J.C. Penney’s Demise Recalls Other Major Modern Retail Failures

Ron Johnson’s flawed strategy and his subsequent ouster as CEO of J.C. Penney (JCP) recalls other major retail failures due to fatal marketing, strategy, and operational mistakes.

As a marketing professor, for years one of my best classroom sources has been a book by Robert F. Hartley entitled Marketing Mistakes.  Published in numerous editions over the years, Hartley therein analyzes some of the most infamous marketing strategic mishaps in modern history, including such world-class cases like Nestle’s (SIX: NESN) attempt to sell baby formula in the Third World, the historic Ford Edsel debacle in the 1950s and Coca-Cola’s 1983 decision to abandon its famous formula only to bring it back as Coca-Cola Classic.

Hartley also focuses on classic blunders in retailing.  One chapter is devoted to three major retailing failures:  those of E.J. Korvette, F.W. Woolworth, and  W.T.Grant. Let’s revisit these disasters in the light of the J.C. Penney disaster and see what can be learned from history.

The demise of E.J. Korvette took place in the 1960s and early 1970s. Founder Gene Ferkauf was a visionary who started out selling luggage and quickly branched out into other product lines.  Growth was enormous.  His first store has sales of $9.7 million in 1953, and in the ten-year period between 1953 and 1963 sales went from $55 million to $750 million.  Korvette’s success was based on a discount formula based on faster inventory turnover.

Growing too rapidly eventually killed this retailer.  It couldn’t find enough top managers to keep up with the growth.  A foray into food retailing was another blow because the merchandise-turnover strategy didn’t work for food.  Deficits continued to increase.  Store growth ground to a halt and like a house of cards, Korvette imploded and vanished in 1970-71.

F.W. Woolworth, the original ‘five and ten cent’ variety store (along with Kresge), had a long a successful history.  Stores were located in downtown areas of small and large cities across America.  There was no need for parking lots because virtually all store traffic was walk-in.  The strategy was to offer a great variety of merchandise at one price (10 cents).  Interestingly enough, the “dollar store” concept uses the same basic strategy and Woolworth’s Kresge’s 5-and-10-cent store strategy.  In fact, at its high-water mark, Woolworth became the world’s largest retailer in 1979.

In the mid-1950s Woolworth had 2,064 stores; Kresge had 673 stores and the third player in this conversation, W.T. Grant, had 572 stores.

Starting in the late ‘50s/early ‘60s, people moved to the suburbs and shoppers began driving to discount stores (like Korvette) in their cars.

Kresge immediately embraced suburban discounting using the Korvette inventory turnover strategy and created K-Mart.   Woolworth took a different approach to discount retailing by creating a giant complex of more than 2,000 variety stories.  There were 283 Woolco stores, mass merchandisers similar to K-Mart and Korvette.  There were 1,481 Kinney shoe stores and 266 Richman men’s clothing outlets.  Woolworth’s pursued expansion through specialty retailers but this concept never really worked.  Ten years after the demise of Woolco, Woolworth’s closed more than 400 of its stores in an effort to restructure.  By 1997, the rest of the stores were shuttered and the corporate name was changed to Venator.  In 2001, the company eventually changed its name again to Foot Locker, reflecting its top-performing unit.  Foot Locker is now the only remnant of what had been “the world’s largest retailer” in 1979.

The first W. T. Grant Co. “25 Cent Store” opened in Lynn, MA in 1906.  It used the strategy of modest profit, coupled with fast inventory turnover to achieve almost $100 million annual sales by 1936.  Grant’s stores were slower than Kresge to move stores into the suburbs but by the 1960s and ’70s they started building larger suburban stores called “Grant City,” but unlike Kresge’s Kmart, Grant City stores lacked uniform size and layout, so that a shopper in one store did not immediately feel “at home” in another.

The chain’s demise in 1975 was in part due to a failure to adapt to changing times. After the company began to lose money, funds were borrowed to pay the quarterly dividend until this became impossible.  A final tactic to stay in business involved requiring Grant’s clerks and cashiers to offer a Grant’s credit card application to customers to boost sales in the stores.

W. T. Grant’s bankruptcy in 1976 was the second largest in U.S. history.  Negligent credit policies received part of the blame primarily due to the company’s decision to extend store credit to all customers, with no attempt made to assess the customer’s ability to repay. In addition, there existed no centralized control or record-keeping of store credit accounts which resulted in non-collectable accounts.

If there is any lesson that can be learned from these three failures, as well as J.C. Penney recent demise, it is that failure is a function of many bad decisions, strategies, and policies.  The world of retailing continues to be a marketing minefield with opportunity for success and failure lurking behind every turn.