Plus An Eye Opening Visit To a JC Penney Store.

An Insight posted here last week noted the rather drastic, 97% pay-cut imposed on Ron Johnson by JC Penney’s board of directors.  At the same time it was announced that company senior executives were being denied their annual cash bonuses for 2012.  These severe moves were based on what can only be termed a disastrous year suffered by the more than century old retailer.

That Insight ended, noting the increasing speculation as to the future duration of Ron Johnson’s tenure as CEO and iconic leader of the company.  In recent weeks it seemed the flow of such speculation was reaching near crescendo levels, with room to still grow.

However before anything as drastic as termination might have been expected, there loomed Monday’s post-mediation court date to revisit the progress of the Martha Stewart/Macy’s trial.  A month earlier the judge had warned that JC Penney could wind up losing all rights to selling any products reflecting the Martha Stewart brand, even if sold under a JCP private label or not technically competing with her products being offered by Macy’s.  It was generally anticipated that such a harsh decision could result in irreparable harm to JC Penney finances based on its investment in Martha Stewart Living Omnimedia Inc. as well as its brand.

Monday’s first day of testimony, after a month’s break for negotiation between the warring parties, brought new accusations of JCP/Stewart product transgressions by Macy’s lawyers.  The specifics seemed to throw the Penney’s legal team off balance.

Then the news broke.  Ron Johnson was immediately out and to be replaced by his predecessor, Myron E. Ullman III, who had been Penney‘s CEO for seven years until ousted in favor of Johnson who took over in late 2011. Ullman has also been elected to the board of directors.

It seems that Mr. Ullman has received the full endorsement he needs as he resumes control of a company even more troubled than when he was ousted just seventeen months ago.  The fact is that he had been replaced by this board when it felt the company needed a fresh, new direction.  At the time of his departure many thought Penney’s image was stale and that the company was headed in the wrong direction.

Why was the once failed leadership of Mr. Ullman chosen to return at this point of corporate crisis?  On Johnson’s ascension to the corporate throne, it was clear that the board was looking to take the retailer in a very different direction. Most of the senior executives who served with Mr. Ullman are no longer employed at JC Penney.  Some left after disapproving of Ron Johnson’s management style.  Many were part of the periodic corporate purges which saw an estimated 19,000 lose their jobs during the Johnson administration.

However Mr. Ullman is very familiar with the corporate landscape and the heavy challenges facing the company.  He also knows the innermost workings of the board.  The question here is does he have the wherewithal to turn the retailer around while in the midst of a very costly transformation of the physical and merchandising structure of each of its stores.

He must also address the fact that JC Penney has effectively alienated many once loyal, traditional customers and essentially turned them loose to check out the competition. Add to that the likely bitter feelings of those close to families who were affected by the aforementioned corporate purges and the employees who survived but wonder why the dismissal of many loyal, long-time employees was necessary.

With that it seemed a prompt visit to a JC Penney’s store was in order.  This proved a real eye opener.  For a Tuesday, mid-afternoon the store seemed adequately attended though not notably busy.

From the first employee I spoke with to the last, none had heard the news of Ron Johnson’s departure which had first been announced the evening before.  Everyone with whom I spoke was well spoken and seemed invested in the future of the company.  All were eager to go on line when they had a break to confirm my news.  No one was stunned but most indicated that if true this move had come at least a bit sooner than expected.

Having been the one to break the news individually, to such bright, now slightly perplexed employees seemed strange.  Clearly, at least at this time, the company was riding an odd communications lapse.  This situation cannot continue to stand.  These associates were clearly competent and dedicated to growing the company and generally seemed embarrassed that an outsider broke this crucial news to them as they performed on the job. Communication is the key to effective management especially at a company that has apparently suffered from lack thereof for some time.

Walking the floors at this stage of the company redesign did offer several encouraging signs.  The store has a noticeably cleaner look and finding an item or the right size is no longer a challenge.  Aisles are wider and it is easier to view merchandise at a distance.  One can easily see a future atmosphere conducive to casual browsing with room to sit comfortably and indulge in a store bought refreshment.  Associates happily indicated their joy and the fresh look of many of the new items the store is bringing in.

I was offered and given a demonstration of the incoming, new checkout/pay system, which forgoes much of the need for a central checkout area and hopefully frees up valuable floor space.  The associate was eager to demonstrate and discuss the new system where associates can ring up sales anywhere on the sales floor.

This and other associates told me they are eager to interact with and aid customers and not just wait for them to show up at the checkout.  This enthusiasm and activity gives the shopper more resources with which to make a purchase and should benefit the store with increased sales and customer comfort.  At the same time cash sales must revert to a traditional checkout.  When asked about concerns for consumers trying to trick the system, I was told that theft is always a major factor but that this was in the hands of Loss Prevention.  Hopefully the communication here is strong.

As positive as associates were of some of the new store features, I was informed that customers were turned off by the total lack of promotions.  Associates are hopeful that the recent return to coupons will bring back many once loyal shoppers.  They sadly spoke of the loss of employees over the past year noting that most were either managers or receptionists at the hair salon.  What a grouping.

Perhaps the loss of managers at the store level is what is behind the clumsy signage at various areas of the store.  On entering there is signage by a group of mannequins offering swim separates $5.  The mannequins were adorned with bikini-type tops, shorts and light jackets, yet only the tops were anywhere near $5.

Worse, in housewares it appeared that signs were often misplaced, out of date or simply confusing.  Many featured one bold price on a table which displayed a number of distinct items.  On closer look, much smaller type represented the prices of many of the other items, though it appears that some changes had been made in the display while continuing to rely on an out of date price card.  Where is management when it’s needed?

At the same time I waited to speak to a seemingly bright, knowledgeable associate as she checked out a couple at a traditional register.  Unfortunately, this process went on for at least fifteen minutes with no apparent end on sight.  I had been told that housewares was on the new system and these customers were paying with a card.  Apparently the new-age pay system is a work in progress.

With all the negative results that have been attributed to the Johnson administration, it must be said that many of his ideas to change JC Penney were, at the time of their initial announcement, deemed to be most rational and were widely applauded by retail analysts and investors.  Unfortunately, as noted in previous Insights, Johnson himself refused any sort of testing before a national rollout, much to the chagrin of even his own executive insiders.  Board members cried too much radical change too soon, to stubbornly deaf ears.

What caused Johnson’s immediate downfall were a series of aggressively disastrous quarterly financials which culminated in unforeseen annual numbers which reflected a horrible holiday season.  This led to the second largest investor selling off corporate shares followed by the largest investor calling for Johnson’s ouster.  The question now is whether the back to the future scenario is the best strategy or even the right one.  Certainly intra-company communications must drastically improve.