In roughly a decade, JCPenney has gone from a retail mogul to one that is hanging by a thread. With debt exceeding $4 billion and a stock price under two dollars a share, obvious questions exist. Is JCPenney closing? Was the collapse inevitable, or could JCPenney have avoided a dying business model? Equipped with 20-20 hindsight, the following explores whether the potential JCPenney closing was due to a dying business model or not. The insights gained provide valuable information for any business in today’s highly dynamic and hyper-competitive landscape.
Painting the Not-So-Pretty Picture. Is JC Penny Closing?
In past times, JCPenney has been one of the most powerful retailers in America. Known for home goods, clothing, and apparel, middle-income families might spend an entire day in their stores. Back then, no one would have asked, “Is JC Penny closing?” But JCPenney’s dying business model began to become evident a little more than a decade ago. The Great Recession placed tremendous pressures on JCPenney’s primary market, and spending (and sales) declined rapidly. At the same time, tremendous competitive pressures appeared. Discount retailers like TJ Maxx, Kohl’s, Target and others took a chunk out of JCPenney’s traditional customer base. Faced with rapidly falling revenues and stock prices, the company decided to turn to new leadership. The key question was if there was a way to save the company’s dying business model, or if JC Penney was doomed.
The Radical Move JC Penny Made That Failed to Pay Off
In 2011, JCPenney turned to Ron Johnson to take over the helm. Johnson had been successful in leading Apple’s retail division, and he had a vision. He believed a change would turn JCPenney’s dying business model around. One problem Johnson accurately identified was JCPenney’s high-low pricing model.
JCPenney would offer its new merchandise at higher prices, but their older items would be deeply discounted from 50 to 70 percent. Customers had become accustomed to purchasing discounted items, which represented JCPenney’s primary customer base. Unfortunately, this reduced revenues and accumulated expensive inventories typical of a dying business model.
So, Johnson decided to eliminate discounts and clearance sales…completely.
In addition, Johnson also decided to pursue a completely different market segment. Rather than going after middle-income families, JCPenney would appeal to the more affluent. This meant eliminating long-term supplier contracts with private label brands and picking up new ones. Boutique shops rose within the stores offering products and services by partner vendors.
Likewise, to attract millennials, all advertising, logos, and designs also shifted. Unfortunately, the move was no better than the previous dying business model. In addition to losing its loyal customer base, JCPenney failed to draw their new market clientele. The company let go of Johnson after being with the company for only 17 months.
Major Mistakes from a Marketing Mix Perspective
Economic, social, and even legal challenges plagued JCPenney during these years. Likewise, competitive pressures were incredibly high. However, much of the company’s demise resulted from its reliance on a dying business model too long. In particular, JCPenney made many poor decisions about its products, its pricing approaches, and its promotion strategies. Many customers chose other retailers once JC Penney chose to adopt new, unknown brands at higher prices. Likewise, JC Penney was unsuccessful in recruiting higher-income customers. In part, such potential customers did not associate JC Penney with higher-end products and services.
Moreover, promotional efforts to attract new market segments, like millennials, were highly ineffective. Almost overnight, JCPenney became a company without an identity. Both its old and new strategies reflected dying business models that would not work in modern times. It had effectively sacrificed its brand and its customer base for a strategy that failed miserably to achieve its goals.
Retrospective Remedies for a Dying Business Model
Understanding the recessionary environment and high competition that JCPenney faced, success would have been challenging regardless. In other words, things would have been tough even if the company had aborted its dying business models. However, a better strategic approach could have been pursued to improve the company’s chances over time.
The following offers some strategies that would have likely been much more effective for the company.
- People and Promotion Strategies – JCPenney’s biggest mistake might have been abandoning their loyal customer base. Rather than trading one dying business model for another, incremental changes would have been better. With an established niche for middle-income families, strengthening its brand in this area would have been a better move. Understandably, promotions to target younger customers for future growth were admirable. However, targeting families with children could have offered the same result. Likewise, a strong customer base could make the exploration of new segments of the market easy.
- Product and Pricing Strategies – When Johnson pursued the in-store boutiques and higher pricing models, little market research was performed. This is how JCPenney swapped one dying business model for another. A lower pricing strategy that aligned with JC Penney’s brand and target customer would have likely been more successful. This pricing approach could have also been used to reduce inventory excesses. At the same time, maintaining the existing private label brands makes sense. In addition to already enjoying strong supplier contracts, customers knew these brands. These approaches would have been congruent with other marketing strategies mentioned while helping JCPenney expand its niche market.
- Placement and Outreach Strategies – While JCPenney closed many stores to reduce costs, hundreds of other stores had to remain open. JCPenney had leased many stores long-term in declining retail malls. In essence, they were in shambles financially in many stores. This was a major component of the company’s original dying business model. In retrospect, the company would have been wiser to arrange more flexible brick-and-mortar stores while advancing its online presence. In such dynamic markets, greater flexibility is often critical for success.
What’s Ahead for JCPenney?
In 2017, 141 JC Penney stores closed down. Likewise, it continues to struggle with massive debt, declining profits, and excess inventory. Also, the company continues to be without leadership at present. Understanding these issues and competition in the retail industry, a JC Penney closing seems to be in the near future. In all probability, JCPenney will follow Sears and other retailers who found themselves in trouble amidst a reliance on a dying business model. Retailers in other industries are facing the challenges of evolving change. Those unable to adapt and apply new strategies and business models will likely be left behind.
EVP & Associate Publisher