grown Icelandic government has presided over an economic rebound since the 2008 / 09 financial collapse. And in the business world, Apple itself presents a quintessential example of a firm that once tottered towards bankruptcy until its home grown founder returned to replace an outsider CEO.

So is it possible that Ron Johnson developed the right plan for Penney, but is the wrong leader to implement it? And if he isn’t the right leader, then who should replace him? Until Penney’s Board clarifies the nature of its leadership mistake, it may find itself unable to correct it.

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