JC Penney and the every day sale
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.
Comments (Archived):
It’s hard to create consumer loyalty in the age of one click e-commerce shopping. It’s also tough to compete cost wise in some categories of retail with the cost efficiency of online e-tail, and now the increasingly, the convenience and immediacy of mobile shopping.Example is what happened to the book industry. All those small bookstores, despite their deep loyal customers, couldn’t compete on the price and convenience with Amazon and they all slowly went out of business.Probably need different models for different categories of retail. Some are more price sensitive. Interesting times and challenges.
This is such an interesting topic. As a middle class consumer, I find that almost every department store has the same stuff, including J.C. Penney’s. Why shop there when just across the mall is another department store with the same stuff at a discount?What J.C. Penney failed to do was differentiate themselves from the other department stores. For example, J.C.Penney’s has always had an amazing curtain department — no other department stores have the breadth in inventory and sizes. However, they have always lagged in style in curtains. I will shop at Target for curtains because the styles are better. Imagine if J.C. Penney decided to pick a couple of verticals — like curtains — and “own” them in breadth of inventory, style and broad scope of sizes? Unfortunately, they did not do this.It seems to me like there a couple of department stores that do this. For example, Lord and Taylor. If I need a woman’s business suit or a nice dress, I will head to Lord and Taylor first because of the huge selection they have. I don’t care if I end up paying retail, because I don’t want to be hassled with driving all over town searching. I almost always end up buying a new pair of shoes when I’m in Lord and Taylor buying something else. They got you in on one vertical buy (dresses) then strategically showcase great shoes right next to the dresses. The problem is that J.C. Penney’s didn’t do a good job defining it’s strong niches nor does it do a good job of store layout where complimentary goods are intermixed so the shopper buying a dress will then buy shoes too. J. C. Penney’s shoes are on a completely different floor!
It sounds like the people who run the store are not listening to the customers or reading any data. after working in a large retail place i am not surprised
Part of this is as a result of lack of women in charge.I’ve always noted that things that are primarily used by women lack in features and details because of what appears to be lack of meaningful input by women in some way.Back when I started to do my own wash I immediately realized that it would be beneficial to have two washers and two dryers (or at least 2 washers and 1 dryer). So much more efficient.But you don’t see any houses that I know of built to accommodate that at all.On the other hand men with a nominal hobby can have every gadget and machine tool possible when they might only use it 1 time per year if that.Other than clothing in terms of labor saving devices it seems to me that devices used by women are light years behind things that are primarily used by men.
.Pricing theory and its application is one of the last frontiers of real business intelligence. It is true in department stores and on the Internet. It is a complex body of thought and it changes with the times.Recently I read a case study of an Internet company who priced its alternative subscription prices from left to right — freemium to lowest premium to highest premium — and then changed to show them from highest to lowest.Revenue increased by every objective metric. I was left asking myself — why?The same article preached the wisdom of including the full retail price on all “sales” signs and to obviously include the new sale price. This also had demonstrable traction.This is very much an art.As to department stores, I am struck by the culture and continued success of such stores as Nordstrom’s and Needless Mark Up. They seem to get it right and they blow out last season’s styles like a hurricane.No answers today, all questions.JLM.
I find it sad to see the department store as a concept flailing but running any retail business on price elasticity alone probably won’t cut it anymore — similarly, in thinking that store design or retailtainment will magically turn same-store sales around.Even if you can’t afford a William Whyte–esque professional people-watcher, I totally agree that more time spent observing in-store behavior and interrogating online data (path to purchase, moment of intent) is a good starting point.IKEA’s Leontyne Green Skyes hired a strategic insight manager early on. Hope more CMOs follow her lead before faffing about with sales promotions and fixtures.
in many ways it is no different than the ecommerce biz model. rule number one: listen to what the market is telling you.
I was really bummed when they fired Ron. Maybe they had to but would have been cool to see if he could have turned Penny into a different kind of company. I guess the problem is that the stock market (and Penny’s board) have about the same loyalty as the 1 day sale shopper.
ha. you might be right.
It all started to go downhill in 1988 when campo decided he wanted the real estate and buying power from both federated and allied stores. Filenes and sons went by the wayside to become a may company store and Jordan Marsh that had been on an upscale trend went into bankruptcy to be gobbled up by macy’s which has got to be the worst department store that I have ever been to these days.Even Neimans is carrying godawful stuff. Everything changed when the “made in china” label became prominent. I never thought I would covet a “made in hongkong label.”
so true.
I think this analysis speaks to certain department stores, but I don’t see higher end stores like Bergdorfs, Barneys, or even Bloomingdales going anywhere anytime soon. But maybe that’s because they’re not really trying to be everything to everyone. And I always imagined that a lot of their sale customers are also regular customers, even for the 50% off shoe sales
Barneys and Bergdoffs are geared towards one particular customer. They are not selling washing machines either.
As a kid I remember schlepping with my dad up to NY for an appointment he had with a buyer at Filenes (iirc). I had to wait 6 hours for him (or it seemed like it). No toy department.
Every Day saleKolhs & Jos. BankTwo places where you would never should w/o discounts or specials
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. Counter to this though is that you can end up hitting it right (and be in feast mode) or because you have everything in that one basket you can also end up in famine mode like a one company town.No right or wrong answer to this of course.It all depends on the specifics and the situation. Also whether it’s a public or a private company and a host of other factors.As a general rule I don’t like to see everything in one basket.Noting that GE still makes appliances as well jet engines and power plants. And Warren Buffet owns a host of different companies and Trump no longer has to make all his money from real estate (has diversified into entertainment and licensing).
agree but you have different things for that one audience. it can fail but at least you know what you are failing at