What the Exit of JCP's President Means for Its 'No Sale' Strategy
J.C. Penney (JCP) president Michael Francis, the junior partner in the executive duo leading the chain's radical new "fair and square" pricing strategy -- which eliminated most sales -- resigned Monday, after just eight months on the job.
Francis' sudden departure calls into question the retailer's bold move to cut 590 annual sale events and eliminate coupons, a strategy that has largely been applauded by retail analysts, but has left many shoppers cold.
Despite Francis' exit, J.C. Penney says it's staying the course on its turnaround strategy. "His departure does not signify a change to J.C. Penney's long-term transformation plans," Daphne Avila, media relations director for the department store, tells DailyFinance.
"We remain focused on our vision to becoming America's favorite store through great product and exciting new brands, a dynamic shops environment and an ongoing commitment to treating customers Fair and Square," she says
But Avila declined comment on the reasons for Francis premature exit.
Update (June 20, 10:20 a.m.): In an interview published in Women's Wear Daily on Wednesday, J.C. Penney CEO Ron Johnson said Francis left the chain because marketing -- which the former president was charged with -- wasn't working. In turn, "My job as CEO is to really take responsibility for everything. I felt compelled to dive in and help with the new strategy," Johnson told WWD. "Michael and I both concluded we didn't need two hands on the same steering wheel. The marketing I largely left to him. The fact that it hasn't resonated [meant] I had to get involved."
Johnson is now overseeing marketing and merchandising himself.
Despite the retailer's failure to market the fair and square pricing push, Johnson reiterated his faith in the strategy. "We are huge believers that we are on track, and that ultimately we will carve out a winning position," he said.
Marketing Missteps
Ron Johnson, who took the reins as Penney's CEO in November, plucked Francis from Target (TGT), where he was executive vice president and chief marketing officer. Johnson, also a Target alumni, joined Penney from Apple (AAPL), where he led its highly successful retail stores.
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At J.C. Penney, Francis helped devise the marketing plan for the fair and square pricing strategy, which debuted in February. That's when Penney permanently marked down all of its merchandise by at least 40% to new, everyday low prices. It also limited sales to "monthly value" discounts on select items, and "best price" sales held regularly twice a month.
The retailer has been backpedaling on parts of the strategy ever since.
In May, Johnson conceded that Penney's first quarter $55 million net loss and 18.9% comp-store sales decline in part reflected Penney's failure to effectively communicate the new pricing strategy to shoppers.
On June 5 came another concession: Johnson said it was a mistake to drop the "sale" word from its vocabulary. "We're moving away from the word 'month-long value' because no one really understood that, to calling it what we intended to do, a sale," he told Reuters, at a Piper Jaffray conference in New York.
But Johnson has stressed that he expects the strategy will still pay off in the long term.
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Butting Heads?
When it comes to "fair and square pricing", Penney's has a marketing problem, Paul Swinand, equity analyst with Morningstar, tells DailyFinance. Francis' departure likely reflects him butting heads with Johnson "over tactics and implementation" of the program. "Do you use the word sale? Call it 'fair and square'? Everyday low price?"
While weaning shoppers off temporary bargains won't be easy, Penney's everyday low price strategy is a sound one, and already works well for retailers ranging from Walmart (WMT) and Costco (COST) to H&M, Swinand says.
Although Penney's first quarter results were poor, "they were actually selling an increased amount of stuff at regular price," which is evidence that shoppers are warming up to the change, he says.
Howard Davidowitz, chairman of Davidowitz & Associations, a national retail consulting and investment banking firm, couldn't disagree more. Francis' departure "marks another nail in the coffin" for J.C. Penney, he says.
"What it definitely suggests is that the strategy will not work," says Davidowitz. "[Johnson] should have [first] tested it in 100 stores." That's what you do "when you want to revolutionize a company."
Countering that notion, Swinand contends that historically, revolutionary marketing ideas "don't test well" -- but that doesn't mean they won't eventually succeed, he says.
%Gallery-153999%Such debates over testing aside, in its transition, Davidowitz notes that Penney has ceded shoppers to Macy's (M) and The Gap (GPS) along the way, CEOs from both chains have said.
But the real issue is that Penney's new strategy is fundamentally flawed, he says. "The American consumer has lost 10% of their income in the last four years, there are 50 million people on food stamps, the customer's net worth is down by 40%. Penney's should be driving up promotions because the American consumer is poor," he says. "It's all wrong."
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