Musings on books, technology, entrepreneurship, nonprofits and umm.. everything else …

About a year ago, Ron Johnson proudly announced how JC Penney (JCP) was going to transform itself and the retail shopping experience. I had written about it at that time and have been following the story with much amusement ever since.

The key idea of using an EDLP strategy was a good one, but for the fact that the goods they sold were mostly discretionary purchases and not daily-use items, which changes the nature of discussion. Moreover, coupon clipping does not only attract folks who want the cheapest price, but also those that are dopamine junkies, and get a high from finding deals.   Charles Duhigg’s book speaks about habit forming and habit loops pretty well and I had written about that earlier as well

So JCP found itself at a tough crossroads where they said no to their core customer base, and a new customer base did not coming rushing in, breaking doors, looking for every day low prices on clothes that they may not have wanted in the first place. So in addition to catalogs that they promised to send out to customers, “coupons” started making their way back through different names (those $10-off things are gifts .. who called them coupons?). Special sales around key holidays started coming back as well, rechristened and appropriately re-marketed. The market still didn’t buy that, and the stock price has steadily plummeted from around $30 when he made the announcement last year, to about $20 where it stands today.

So in another uncomfortable back-to-the-future moment, JCP has relaunched deep discounts re-branded as “suggested prices”. Manufacturers are now nudged to manufacture MSRP prices that are sufficiently high as well, so JCP can tag the clothes with an MSRP that no one would ever pay anyway. Take that, dopamine receptors! I’ll feel doubly addicted seeing that $100 label on a shirt I got for $20 rather than the $50 label I used to see before.

It remains to be seen how this saga will end, but it is fascinating. At a market cap of about $4.4B they are not too big for being taken private through a PE deal this year, so that they can focus on the transformation (or quietly go back to their previous incarnation) without any interference from the markets. Another option for Ron Johnson is to stay the course of building the “experience stores” and raise capital from the markets. From their most recent 10-Q one can see a $230M charge for 9% notes paid back at maturity, so it might be time for another offering. This would be gutsy attempt at building the new customer base on the higher end of the spectrum while mollifying the dedicated customer base of yesterday by backtracking on the sweeping changes to the regular stores. It would be interesting to see if they would look at a brand extension strategy to build a higher end version of their stores, or re-brand them entirely as something else to keep the associations separate in the minds of the consumer.

Either way, this is a real life marketing and re-branding effort on in full swing in retail. I expect a few Harvard professors are churning out case studies already on this topic.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: