JC Penney and the every day sale

JC Penney at The Shops at Tanforan in San Brun...JC Penney at The Shops at Tanforan in San Bruno, California. (Photo credit: Wikipedia)

I started my career in retailing and in many ways it has never left my blood.  I learned a tremendous amount from managing to analyzing businesses to strategies for business growth.  Those years have served me well as my career moved forward. 

I am not sure when the One Day Sales began but I lived through many of them.  I'd get to the store by 8 am and leave around midnight.  Here are a few things that I learned.  The customer who shops the One Day Sale is not the loyal customer who comes back a few times a month.  In essence the store had two sets of consumers; bargain hunter and regular priced shopper.

The departments that ran constant sales regardless of the One Day Sale might do it because the merchandise was not selling or they weren't hitting their numbers.  Every day each department worked to beat the numbers from the year before on the same day. The margins go down when the merchandise is not selling at full price but when you are a major department store with large buying power you get the vendor to participate in the cost of the sale.  Many vendors basically give you a check or a massive discount towards the next purchase of goods so you can book those returned dollars against the past season so as a buyer you make your numbers. 

Here is what I learned, this is not a good way to run a business in the long run.  Each consumer has a different mind set.  Some consumers only want to buy something that they perceive to be a deal or discounted.  Other consumers are happy to pay full price if they love it.  Some consumers particularly ones with deeper pockets can be put off by a marked down item because they think there must be a reason it did not sell. Bottom line no matter what type of customer you are if the item is a must have it goes quickly and you buy it at full price.  Unfortunately most of the merchandise manufactured does not fit into that category.

What is interesting to me is that many of the ecommerce models that are being built are one dimensional.  They are going after one particular customer.  I really like these models.  For instance, a site that is only interested in selling product to the top 1% of the population, or a model that is directly devoted to men between 24-40 etc.  What I like about these models is that they do not have to be everything to everybody.  They are targeting one particular consumer. The department stores are built on the model of everything for everybody.  Fifty years ago those regional department stores owned the majority of the market-share.  Many have merged after being purchased to reside under one roof such as Federated Department Stores and with that there is very little differential by store. JW Robinsons was unique to Los Angeles and Dayton Stores were unique to the Midwest but now they are all part of Federated. Their marketshare has slowly shrunk as chains such as the Gap entered the marketplace and now of course ecommerce. 

I do applaud what Ron Johnson was trying to do at JC Penney.  Based on the decisions he made it appears as he was trying to break the old model and move it into a place where the JC Penney customer was loyal to well priced inventory with style.  I remember when I was at Macys the powers that be thought that Macys should start to trade up and capture a higher end customer.  It was a disaster because that was not the person walking in the door and they were losing their bread and butter.  Maybe that was Johnsons strategy.  Now that he has been ousted there is one thing that is obvious is that JC Penney will return to the days of the constant sale to get the customer in the door to buy low margin items in bulk so that they can keep the stock price up and hope that they will capture that small piece of the market each year. 

I do believe that at one point the department store chains will prove that like Lehman they are not too big to fail.

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