Photo: Ian Gavan / Getty Images
JCPenney CEO Ron Johnson just turned in what are probably the worst quarterly results ever in the history of major retail: same-store sales were down 32 per cent in Q4 2012, to $3.8 billion.By late February, the stock was down 46 per cent on the year.
There are rumours of impending mass layoffs at the chain. (And with a sales decline like that, how could there not be layoffs?)
This week and last, Johnson remains distracted by a celebrity deathmatch trial pitting him against Martha Stewart, both live in the witness stand, in New York state court.
Johnson, the former retail boss at Apple, only became CEO of the department store chain in November 2011. But already some analysts think Johnson has only six months left before the board — or shareholders — force him to leave.
Here’s how it got so bad, so fast.
The company did well in 2010 (increasing profit 36 per cent over the year prior). But the cotton market wreaked havoc on the clothing industry in 2011. Flooding and other shortages caused cotton prices to hit an all-time high. Rather than staying conservative with expectations, J.C. Penny raised its earnings expectations at the beginning of the year, as if cotton prices weren't an issue.
Nonetheless, by the end of Q4 2011, sales at JCP were still at $5.4 billion.
Then, JCPenney announced Ron Johnson, the man at the helm of Apple retail through the company's epic rise, would be taking over as CEO in November. Stock surged on the announcement and speculation was rampant about what the former Apple guru would bring to JCP. Johnson was formerly a vice president at Target and was lauded for his retail genius.
The stock hit a high of $42.68 in February of 2012.
Ad agency Saatchi & Saatchi and JCPenney 'mutually decided' to part ways after five years in December of last year. It came only a few weeks after PMK-BNC was brought into replace M Booth & Associates, the company's PR agency for the last six years.
Johnson got to witness the master of keynotes -- Steve Jobs -- work many times during his tenure in Cupertino, Calif. In January, he held an Apple-style conference that made it clear: JCP was going to try to be like Apple.
The key takeaways:
- JCPenney ran 590 promotions in 2011, consumers ignored 99 per cent of them. As such, Johnson only wants 12 promotions.
- Sales were removed in favour of regular pricing with the best prices offered the first and third Fridays of each month.
- Rather than one big store, Johnson wants brands to have smaller shops within JCPenney locations, a Genius Bar type concept will be placed in the middle.
Johnson showed off the new logo during his keynote, it was the third logo in three years. The new logo captured JCP's newly-launched 'fair and square' pricing strategy fairly well, but it didn't make customers want to adopt the pricing model any quicker.
Johnson hoped to save $200 million by firing 600 of JC Penney's 5,900 employees at its sprawling Plano, Texas, headquarters. It was described as a streamlining effort and couldn't have helped morale going into what would be a disastrous May.
The speed at which Johnson replaced nearly all of the company's top executives was remarkable. It created a situation that makes it impossible for Johnson to avoid credit or blame -- right now it's the latter.
Even now, it's unclear how much of middle management was fired in early May, but one source told us 'thousands.'
The JCP PR team was once again explaining the importance of long-term goals, while the mood amongst the retail staff was grim. JCP ended commissions for its sales staff.
One employee described how things went down:
'One hundred store managers across the country were quietly laid off two days before they announced the home office reductions and the call centre closing. The rest, phase two, happened Monday. They said it was done purely on year-end appraisal ratings, but someone in my store got a higher rating than I did (and was laid off anyway), and also they changed what the ratings stood for this year, and eliminated performance improvement documentation, so that they did not have to wait longer to do this. If my name or even state comes out I will lose my severance.'
When Johnson announced his master plan for the company's success, at the top of the list was controlling marketshare. Unfortunately, despite positive surveys regarding the changes, its customers left for Macy's.
Profits at Macy's were up 38 per cent in Q1 2012. Macy's chief Terry Lundgren was confident enough about how bad things were at JCP that he told Women's Wear Daily that market share was going to continue to increase.
Johnson tempted Stewart to do a licensing deal with JCP even though she already had an agreement with arch-rival Macy's.
Whatever the legal outcome, it's clear that Johnson knew it would cause conflict with Macy's. Now he's making headlines every day by being forced to read his own emails on the stand.
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