Could Apple fix the department store?
What if the guys behind the Genius Bar were handed the keys to a department store?
What if they had the chance to throw open the windows and let some fresh air into a dusty old format?
Well guess what. They just did.
Or rather, he just did.
Last June, Ron Johnson, the former head of Apple retail stores (and prior to that, the merchandising wunderkind at Target), joined mid-market US department store JC Penney as CEO. And last week, Johnson took the wraps off his plans to rethink and reimagine an “institution that was king of the hill in American retail (and got) lost in the landscape.”
In a compelling movie-length presentation that recalled inspiring Apple product launches, Johnson strode the stage like Steve Jobs, rhapsodising not about the latest iThing, but about the dStore- “the #1 opportunity in American retail”. Along the way, he had lessons not just for the likes of Bernie and Paul Z, but for all of us in the industry.
Lesson #1: Price “Fair and Square” Up Front
The most fundamental immediate change at JC Penney will be to end the “mark up to mark down” pricing practice. Customers aren’t idiots, they’re sick of the sea of sale signs, and in a memorable JC Penney teaser ad, the clear message is “enough is enough”. Johnson says that “ultimately the customer knows the right price to pay for every product”, so why pretend a towel is worth $10, when you know that it will end up on sale at $4?
As of Feb. 1, JC Penney introduced a simple, three-tier “Fair and Square” pricing policy:
* Everyday pricing on most items in store, at round price points, and all at a permanent reduction of at least 40 per cent on the old “marked up” prices.
“No more jumping through hoops… just great prices from the start.”
* Month-long values on selected merchandise that customers actually want to purchase at that time of year – eg great value on swimwear in Summer
* Best price on clearance items available only on the first and third Friday of each month (when many consumers get paid)
Lesson #2: When it comes to Promotion, Less is More
In 2011, JC Penney ran 590 promotions and spent over US$1 billion on advertising. That’s not only a questionably effective strategy (profit went backwards), but it’s just plain exhausting to think about.
Going forward, Johnson plans just 12 promotions – one each month, “in sync with the rhythm of our customers’ lives”.
Instead of frittering expenditure away across multiple promos, JC Penney will spend US$80 million on each monthly activity. Same budget, just more sensibly spent. (And by the way, the ads are charming.)
Lesson #3: Change is Not a One-Time Thing
Yes, JC Penney is making lots of visible changes now – besides pricing there’s a new logo, new ads, new spokesperson (quirky US talkshow host Ellen DeGeneres) – but it’s not “set and forget”.
The changes will continue month-in, month-out for at least the next four years. For example, Johnson is introducing new merchandise presentation on two to three brands each month till the end of 2015. The Apple Stores continually evolved and so will Penney – providing new reasons for customers to walk in the door every day.
Lesson #4: The Store is Not Dead
Ron Johnson firmly believes that there will always be a place for great bricks and mortar retail environments. (Lucky that – JC Penney has 1100 of them!) But stores in 2012 and beyond need to be experiential, not just transactional. They have to sell services as much as products (refer the Genius Bar). And they must blur the lines between digital and physical.
Watch this space – the new JC Penney is on its way, with a myriad of dynamic “store in stores” lining a “Main Street”, and a central “Town Square” with services that customers can enjoy before they buy, while they shop and afterwards.
Lesson #5: Speed is Critical
Johnson started at JC Penney on June 14 last year. His marketing chief, Michael Francis (ex Target US) commenced in October. Johnson delivered his “in praise of fresh air” plan to investors on January 25, just eight months into the job. And it broke to customers on Feb 1. That’s moving in my book. But in the world of retail today, standing still is moving backwards – you’ve got to act fast.
William Ackman, JC Penney’s largest shareholder called Johnson’s investor presentation “the most important day for retailing in 25 years”. (It’s worth the 90 minutes required to watch it:
CNN asked: “Is JC Penney the future of retail”? Only time will tell if the headline is prophetic.
But at least Johnson is, as we’d call it, “having a red-hot go”. Incrementalism won’t achieve results in retail today. Desperate times call for dramatic action. And it would be refreshing to see local retailers acting just as boldly.
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