By Greg Caster, managing director, Accenture Retail
Most incoming CEO’s put together a ‘100-day plan’ as they embark on the new role. In the case of Mr. Ullman, it is his second 100-day plan at J.C. Penney. But the world and company is very different from December 2004 when he wrote his first plan, and this one will be written in the knowledge that he is the interim CEO for a company in crisis.
As noted in the Wall Street Journal recently, Mr. Ullman and team have already worked to shore up capital needs, securing $850 million. Attention now must switch to determining what changes to make to staunch the bleeding and get on the front foot, specifically; engaging with employees in a way that builds morale and motivates them to stay and deliver great service to customers, working collaboratively with suppliers, and re-engaging with the U.S. consumer. These are the areas that Mr. Ullman will be focusing on in his 100-day plan, and each presents both challenges and opportunities.
According to media reports, J.C. Penney’s sales are down by roughly a quarter since last year – the equivalent of $4.3 billion. But understanding that is the easy part – it is math. The reason for the drop in sales has been attributed to the shift in pricing and promotions strategy but this has been reversed for some time and the customers have not yet returned. Much more was changed that has potentially affected sales:
The challenge for Mr. Ullman and team is to delve further into who left and why, and what it will take to get them back. Accenture’s research into customer behavior, and the different dimensions of loyalty, can help to frame this challenge. It highlights four loyalty ‘segments’:
1. Emotional Loyalists: A group with a strong emotional bond to primary brands. Trust and product/service quality are the critical drivers;
2. Inertia Based Loyalists: They stay with the brand out of habit. Brand-loyal but can reevaluate on rare occasions if things are fundamentally different than their expectations;
3. Conditional Loyalists: They are aligned with the brand ‘under conditions’ and open to reevaluation. Value for money and trust are critical drivers;
4. True Deal Chasers: This group is most likely to leave, not connected to brands. Attracted by engaging messaging.
The policy shift around pricing and promotions clearly affected the Conditional Loyalists and True Deal Chasers. These customers can be enticed back to J.C. Penney with some aggressive advertising, and targeted marketing. We suspect that plan is well in motion. However, they can also be lost again when deals dry up, so spending a disproportionate amount of time and money on these shoppers may not be the best use of limited cash.
Many of the Inertia Based Loyalists and Emotional Loyalists were less bothered about the pricing and promotion changes but it created a sense that too many things had changed, and a portion of them reevaluated their affinity to the brand. J.C. Penney needs to reach out to these groups with some humble advertising and direct marketing to re-gain that trust. More importantly, getting trust back in the brand promise overall will have a ‘halo effect’ on those that did stay.
There is some ‘good news.’ Seventy-five percent of sales adds up to $13 billion annually, so there are still millions of J.C. Penney shoppers. The retailer needs to rediscover its mojo and go after those who left, and also start better positioning itself for the millennials as the next generation of shoppers.
The supplier community supporting J.C. Penney has to be feeling a bit bruised and battered. At the same times as they were being asked to support, with both capital and energy, new store within store concepts and J.C. Penney’s transformation, sales were dropping. Supplier funding shifted from joint promotions to an everyday low price (EDLP) model, where the retailers typically want more transparency, and reductions, in price. Now promotions are being jointly funded again but with a different margin mindset. And now there is a change in leadership again. Trust is hard to gain, and easy to lose.
Re-gaining trust from the supply base is a big challenge and one that Mr. Ullman and the entire merchandising team needs to tackle head on. Suppliers can quickly and easily put down onerous financial challenges that can create a vicious circle for some retailers, as was seen in our most recent recession. It put many retailers out of business. The 100-day plan needs to have a big emphasis on face to face meetings with all the suppliers. And again, as with customers, a bit of humility will help.
There is little doubt that J.C. Penney was not a lean organization when Ron Johnson took over, so it was critical to make some important staff cuts. However, given the amount of turbulence witnessed by the employees that stayed, it is reasonable to imagine that as many as 80% to even 90% of those that could leave are considering it. This turmoil ensures the people challenge will be a critical component in the 100-day plan. As with customers and suppliers, there are no easy answers to earning back trust that has been lost and rebuilding morale. Achieving stability, and avoiding a mass exodus or the problems of a disenfranchised workforce, will be the key.
To rebuild trust and morale the emphasis must be on small ‘town hall’ meetings with key groups, nationwide, with Mr. Ullman himself, and this will go a long way. Sir Terry Leahy, former CEO of Tesco, in his book “10 Words” talks about the way he did that for years. Mr. Ullman does not have years to rebuild trust amongst his company-wide team but much of the employee portion of his plan will be focused on exactly that challenge.
When you boil it all down, there are two big themes that emerge – Loyalty and Trust. Coincidentally, they are two of the “10 Words” that Terry Leahy used to drive his career – perhaps reading his book should be on Mr. Ullman’s plan as well. J.C. Penney will be recovered. Ultimately it may not look the same as when Mr. Ullman was first there, and it certainly will not look like Mr. Johnson’s ultimate vision. But if Mr. Ullman can put in place a good plan that takes its first steps to addressing loyalty and trust in its customers, suppliers and employees, his successor will take over one of U.S. retail’s biggest names in a stronger position than when he took the reins.