Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewhow moving ahead of its market lost jcpenney's mojo
“Branch transformation” is in a major strategic initiative for most banks of all sizes. It came about following the recognition that the world, our customers and our economics are all changing, and that automation now offers opportunities for consistency, self-service and other positive attributes that we can all utilize. As you know from my writings, I am convinced that such transformation is essential to the future viability and prosperity of all retailing organizations, and banking in particular.
It is for that reason that the JCPenney story is so important. The retailing giant and its leadership recognized the need for change some years ago, and took dramatic steps to achieve transformation. There are important lessons in their story.
JCPenney has posted a profit in only two quarters over the past four years. In its most recent quarter, Penney lost $101 million and was forced to offer steep discounts to clear its stale inventory. Penney closed 141 stores last year and is closing eight more this year. It has more than 860 left, but hundreds are in troubled malls, with leases that prevent the Company from exiting.
What brought JCP get to this dire situation? Lack of strategic focus decisions made in a vacuum without customer insight might be the two major culprits. Neither one was caused by Amazon; Penney's wounds are largely self-inflicted.
The retailing industry has seen numerous players commit to a strategy and execute it effectively. Kohl's and Nordstrom have reinvented themselves with fresh brands and hipper stores. Others, including TJMaxx and Ross, have offered deep discounts on quality merchandise for years, thus establishing themselves as a retailer with a clear value proposition and a loyal base of value-focused shoppers.
Conversely, Penney has lost both customers and the faith of Wall Street.
Analysts say the company lacks the cash and focused strategy to compete against big box sellers Target and Walmart, which are battling for every inch in stores, and Amazon, which rules the digital sales space. It is unclear what JC Penney really is, what it stands for and who it wants to serve.
Over a decade ago, Penney’s sales and profit fell dramatically. It lost shoppers to cheaper sellers during the recession and struggled to bring them back as the economy began to rebound. The Company then changed CEOs
and tapped Apple's retail chief Ron Johnson as chief executive. Johnson took over in late 2011, promising to make Penney "America's favorite store." On the face of it, you couldn’t find a better leader to take the Company to the next level and the digital age.
Under Johnson’s leadership, Penney changed its advertisements, its logo, its store designs and its pricing model, all without testing the market and customer reaction. They also traded top private-label brands with new ones designed to appeal to wealthier shoppers, and lost their loyal customers in the process. Johnson walked away from the old audience without a new customer base in hand. His biggest move — ending coupons and clearance sales — further aliened traditional Penney's shoppers. Revenue plummeted, and has never recovered.
Johnson was ousted only 17 months after he took over, but the damage has already been done. The trust between customers and JCPenney was destroyed.
Penney reversed course and slammed the brakes on Johnson's strategy.
Sales and stock price stabilized, but the company could not meaningfully reverse course. As rivals adopted digital strategies and invested to improve their store experiences, Penney's financial distress gave it little room to spruce up stores, buy trendy merchandise, and hire more employees. An attempt to move the company beyond clothes to electrical appliances – another focus dilution – fell flat.
In its most recent incarnation, Penney’s is focusing on the middle-aged woman and her fashion and brand preferences. This is at least the fourth target market the company has gone after in seven years. The result: no identity, internally or externally.
This cautionary tale is particularly relevant to today’s bank CEOs. Torn between modernization and tradition, looking for retaining older customers while appealing to the self-service, younger segment, banks are shifting resources to digitize the customer experience while delivering services through the branch network as they have for decades. Similar conflicts arise in loan production (underwriting, onboarding, maintenance, servicing), consumer lending and many other lines of business. While one cannot ignore the winds of change, no bank should abandon its identity and roots as Johnson tried to do at Penney’s.
Here are the main takeaways I see in the JCPenney’s sad story.
• Don’t forget who you are
• Don’t get too far ahead of your current customer base
• Stay true to your brand and customer base regardless to delivery channel
• Modernize gradually
• Test, test, test
• Affirm all major changes with customer intelligence
• Focus on delivering your strategy, brand and product more efficiently and simply through digital channels
There is a saying in Hebrew: “Don’t dance in two weddings at the same time”. (Kathrine Heigl did so effectively in “27 Dresses”, but that was a movie). There is wisdom in these words. Companies can evolve, grow and expand product lines, customer bases and geographies. They can’t transform themselves on a dime. They probably shouldn’t do that anyway, since it’s their brand, customer base and values that are the basis for their stock price and competitive advantage.
Banks must take a fresh look at their world today and tomorrow, and start making moves toward maintaining relevance. But the process needs to be gradual, market-driven and true to the brand and the culture of the company. JCPenney’s abandoned who it was, and still hasn’t found who it is. Your identity and culture are your core strength. Build on it as you modernize and evolve – do not leave it behind.