J.C. Penney - Change Management - Case Study Example

J.C. Penney: Change Management Introduction J. C. Penney Company, Inc. (hereafter referred to as J. C. Penney) is one of the leading apparel and homefurnishing retailers in the United States. The Plano, Texas based retailer, which has 1,100 stores, is striving to resurrect its business and position itself as a store that provides unparalleled style, quality and value to its customers. In addition to the brick-and-mortar stores, J.C. Penney also sells merchandise through its online portal jcp.com. The retail chain promises to provide customers a vast array of private, national and exclusive brands in a stirring shopping environment.  Mission and Vision J.C. Penny’s vision ‘is to be America’s shopping destination for discovering great styles at compelling prices.’ The company’s stated goal is to build deeper, more enduring relationships with its customers, increase associate engagement and retention and deliver industry-leading financial performance for its shareholders. As a business strategy, J.C. Penney intends to become a growth leader in retail industry.  The retailer strives to achieve excellence in style authority, customer interactions, digital experiences, and operational effectiveness (JCPenney, 2013). History of J.C. Penney James Cash Penney opened the first J.C. Penny store in Kemmerer, Wyoming in 1902. In 1907, he purchased “The Golden Rule Stores” chain of stores where he was a partner. In 1913, the company changed its name to the J. C. Penney Company and adopted the business principles that would guide the company to conduct its business. By 1922, the J.C. Penney operated 371 stores located in 27 different states. J.C. Penney went public in 1929. In 1951 the company introduced credit sales and in 1953 it began catalogue sales. The company advertised on the national television for the first time in the 1970s. In the 1990s, the J.C. Penney stores became ‘anchors’ for the malls that came up across the United States. In 1994, J.C. Penny launched its e-commerce website www.jcp.com. In 2005, the online sales exceed $1 billion. A year later, the retailer unveiled Sephora, the store-within-a-store concept. The company launched its customer loyalty program, jcp Rewards, and its Customer FIRST initiative in 2008 (JCPenney, 2013).  Overview of Retail Industry The retail industry in United States clocks more than $3.8 trillion in retail sales on an annual basis (Business Wire, 2013). The ongoing recessionary conditions have thwarted the industry from registering rapid sales growth in recent times. The retail industry in the United States is undergoing a change. There has been a transformation in consumer buying habits especially in the wake of the recession of 2008. Numerous retailers have reported lukewarm growth in sales this year as consumers brace for higher taxes and increased gasoline prices. Real wages have stagnated in the United States. This has hurt the revenues of retailers like Wal-Mart and Costco Wholesale that provide branded goods at low prices. J.C. Penney’s competitors like Kohl’s and Target have also delivered tepid financial results.  The discretionary incomes have declined and therefore consumer spending is pretty low. The retailers are trying to woo customers with novel products, discounts and free shipping. SWOT Analysis of J.C. Penney Strengths Weaknesses More than 100 years of existence. Strong brand equity. Cost advantage/Pricing strategy. Growth in online sales. Low morale of workers. Frequent changes in top management. Few new store openings.   Turnaround strategy may fail. Opportunities Threats Expansion of store-in-store concept like Sephora stores. More private labels can boost revenues. Adopt the power of social media. International expansion. Unfavorable economic environment. Intense competition. Federal laws regarding minimum wages may erode profitability. Change Management By 2010, sales at J.C. Penney had slowed down and the company was losing traction in the market. Ron Johnson, the Chief Executive Officer of J.C. Penney had to buck this trend. He confessed that J.C. Penney, as an organization, was growing stale. The need of the hour was to re-imagine and rethink. At the same time, he categorically stated that the objective of J.C. Penney was not to become the flashiest or the biggest store. The retailer intended to become the ‘favorite store’ of the customers (JCPenney, 2013). By 2011, change management was already work-in-progress at the retailer. Ron Johnson affirmed that 2011 was the year of transition and that 2012 would be the year of transformation. The CEO was working on many aspects of business including rebranding and repositioning the company (Norton, 2013). On the face of it, the changes were aimed at generating more revenue and profitability. However something went wrong, drastically wrong. Leadership Style: Ron Johnson  Under the leadership of Ron Johnson, sales of J.C. Penny declined, internal bickering amongst employees increased and customers felt alienated from the retailer (Bhasin, 2013).  Ron Johnson was entrusted with the task of engineering a turnaround at J.C. Penney. He could not accomplish the task during his 17- month stint as the CEO. In fact, his leadership style led J.C. Penney sink deeper into a quagmire.   Employees were irritated at constant changes taking place in the organization. Ron interacted with the workers through broadcasts which led employees to feel ostracized.  He always maintained a distance from the employees. His broadcasts invariably alluded to the fact that the progress at J.C. Penny was due to his leadership. Ron Johnson’s broadcasts clearly suggested that he had an authoritative style of management. The employees of J.C. Penney however did not accept this style. The fact of the matter was that employees did not believe his broadcasts that enumerated stories of improvement. The employees knew that the ground reality was pretty much the opposite of what was being told in such broadcasts. Many of the employees were simply inattentive and indifferent towards his broadcasts (Thomson, 2013).  Some of Ron Johnson’s broadcasts were meant for managers only. This practice further disturbed and demoralized the lower level employees. The rumor mills started working overtime and the word spread that the senior level managers were holding such secret broadcasts as major layoffs were on the cards. Then, the worst came true. 2,200 J.C. Penney employees lost their jobs in April 2012. Thereafter employees wore color-coded dresses; red, yellow and green that prepared them for future layoffs. Associates who were in the red category were in the danger zone, while the green were allowed to stay back in the company. The yellow coded employees were supposed to improve their performance.   Johnson had little idea of how he was perceived by the employees and that many of the employees had little faith in his business ideas. The staff was further enraged as Ron Johnson spent only four days per week at J.C. Penney’s headquarters. The expenses of his private jet and stay at the Ritz-Carlton hotel were incurred by J.C. Penney whose revenues and profitability were already under stress.   J.C. Penney was already struggling before Ron Johnson took over in 2011 to steady the ship. He appeared to be the ideal candidate given the fact that he was earlier an executive with Apple Inc., a company known for its innovative ideas and immaculate execution.  Johnson was ‘Apples retail golden boy’ (Thomson, 2013). However the situation at J.C. Penney was different. Among other aspects, the culture was radically different. People who moved in from Apple found J. C. Penney overstaffed and its employees underproductive.  Ron Johnson did what can be termed as the worst retailing job of all times. He had a torrid time at the helm of affairs at J.C. Penney and was ousted by the Board. Leadership Style: Myron E. (Mike) Ullman Ron Jonson is out and Myron E. (Mike) Ullman is in again. Earlier, Ullman had served as chairman and chief executive officer of J. C. Penney from 2004 to 2011. Now, Ullman’s challenge is to bring the company back on track. He needs to ensure that J.C. Penny tides over the crisis and keep its head above the water.    Since his arrival, Mike Ullman has made many changes in the top level management. Some of the close aides of Ron Johnson have departed. The marketing department has been revamped since the promotional and merchandising strategies incorporated under Johnson’s regimen were not working.  The home department, a brainchild of Ron Johnson flopped. Ullman is in the process of reallocating the ‘home store’ space to different products and change the merchandise of such stores. Johnson’s “Happy Returns” policy, which led to unbridled theft at the J.C. Penney’s stores, has also been eliminated. Ullman intends to refocus on private labels which resonate well with J.C. Penny’s core customers. The cash registers are also in and increasing in number so as to improve customer service. Ron Johnson wanted to ditch the cash registers. The new marketing strategy is focused more on consumer promotions, a sales tool that was conspicuous by its absence during Johnson’s reign. Ullman has directed a change in the dress code of employees. The casual dress code is out so that customers do not have trouble in identifying and locating workers (License! Global, 2013).  It can be seen that all the changes initiated by Ullman are directed at improving the customer experience. There is no quick fix solution to the situation that J.C. Penney finds itself in. It will take a constant, sustained and flexible action plan to stage a turnaround. Ullman’s efforts have borne some fruit. J.C. Penney has reported same-store-sales increase of .8 percent in October, 2013(Kapner, 2013). Online sales have registered a robust growth of 37.6 percent this year. J.C. Penny has reported favorable customer responses to the various promotional events that the company launched. The turnaround at the company is slowly progressing which is evident from the fact that the average transaction value and units per transaction at J.C. Penney stores increased in October (Ben, 2013). The retailer’s CEO has set ambitious plans for Thanksgiving Day and the holiday season by offering stylish assortment of merchandise to its customers and that too at discounted prices. Polarity and Paradox in Change Management Both Johnson and Ullman were entrusted with the task of engineering a turnaround at J.C. Penney. Both of them had different leadership styles and different thought processes. Both CEOs adopted different pricing and merchandising strategies. To be candid, each of these strategies provided a value proposition to the customer and each one of them had the potency to succeed. Ron Johnson was innovative; however he made some grave mistake because of which his strategy failed. He abruptly stopped J.C. Penney’s pricing strategy of marking-up prices and then offering a discount. He did offer the same products at a reasonable price but that did not satiate the shopping instincts of the consumers. In retrospect, it can safely be said that shoppers who were loyal to J.C. Penney were bargain hunters. They derived satisfaction and maybe even thrill by exploring and hunting for bargains. Finding an item with a larger discount was like playing treasure hunt for them. Johnson robbed the customers of this pleasure and thus made them rebellious. The once omnipresent coupons are now back, and rightly so (Mattioli and Karen, 2012). The paradox in J.C. Penney’s case is that the retailer had to arrest the decline in sales as soon as possible. Ron Johnson tried to do precisely that. He made numerous changes and that too at a fast pace. Experts opine that he tried a bit too much and did not give his experiments adequate time. The fast pace of change ultimately proved to be his nemesis. Trying to reposition a low-end bargain departmental store into an upscale, high end store quickly is ironical since no market research or small scale test marketing was employed by Ron Johnson. Imagine a paradoxical situation wherein a customer walks into the J.C. Penney store only because of the ‘coupon’. One fine day, the customer realizes that the ‘coupon’ is no longer valid. Why would then such a customer go to the J.C. Penney store again? Levels of Organizational Change Organizational change can occur at many levels. The most fundamental change is to make structural changes; change in hierarchy and organizational structure. Cases of executive departures and new recruitments are also seen as a routine change. It is relatively easy for an organization to manage such changes. At the next level, work processes and procedures are changed. The ‘Returns Policy’ adopted by J.C. Penney is an example of such a change. If the customers or the employees find value in such change, it is accepted. Changing the attitude of employees and the work culture of the organization is the most difficult to achieve and requires constant effort by the management as witnessed in the J.C. Penney case. Works Cited Ben, Fox R. "J.C. Penney Sees Improving Sales Trends; Struggling Retailer Says Turnaround Efforts Making Solid Progress but Still in Early Stages." Wall Street Journal (Online) Oct 08 2013. ProQuest. Web. 4 Dec. 2013 . J CPenney, 2013. Web. 04 Dec. 2013. < http://www.jcpenney.com/> Mattioli, Dana, and Karen Talley. "Penneys Stock Plummets on a Big Loss; Turnaround Strategy from Apple Veteran Ron Johnson so Far Fails to Overcome Shoppers Addiction to Coupons." Wall Street Journal (Online)May 16 2012. ProQuest. Web. 5 Dec. 2013. "Myron Ullman Returns to J.C. Penney, Switches Up Retail Strategy." License! Global 05 2013: 16. ProQuest. Web. 5 Dec. 2013 . Norton, Leslie P. "Not Exactly a Happy Birthday for J.C. Penneys Turnaround." Barrons 93.2 (2013): 13. ProQuest. Web. 3 Dec. 2013. Kapner, Suzanne. "Anxious for Cushions at J.C. Penney; Earnings Report Wednesday Will Provide Important Clues on Turnaround Effort." Wall Street Journal (Online)Nov 17 2013. ProQuest. Web. 4 Dec. 2013 . "Research and Markets: Retail Industry in United States - Porters Five Forces Strategy Analysis - 2013." Business Wire Apr 29 2013. ProQuest. Web. 5 Dec. 2013 . Thomson, Rebecca. "Analysis: Where Ron Johnson Went Wrong at JC Penney." Retail Week (2013)ProQuest. Web. 5 Dec. 2013. Read More