Photo: Aimee Groth, Business Insider
Wow. Tough few weeks JCP. For Ron Johnson. For everyone involved.Where to start?
First, a summary: early last week, word “leaked” that, according to an internal company report (a bit suspicious, but we’ll get to that later), 2012 was a less-than productive year for those in Plano, with employees watching a shocking (and seemingly impossible) 5 million Youtube videos in one month.
Immediately after that revelation, came…the call; everyone knows what I’m talking about. That infamous call RJ and his team had discussing (apologizing for?) JCP’s ugly disaster of a Q4 (2012) with losses totaling $552M , stocks immediately plunging 15% in after-hours trading, and business press pontificating that “TO BE CLEAR: JC Penney May Have Just Had The Worst Quarter In Retail History.” And now a major shareholder appears to be cashing out.
In short, all seems lost.
Now look, it’s clear Johnson’s taking most the heat, but it’s not entirely his fault. After all, he’s just pulling plays from his storied professional playbook (having been a rockstar, first at Target, then Apple), but, in some ways, this is Bill Ackman’s fault, too.
After all, Johnson’s just doing what’s always worked for him – targeting aspirational and upper middle class consumers, “re-inventing” retail (never mind he’s really re-inventing the fastest way to lose cash and customers), and playing more style than substance. Ackman (and the now reluctant board) should’ve known, RJ’a not a turnaround guy – but instead more an “innovative” marketing guy, one who focuses on more on sexy initiatives and press-friendly stunts, rather than the messy (but incredibly necessary) work of turnarounds.
So, with that in mind, here’s a bit of advice to the beleaguered company.
A quick note: while I work in restructuring, turnaround, and performance improvement, I am not, to be clear, working the JC Penney case; ergo, these observations come from, well, less a 10,000 foot overview than a 40,000 foot one. So, with all humility, here are a few suggestions on how to turn this mess around. Or at least stem the cash bleed.
#1 Close stores now, before it’s too late: Now, I’m not writing anything any sentient being doesn’t already know – but the department store “industry” is shrinking – and has been for more than a decade – leading most retailers to focus on smaller, more profitable, stores, a strategy buttressed by an easily-navigated, customer-targeted online presence.
So, given those reasonable trends, what’s the first thing Ron Johnson did upon seizing the reigns of JCP? Attempt a “retail revolution” by cutting coupons, nixing sales, and, well, ignoring JCP’s Internet presence, all in an attempt to “revolutionise retail.” Sure, JCP’s press releases screaming “come check out our new look!” were irresistibly sexy, but missed the retail mark. By a profitable mile.
Beyond the near impossiblity of single-handedly “training” the retail consumer to shop a specific way (that’s for another post), it is necessary to face facts: JCP is currently operating too many stores, and as such, has within its corporate hands an easily-executed way to shore up cash (since it’s clear cash is a major concern in regards to this this multi-billion dollar farce – er, experiment).
Sure, it’s not sexy, but it IS essential (and a commonly-utilized wrench used in the restructuring toolbox) if a company is to increase liquidity and buffer coffers.
To further this point: think about it; JCP currently boasts approximately 1,100 locations (compared with the far-more-profitable (and bigger) Macy’s number of 841), suggesting an ill-informed focus that, to this point, has emphasised BIG HEADLINES (really, the store-within-a-store concept could work, but on a limited basis at first) rather than an actual value-add to JCP’s consumers, employees, and shareholders. Ridding the balance sheet of these costly, underperforming store locations offers redemption while, in turn, funding whatever (please, carefully-thought-out) initiatives that could, eventually, stabilise JCP. In short, JCP must cut the brick-and-mortar and follow Macy’s in maximizing online customer reach and interaction.
#2 Start thinking about this as a turnaround – not a fresh coat of paint: Sigh. I’ve been writing this for literally nearly 2 years: JCP is not a growth story, but instead one of restructuring and turnaround in a collapsing and changing industry. This means not only shoring up cash to fund future operations (see above), but understanding who is – and from whence comes – your customer. In short, JCP must ditch the sexy ads, aspirational marketing, and racy product and return to your roots. Because, at its heart, that’s often what turnaround means: a return to the core of a company’s strengths with a twist to maximise production and profit. In short, not a complete overhaul, but instead a retrenching and re-centering focused on maximizing a company’s advantages and assets.
In short, JCP must drop Martha Stewart. And should in turn lose the numbers of Duro Olowu, Georgina Chapman, and Joe Fresh. In fact, in retrenching, it’s important the company remembers: JCP is not Target – never has been and never will be. And that’s not necessarily a bad thing. There has traditionally existed a loyal customer base for JCP specifically and the department store “genre” generally; and while this customer base has been, ostensibly, shrinking in recent years, that doesn’t mean it’s necessary (or good business) to completely reject its needs and wants in order to maintain revenue while pursuing growth. Instead of jumping into dozens of new product waters and store innovations and commercial stunts, JCP should be (2 years too late) market testing (duh!) the aforementioned changes while firmly and securely integrating them into provable concepts already working.
#3 The great Youtube debacle, aka start treating employees as knowledgeable recourses, with respect, instead of as the enemy: Look, with all due respect to those involved, that story about JCP employees watching excessive amounts of Youtube videos at JCP’s Plano office? Seems suspicious to me. Superficially unbelievable. Perhaps even false.
Think about it: a few days before a historic and notoriously bad earnings calls, JCP COO Ken Hannah “suddenly” releases the shocking (!) news that not all has been well in Plano – that prior to their termination, a significant majority of 1,600 JCP employees who-are-no-more lounged about, watching literally dozens of videos/day, all while residents of the C-suite were slaving away on retail’s next great revolution.
Here’s the problem with this story: either 1) It’s true, in which case, there’s a significant cultural issue at JCP, which seems suspicious, given that this SUDDENLY started happening within the past 10 months; 2) It’s, if not a blatant lie, certainly an exaggeration “planted” in the media mere days before that earnings call in an effort to make management appear far more aggressive and successful than otherwise thought; 3) It’s a last-ditch effort for management to explain and justify away Q4’s dismal earnings. Who knows?
Regardless of the rhyme or reason behind this story, however, it speaks to a larger issue when thinking about JCP’s seemingly doomed turnaround: it makes no sense, and often does more harm than good, to arrogantly waltz into a new and unstable situation, assuming a superior knowledge in how best to run a business – better than the majority of employees already there, those who have been living and breathing this company sometimes for decades.
Instead, it’s best to think about turnarounds and employees this way: there’s not much technically new “outside” management can teach a company about it’s own business, but there is a way to best guide the retail ship through this latest storm to fresh, more profitable shores, by working WITH the business and its people, not against it/them, to offer a “fresh” perspective on an already- volatile situation. In short, instead of seeing enemies in employees, it’s beneficial to think of them as fantastic analytic and diagnostic resources who know a significant and helpful amount about their company and industry and will be incredible tools in structuring a turnaround.
So there we go. Not all’s lost in the land of JCP – a turnaround can, and most likely will, take place (after all, don’t forget this is a multi-billion dollar, 100+ year old retailer). But it won’t be ensconced in sexy, brightly-coloured capris, suggestive advertising, or a “retail revolution.” Look, instead, for the calloused hands of those experienced in the difficult, yet extremely valuable, art of the turnaround to one-day take the helm, once those involved in this boondoggle finally decide they’ve had enough.
And are ready for a turnaround, not retail, “revolution.”
Margaret Bogenrief is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services. She can be reached at 312-505-0700 or at [email protected].
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