By Mitchell Schnurman
mschnurman@star-telegram.com
Forget about the smart money on Wall Street. Let’s talk crazy money.
When J.C. Penney announced the hiring of Ron Johnson, the force behind the Apple Stores, the stock jumped almost 18 percent. Seven months later, Johnson wowed New York with his plan to transform Penney and give up constant couponing. Shares rose nearly 19 percent.
Then in May, Penney reported a sharp drop in first-quarter sales. Customers hadn’t bought into “fair and square” pricing yet, and the stock took the deepest one-day dive in three decades.
It’s continued to drift down and has lost half its value since late January. Last week,
the retailer laid off 350 at its Plano headquarters (on top of 600 in April), and
S&P lowered its credit rating, saying things wouldn’t improve for a year. One long-time
analyst called for Johnson to be fired. At the risk of belaboring the obvious, it takes more than a few months to transform a 110-year-old company – or to determine that a strategy is doomed. And if anyone deserves some time to succeed, it’s Johnson.
A quick refresher course on the guy who’s been called a retailing mastermind: When Johnson and the late Steve Jobs hatched the idea of Apple going into retailing, they talked to more than 100 analysts, and each said the push would never last. There wasn’t a single believer, Johnson says.
“I give them two years before they’re turning out the lights on a very painful and expensive mistake,” one analyst said – a quote that Johnson enjoys citing in public.
The Apple Stores became the best performers in the history of retailing, but people forget that it was tough sledding at times. The Genius Bar was especially slow out of the gate. Johnson tells about
stocking Evian water so shoppers would stop by, and managers were still letting workers go home early because of the lack of customers. Three years later, the Genius Bar was so popular it required reservations.
Johnson’s plan for Penney sounds like a winner: a department store with a great assortment, a collection of designer shops, a town square in the middle to attract families – and all that at a fair price. So far, we’ve seen only the pricing part, and some shoppers won’t give up their sales. But trends may change as Penney introduces more elements and the vision starts to come together. As with the Apple Stores, Johnson may know better than we do.
“You can't follow the customer,” Johnson told the
Harvard Business Review in a December 2011 interview. “You've got to lead your customers, anticipate their needs and meet those needs, even before they know what they want.”
Department stores have lost almost half their market share in the last 20 years, and incremental change won’t reverse that. Johnson has the guts to go big – to try to reinvent the business, rather than milk it as long as possible.
Are people ready for something different? Last month, a
Harvard Business Review article advised execs to rethink their approach to pricing. Consumers are frustrated with being nickeled and dimed at every turn, from paying for airplane pillows to $5 debit card fees.
That’s destructive, the authors wrote, and there’s an upside to going the other way.
“When prices seem fair, consumers often buy more and are more willing to pay a premium,” they wrote.
They give a shout-out to Penney for stopping the bombardment of confusing promotions (almost 600 last year) and for getting rid of 99-cent price tags.
Give Johnson credit for giving us credit: We can handle whole dollars.
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