What did “Steve Jobs retail” do to push the 1,100 118-year-old supermarket chain close to bankruptcy, losing $ 1 billion, laying off 19,000 employees?

The old giant

JC Penney was once the largest department store chain in the United States, and as of 2012, the 110-year-old retailer operated 1,100 stores, serving more than half of all U.S. households with 3.8 million square feet of empty space. retail space.

JC Penney offers a wide range of goods, from clothing to home appliances, electronics and sports equipment, JC Penney also expanded its postal service in 1963 and an e-commerce site in 1998.

However, JC Penney became overshadowed in the 2000s when it faced price and volume competition from Walmart and Target. In the middle segment, two household chains Macy and Nordstrom also received a lot of support with their youthful image, not to mention the “fast fashion” models Zara and H&M quickly beat all fashion products. site at JC Penney with great prices and the ability to stay up to date with trends.

By 2010, JC Penney’s stores had become stale, cluttered, faded, and out of date. It was followed by a long series of closing days, sales dropped, market share fell, stock prices dropped dramatically…

Investor William Ackman during this period increased his ownership to 18% in JC Penney, and invited Ron Johnson to take over as CEO to turn the tide.

Involvement of “Retail Steve Jobs”

Famous since the 2000s when he helped Steve Jobs design the Apple store chain, Ron Johnson was dubbed the “master of management”, “Steve Jobs of retail” when publicly contributing to the birth of the Genius Bars area. As soon as Johnson was appointed CEO, the market reacted very positively and pushed JC Penney’s share price up 18%.

Ron Johnson embarked on an “inside-out” makeover, starting with contracts with designer Martha Stewart and Nanette Lepore to launch “modern” product lines to compete with Target.

A series of JC Penney’s own brands were also revamped, such as Worthington, St. John’s Bay, The Original Arizona Jeans, and Stafford.

After the product change, Ron moved on to reforming customer service by… canceling the entire existing sales commission policy of his employees.

JC Penney has always offered bonuses based on sales, but Ron says the policy makes employees “focus on the customer’s pocket” and forget about helping them.

Price policy “fair”

Since the Great Recession of 2007, most retailers have used coupons and regular promotions to boost sales. According to consulting firm AT Kearney, more than 40 percent of the items Americans bought in 2011 were on sale, up from just 10 percent in 1990.

Looking at past data, Ron believes that JC Penney customers have become “addicted” to discounts, over the past ten years, when the average discount to attract customers has increased from 38% to 60%.

Therefore, from the beginning of 2012, Ron Johnson launched the “Fair Price” strategy. Instead of recording a high price and then discounting it through sales programs, coupons… JC Penney will directly reduce the price of all items by 40% compared to the listed price.

Especially on the first and third Friday of each month (the usual day of receiving wages for American workers), JC Penney will offer an extra discount for products that are considered “slow-selling” of the warehouse.

Not stopping there, JC Penney also abandoned the strategy of using the “.99” retail price and rounded prices for all products.

To apply the “always cheap” price, JC Penney was forced to cancel programs like “Black Friday” or “Year-end sale”. In addition, this supermarket chain also does not use words such as “sale”, “release of inventory”… CEO Ron explained: “Sales are not in our dictionary, all products at the supermarket are is being sold at the best price.”

To accommodate the new model, Ron laid off 19,000 employees and nearly all of the senior staff, redesigning entire stores to display as many product categories as possible.

Disappointing results

Breakthrough is that, this strategy is considered by experts to be a “total failure” when sales plummeted by 25% in the first year, resulting in a loss of $ 1 billion for the company.

In the first quarter of 2012, JC Penney sales fell 20% and the company reported a net loss of $163 million. At the end of the first year of adopting the new strategy, JC Penney lost $1 billion and saw its share price fall 56%.

Customer traffic has also decreased significantly, with some reports indicating a reduction of up to 15% in the number of customers. JC Penney’s Q4 2012 was rated as “The worst sales quarter of the retail industry” when multi-store sales decreased by 32% over the same period.

Overall, the “Fair Price” strategy had a disastrous effect on JC Penney’s revenue and profits, prompting Ron Johnson to be quickly fired after 16 months at the helm, and replaced by former CEO Mike Ullman.

Covid-19 is the last straw with a “hundred-year-old” super value chain when the entire store had to close in March 2020, JC Penney also filed for bankruptcy and in the process of negotiating with creditors, ending an era of “fair price”.