J.C. Penney’s Makeover An Attempt to Repeat History

J.C. Penney’s (JCP) retail makeover spearheaded by CEO Ron Johnson is remarkably similar to another dramatic  — and highly successful — initiative taken in another era.

Johnson’s plan, which went into effect last February, is an attempt to give the aging department store chain a contemporary look and feel.  J.C. Penney has been consistently losing market share so the new initiative features simplified pricing instead of constant sales and heavy couponing.  Johnson, an alumnus of Apple and Target, is attempting to create high-touch stores reminiscent of Apple’s touch-screen technology.

According to Harvard Business School’s Working Knowledge, the J.C. Penney makeover makes this “one of the most intensely watched experiments in the future of retailing, as the industry grapples with how to entice shoppers away from their keyboards and back to the sales floor.”

Rajiv Lal, professor of retailing at Harvard Business School believes it will not be easy for Johnson’s plan to succeed. “J.C. Penney is in a very tough spot,” according to Lal.  “If you ask people today what J.C. Penney stands for, you  don’t get a particularly compelling answer.”

Once a staple soft-goods retailing chain that featured children’s clothing, bedding products and the like, this 110-year-old retailer also was associated with catalog shopping like Sears and the old Montgomery Ward.  Penney’s of late has had difficulty competing with the likes of Kohl’s (KSS) and Target (TGT) at the lower end and with Macy’s (M) and Nordstrom (JWN) at the upper end. Financially, Penney’s ended 2011 with a quarterly loss of $87 million and a 4.9% decline in top-line revenue

Rewind to 1957

The Johnson initiative is highly reminiscent to 1957.  At that time, the J.C. Penney chain experienced similar problems of relevancy.  The chain was founded by Jim Penney in 1902 who created the first store in Kemmerer, Wyoming and called it the Golden Rule.  In 1910, the 26 Golden Rule stores were changed to the J.C. Penney Company.  The policy was to give customers honest values.  Products were sold for cash only and there were no fancy store fixtures and operated with low overhead.

In those early days, the key to success was recruiting store managers, called “partner associates” and by 1924 there were 570 stores and partners.  In order to obtain financing, the partnerships were formed into a corporation.

By the 1950s, J.C. Penney was facing the same problems that Johnson saw the chain facing today.  Then the competition was Sears and Montgomery Ward.  In 1957, William M. Batten, then assistant to the president, was given the assignment of evaluating the situation and making recommendations. The result was a memorandum that has since become one of the most famous in American corporate history.  The memo told Penney management that if it wished to survive, it had to change.  Research studies showed the new policies were needed such as: the creation of new departments for children and men, credit was offered whereas before all sales were for cash only.  Penney’s also diversified into hard goods such as furniture and appliances.