Tag Archives: JC Penney

JCPenney, Fresh and Easy, Webvan: “Did someone remember to tell the customer how brilliant we are”?

OK, that headline is a bit harsh.  But so is the world of retailing – – no matter how high-concept and inspired a new retailing idea is, if it doesn’t integrate the core consumer in the development process, there could be trouble.  We will respectfully dance on a few graves and illustrate with 3 cases.

BordersQuote

Case 1:  JCPenney.  By now we all know that Ron Johnson flew a bit too close to the sun, banking on his reputation and the obvious hubris gained during his successful run at Apple.  He applied the Apple Store model (where the stars were ultimately the products) to JCPenney, with an immediate switch to an everyday pricing approach (since reversed), and store remodels including branded mini-boutiques.  All, famously, without testing.  The result:  a disastrous $4 billion sales slide, imploding stock price, his ouster and most recently JCP looking to the capital markets to secure another $1 billion in operating cash.  Ouch.

30-OFF-COUPON-CODE-JCPENNEY-CLEARANCEJCPenney - WSJ

—> Diagnosis: Less brilliant, more tone-deaf.  The plan counted on consumers to see things Ron’s way:  “Hey! JCP now offers reliable low pricing all the time, so you can trust us!”  The catch:  consumers apparently liked the way they already shopped – -they were used to buying on deal, and there was not much merchandise at JCP that couldn’t be bought elsewhere.  And elsewhere is apparently where consumers went.

Case 2: Tesco’s Fresh & Easy Neighborhood Markets.  British supermarket giant Tesco announced it will shutter and take a $1.5 billion write-down on its F&E chain, after cumulative losses exceeding $1 billion and 5 years after noisily entering the California market. Fresh & Easy, which famously touted its in-depth consumer research, opened smaller format (10,000 sq. ft) stores and promised “convenience, fresh produce and tasty prepared foods”  (LA Times).

Fresh N Easy

FreshEasy PB&Pickle

—>Diagnosis: They didn’t walk the talk.  Rather than truly adapting to Americans’ shopping habits, Tesco essentially imported its own model and assumed that customers would do the adapting.  A few examples of British norms that didn’t make it here: pre-wrapped produce (heavy on the watercress!) and pre-packaged sandwiches (but no fresh deli), fewer familiar branded products in favor of higher-priced private label, and a policy against couponing.

According to respected researcher The Hartman Group“We believed then, and said it repeatedly in the following years, that Tesco had an innate desire — an arrogance if you will — to do things their way rather than make adjustments that catered to the needs and expectations of American shoppers. Despite Tesco’s vaunted success in the European marketplace, the resulting retail experience in Fresh & Easy was artificial, sterile and increasingly without a relevant proposition.” (bold added)

Case 3:  Webvan.  The mother of all examples of misjudging the consumer.  Founded in the late 1990s by Louis Borders (of bookstore fame), Webvan was an online grocery retailer offering delivery within a 30-minute window.  Funded by Silicon Valley venture capital, Webvan hired away the president of Andersen Consulting (now Accenture) and was heavily capitalized ($1 billion for warehouse infrastructure, plus vans, computers, etc.)  By 2001 Webvan was bankrupt (although subsequently bought by Amazon, where it exists in a much smaller form).

webvan truck webvan stock price

—> Diagnosis: Webvan management and investors incorrectly assumed that consumers would immediately adapt to their genius.  Grocery buying is very personal, an ingrained habit, and expecting large numbers of people to abruptly abandon what they’ve been doing for years was naive at best. In the heady days of the dot-com bubble #1, funding was fast, and it was big (Borders himself said “It’s $10 billion or zero“.  He was right).  So the inclination was go big or go home, leading to huge advance spending, astronomical traffic expectations, and a spectacular flameout when consumers didn’t sign up as the financial pro formas had assumed.  By one estimation, Webvan would have had to sign up two-thirds of the tech-savvy households in the San Francisco area.  This is probably one of the best examples of misjudging (or conveniently ignoring) consumer input, breathing one’s own exhaust, as well as the adage ‘Easy come, easy go’.  A short, fun post-mortem can be found here.

JCPenney markdown sale: In this corner, Brand Strength…and in the other corner…

Readers of this blog know that I am a strong believer in the power of brands.  How else, in one or two words, can a rich set of expectations, promises, emotions and attributes be powerfully and instantly telegraphed?

Think of what immediately comes to mind, for better or worse, when you hear brands like REI, Whole Foods, Apple, JC Penney, Disney, The Republican Party, or Trabant.  Brands are living representations of the customer experience, at all touch points, and need to be carefully watched and managed.  Ok, we knew this already, right?  Of course.

Well, this morning I ran across 2 things that seemed to contradict each other.  But the takeaway point is, there is another powerful influencer that can undermine or overwhelm the power of a brand – – VALUE.

Thing 1) A soon-to-be-released study from the Grocery Manufacturer’s Association reveals that only 41.7% of consumers claim that price is ‘very important’ in food shopping.  Also, for the first time in recent memory, less than half of consumers (49.1%) say items on sale/money-saving specials are “very important.”  What does have influence?  Service, expertise, guidance.  You can read a preview here).

Thing 2) My morning paper had a blow-on sticker advertising a clearance event at JCP.   If you’ve been following, the brilliant merchandiser behind Apple Stores’ success, Ron Johnson, has taken over at JCP with a philosophy of weaning deal-crazed consumers, through elimination of promotions and investment in store upgrades.  The reaction from the Street and the media tells us that his job is not quite done yet.  (and the sticker is Exhibit A.)  A good NYTimes overview here.

jcpSo what is the point?  These 2 observations would seem to be contradictory.  In one, consumers are telling us they don’t focus on just price; in another, evidence that consumers are stubbornly insisting that price matters.

The point is that brand strength is absolutely important, but is in the end one of several interconnected purchase influences, all of which direct the final decision.  An exceptionally strong brand like Apple, representing a unique product/service that is not available elsewhere, can drive purchases among consumers even if it’s not the most economical.  Apple has earned this strength through its excellent offerings (including the retail stores), although the Samsung brand now seems to be on the ascendance through its own innovation.

JC Penney, on the other hand, is a brand that claims strong awareness, a seemingly consistent image (retailer of good value, good quality products), but is not unique in the market.  There are substitutes everywhere and the JCP brand is not enough to compel purchases.  Thus, when faced with elimination of expected discounts, consumers are happy to vote their dollars elsewhere.

I admire Johnson’s goal with JCP; perhaps rather than rallying disproportionately around the ‘no discounts’ flag, more of the investment (and messaging) could be directed toward what grocery shoppers look for:  Service, expertise, guidance, and maybe things like selection.  (although I’m no retailer).

The clear lesson – all brands need to be carefully assessed and business strategies molded around the strengths and weaknesses revealed.  No brand is so strong that it is a replacement for delivering clear value.