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[28 comments]

Has Ron Johnson Forgotten the Other 'P' Again?

April 9, 2012

Back in February in a discussion article on RetailWire, Nikki Baird, managing partner at RSR Research, wrote that new J.C. Penney CEO Ron Johnson had forgotten a "P" (people) when planning the reinvention of the department store chain.

In short, Ms. Baird argued that the chain's store associates were basically divided into two disciplines, "cashiers and price taggers," and neither had the personnel skills required to offer the level of assisted selling needed to make the new Penney work.

Another piece, written last month by Jennifer Rooney, CMO Network editor at Forbes, recalled a shopping experience in a Penney store where an associate appeared "deflated." Ms. Rooney posited that the retailer needed to target more of its marketing efforts in-house and get its own people to share in management's vision of "reinventing" the department store.

Now, let's move to last week and Penney's announcement that it is laying off 1,000 employees. Six hundred are being let go at the company's headquarters (about 15 percent of the workforce there) and another 400 are being cut from a call center in Pittsburgh.

Penney's announcement doesn't come completely out of the blue. In January, the company said it planned to cut expenses by $900 million by the end of the 2013.

"Often in business, companies must streamline in order to leap forward," Mr. Johnson said in a statement. "In our case, this has involved some very difficult decisions that have had an impact on many of our associates, but these changes are essential to help us achieve our long-term goals and, ultimately, grow our associate base as we grow our business."

Mike Kramer, chief operating officer at Penney, said, "It's clear that many of the processes required under the old business model are no longer needed. We are putting in place a new operating structure that creates a winning organization built on efficiency."

There are a number of schools of thought when it comes to change management in organizations. All acknowledge that change is hard and seek to find a process where organizations come out stronger in the end than at the tumultuous beginning.

But, with all its grand planning, has J.C. Penney forgotten its people again? Does a culling at the level that the department store has announced so hurt morale that employees start looking for other job options instead of focusing on making Mr. Johnson's vision a reality? I can't provide an answer with total certainty, but I can say that solid turnaround plans have failed in the past because employees didn't buy in.

FINANCIALS:     [NYSE:JCP]

Discussion Questions:

Discussion Questions: How important is employee communication as part of any change management effort at a business the size of J.C. Penney? What are best practices for communicating with employees in times of major organizational change?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Do you see J.C. Penney's latest round of staff cuts as a good move at this point in its "reinvention"?

Comments:

I am not sure it's fair to lump these two issues together. The observation that the staff in the stores or anywhere else for that matter, is not focused or motivated is a very large issue that I take at face value and if true, needs to have laser beam attention given to it.

But in the world where productivity gains and efficiencies are the mantra for an number of companies and processes, it is unfair to link it to lay-offs. The sad truth is, as productivity goes up, fewer people are needed, therefore layoffs, or in the greatest of all scenarios, retraining to another growth area. But if JC Penney's return policy and EDLP programs are leading to fewer returns and complaints to call centers, I am not sure (and not to infer to be cruel) reduction in staffs to do tasks no longer required is a blame issue.

Charlie Moro, President, CFS Consulting Group, LLC

While the answer is obvious -- yes, communication is always more important than management imagines, this should have a very small impact on the shopper in the store. I'm not sure a "deflated" employee at the store is deflated because headquarters or call center employees are getting laid off.

The bigger question for JCP will be whether they can communicate to the public a reason for shopping there. Having never seen data that says shoppers think they are getting screwed on prices, it's hard to imagine this new strategy will be a good one. If they can't communicate to the public, it's hard to get the store staff on board.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

It's been clear since the analyst presentation in late January (laying out JCP's new strategic course) that the payroll reductions were destined to happen. (In fact, the writing was probably on the wall for the past six months in the Plano headquarters ... with a lot of people uncertain whether they would survive the process or not.) Ron Johnson and his leadership team made it clear that JCP would need to reduce SG&A to 30% of sales in order to be more competitive and profitable.

Here's the problem: Some observers have concluded that JCP sales are falling faster than expected. (Nobody will know what the Q1 comps look like until early May.) It's possible that the first $900 million in expense reductions -- HQ and store payroll as well as marketing -- may not get JCP to the expense number promised to analysts by 2013. And many of the initiatives promised at the "new" JCP (such as Town Square) are potentially quite labor-intensive.

Bottom line: It pays for the JCP team -- at headquarters and in the field -- to understand clearly that the first wave of cost cutting may not be the last. (And investors will be typically impatient for results.) Since the "reinvention" of JCP is positioned as a four-year project, it will make a fascinating case study years from now to find out whether this bold experiment has actually worked.

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Dick Seesel, Principal, Retailing In Focus LLC

Most agree people don't like change and resistance increases with age, but times are a changing. Much of change management seems to be overkill. Harping on the old way is a waste of time. Sell the new is my motto. Present the vision and ask employees to get on the train. Too much detail only winds up with competitors.

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W. Frank Dell II, CMC, President, Dellmart & Company

Employee communication is probably the one single most important factor. Without a strong commitment to working the new plan inside first, the plan has very little chance of being successful once the consumer walks into the store.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

Expect to see more interactive kiosks to support personal shopping. To browse the store and serve your needs without support from sales associates is what can be expected. Taking the count of employees on the floor down is not unexpected. This isn't so much reinvention (fancy word) and code for cost reduction in an attempt to improve bottom-line profit/return on shareholder value. No one would say that shopping for apparel at JCP is as satisfying as experiencing the personal attention at Kohl's, Chicos, White House/Black Market, Coldwater Creek and other higher-end stores.

David Slavick, Director, Loyalty & Retention, FTD.com

From my experiences, nothing tops honesty and sincerity when communicating on any issue -- including change management.

Employees are entitled to know why they are being sacrificed whether the reasons by right or wrong. Their pain is the price for JCP's gain. So give them the human consideration to which they are entitled.

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Gene Hoffman, President/CEO, Corporate Strategies International

Cutting staff at the HQ and support center level does not directly translate into the service level at the stores. Would anyone suggest that Penney's keep people on staff that it no longer needs because of changes in its process?

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Steve Montgomery, President, b2b Solutions, LLC

For this new customer experience of retail, there will be many tasks that need to be accomplished. I would think that there will be new jobs created with different skill sets. There is going to be a huge amount of employee training required to implement this new model. So an important "people" question is whether it is better for morale of the remaining employees to have survived a large downsizing, or to survive a large reorganization in which people had to train for new positions or voluntarily resign.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I haven't been into a JC Penney store in over 30 years. Maybe I should check one out. What do they have that is so great and wonderful that I can't get cheaper at Walmart or Target? It's really hard to communicate a message when it's mostly bad news. It's hard to have good morale when you are not on a winning team.

Good employees move on to better retailers. The first best practice I would use is stop using morale killing buzz words in your communications such as "We are putting in place a new operating structure that creates a winning organization built on efficiency." Just be blunt with employees and tell them that the situation is dire, people need to be fired, and we are trying a last ditch effort of making changes in order to stay afloat.

David Livingston, Principal, DJL Research

It is not surprising that JCP is planning to reduce staff and cut costs. They probably need to do that to support their Fair and Square pricing approach.

Their transformation is to be built on reinventing the department store by creating a "more exciting shopping environment." At issue is the extent to which this requires intervention by employees.

While they can certainly create a more appealing store design and improve their product offering, they are also going to need the people factor to create a really great customer experience.

They need to engage their employees in the process and make sure they take ownership of the new strategy and understand their role in it.

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Raymond D. Jones, Managing Director, Dechert-Hampe & Co.

Employee communication is an important part of management's need to get its word out to those who are the true "front line." While I agree this will have a limited impact on the shopper, I do have a concern on the effect it will have through the rank and file, long-term Penney employee. The "front line" has a connection to those in the HQ complex. They feed off the info to one another. Word coming from the corporate employee can't be very positive today. Usually there is more than a single wave of layoffs. And how can Mr. Johnson say this will lead to more hiring "down the road" when good people are left out today? Timing of this kind of news is never good.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Sam Walton once said that "your customers will be treated exactly the same as you treat your associates."

Change is messy. The level of change that Ron Johnson has described is massive, one that will require a highly energized, dedicated organization. This has to be the first priority. If he and his executive team are not working diligently to achieve this goal, the rest of his pronouncements are a pipe dream.

Bill Emerson, President, Emerson Advisors

Obviously, it's a challenging situation. JCP is in financial distress and like any business in that circumstance, cutting costs needs to be part of that equation. It's easy for those sitting on the sidelines who don't have to make payroll to second guess those decisions.

In JCP's case, they are not cutting customer-facing payroll from operating stores, which is almost always a mistake (see Circuit City). We'd have to know more about the role of the call center being affected, and what the staffing model is there to judge, but cutting payroll from the HQ is often a necessary part of the mix. So I'm not prepared to say that JCP has "forgotten about its People" just because of these cuts.

That being said, investing in the customer facing employees and helping them embrace the institutional chance that Ron Johnson is trying to implement at JCP will be critical. Shifting an existing culture is much harder than creating it from scratch (as Apple did with its retail stores).

I look at an organization like Starbucks that fundamentally recognized what a large percentage of the "product" its in-store staff was, and how critical it was for them to deliver a great customer experience in the face of challenging circumstances. They invested heavily in training 150,000 employees with the customer service skills they would need.

JCP is going to have to make a similar investment, irrespective of whatever cost cutting moves are required out of their supply chain and operations.

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Jason Goldberg, VP Commerce Strategy, Razorfish

Communicating tough news to employees is particularly challenging when you don't have empathy or compassion. Typically companies state that theirs was a difficult decision. Prove it. Show that the packages for the the staff terminated was generous, that plans going forward will always take into account who is affected. More often than not, corporate announces immediate plans the way we pull a Band-Aid off a wound ... with one painful rip. Somebody mistakenly thinks this lessens the pain or the memory of it. And the remaining staff wait or move on in anticipation for the next painful rip. How do you move forward with excellence if the people you are counting on feel that their best strategy is to duck and cover?

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Joan Treistman, President, The Treistman Group LLC

The changes that Ron Johnson is implementing are as tumultuous as a Merger/Acquisition for associates. The JC Penney management team will need to spend the better part of the next year in continuously communicating and training associates on how the "new JC Penney" is doing in tracking toward their strategy/objectives.

That communication is far more important than providing Wall Street with a monthly fix. Making certain that associates understand the why and how things are going, providing them with the incentives to behave effectively, and then assuring an ongoing forum, will position those associates to more effectively respond to consumers/customers.

JC Penney is making the changes for the customers. Those customers will rely on the associates with whom they interact. A good number of JC Penney associates -- maybe as many as 20% to 25% -- will not be able to make the transition over the next 24 months. Challenges will spring forward on many of the new merchandising/operations/marketing moves.

Success will come down to execution by associates.

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Roger Saunders, Managing Director, Prosper Business Development

I wonder how long it will be until robots replace people on the retail floor? They will always smile, say exactly what they are suppose to and won't complain about split shifts, lack of communication, and management that does not understand. Instead of layoffs, just unplug or reprogram.

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Mel Kleiman, President, Humetrics

The 1,000 people laid off were basically home office/call center workers, not in-store staff. Let me put it this way; can you imagine the redundancy left in the hair-ball of a company Penney's was (is?) when Johnson took over? I'm surprised it's only 1,000.

We once worked with a company that had 43 people in the coat department in their home office. Someone like The Limited or Express would have maybe 8 and would produce more revenue. I would think JCP could be in a similar boat -- in dire need of streamlining at HQ.

On the other side, I'd be willing to bet that Johnson is keenly aware of the advantages of actually beefing up store staff at key touch points, again, especially considering the state they're currently in there. Customer experience is driven by service, or at least the perception of it, and JCP needs an overhaul on the upside at store level. I wouldn't be too quick to rate them low on the People "P" just yet. Let's see if that payroll savings gets translated to store level first.

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Lee Peterson, EVP Creative Services, WD Partners

Employee buy-in is critical to any organizational change, and employees who fear for their jobs and don't think management is loyal to them tend not to buy in. JCPenney needs to be frank with employees about why layoffs were necessary and also if more may be on the way. People understand that in today's economy nobody really has "job security" as it existed 20 years ago, but they still expect a certain level of honest communication before they will fully commit themselves.

Dan Berthiaume, Editor, Independent consultant

As I read this piece, my mind went immediately to "Undercover Boss." While I am reasonably sure the series is staged and dramatized, the principal remains intact. Senior management is clueless as to what the mechanics of their operation are. They lack understanding of what front-line people deal with every day and what motivates them. It is the little things that matter more than the massive expense reductions. Communication MUST be in place during massive change to make sure that the front-line people understand and are on board. Where possible, make them part of the process.

I don't interact with Ron Johnson. I do interact with the cashier and the floor people in his store. In this case they represent Ron Johnson.

"Success in life is founded upon attention to the small things rather than to the large things; to the every day things nearest to us rather than to the things that are remote and uncommon." (Booker T Washington)

'GMROI'

I have to say that while I haven't been into a JCP store in many years, I am planning an excursion this week to do just that. I can't wait to just look around. Though change can be a tough nut to swallow at times, i think the excitement Mr. Johnson has created might just offset the negative. The changes he is making are smart. He is creating a new, more nimble brand. I personally feel the buzz and no, I do not think he forgot any P's. When he gets all the pieces together, we are going to see a wonderful new concept in selling.

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

Mass firing is communication. Sends a message LOUD and CLEAR, but it is the right message? Will the firings continue until morale improves? Or is there a more powerful effort underway to raise esprit de corps among associates, as they are the key to raising it with loyal customers?

Sid Raisch, President, Advantage Development System

Most of us who tend to plants have at one time or another, by mistake, cut the healthy branch rather than the dead one. Time will tell how good a gardener Mr. Johnson ends up being.

'notcom'

When it comes to massive layoffs, most "communication" is telepathic. A new guy comes in with a reinvention plan and people expect cuts -- they just aren't sure where.

The big picture is that headcount cuts are an inevitable component of the reinvention that is underway across all of retail (not just at Penney's). Bulky, layered merchant organizations are simply not required to run the retail operation of the future. IT and operations are the new merchandising teams.

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Carol Spieckerman, President, newmarketbuilders

No one at JCP headquarters, their stores, or the industry should be surprised by the action taken to streamline their workforce to meet the new model. Based on the efforts going on under their previous model just to deal with a price, I'm surprised it wasn't more than the 15% of their corporate staff.

In the end, to me, it boils down to pants. It really is about the pants. JCP has the best slacks I have found anywhere, even at twice the price. I needed some pants following their CEO change. I found them more prominently displayed. I didn't have to search for them. I didn't need a coupon. I got them at a more than fair price. I was served by an employee that was clearly happier with the new structure of operation. What that all said to me was, the employees get it just as much as their customers.

I got my pants. I'm a happy guy. I no longer need to have three coupons, my wife's charge account, and to shop within certain dates to get them.

I paid $10 more than the lowest price I had paid previously. I found them more easily. I was served by a pleasant employee. I can go back tomorrow and get more of them at the same price.

It is all about the pants! Please JCP, don't mess with my slacks. You've got it right. If they keep it up, they are on their way to a turnaround.

'Scanner'

There is no way to overstate the importance of engaging employees, particularly store management and associates, in delivering a superior customer experience. If the goal of the JCPenney management team is to deliver a customer experience similar to that of old fashioned department stores, it is clear that last week's communication falls far from the mark.

The best practices for communicating with employees in a time of organizational change are to establish first a clear mission and vision, and then to demonstrate how the organizational change is not financially-driven but instead focused on helping the company achieve its long-term goals.

Since JCPenney has not yet remodeled their stores, and, it appears, not yet remodeled their relationships with store associates and management, I must view the attempted rebranding with some trepidation.

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Mark Price, Managing Partner, M Squared Group, Inc.

This "transformation" is a massive undertaking and we should not be surprised at what appears to be large moves such as 1,000 staff layoffs. The real question is what is being communicated internally and how it is being done.

Going back to a well documented case of organizational reinvention, France Telecom reinvented and renamed the Group's internet, TV, and mobile services "Orange" and became famous for saying "we had to become Orange on the inside before we could be Orange on the outside." The company went through a significant internal rebranding exercise which focused on employee attitudes and values. The result was a great success (at least initially).

Similarly, the iconic Selfridge's department store in London underwent a monumental reimagining from a traditional store to a cutting-edge youthful fashion authority. They did so by focusing first on converting the hearts and minds of their internal constituency before announcing their change to the outside world. Brilliantly executed and they are now own of the great retailers in the world.

My question to Mr. Johnson, who I admire greatly, is this: What is being done to make it the reinvented jcp on the inside before you become a reinvented jcp on the outside?

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

Employee communication is so important when making changes like this. What I find a bit strange is the timing of this move. I would have expected them to announce a "restructure" of sorts when they initially announced the changes to the stores early this year.

Seeing these cuts now sends one of two messages in my opinion:
1. JCP needed extra help to institute the changes, that help is no longer needed, so it can be eliminated.
2. JCP needs to cut expenses quick because the changes have completely screwed up their sales and profitability, and this is an easy way to quickly cut costs.

Whatever the case is, I spent my lunch today visiting a JCP Store; this was my first time inside one since December. I liked, very much, what I saw; the displays were a lot better arranged. Pricing was so clear and straightforward. The price points mostly looked like the old sale prices. $25 for good Stafford Dress Shirts with a previous retail of $42 (and some on clearance at $7).

The store felt a little quiet and empty but it was midday and my mall's other anchors (Macy's and Sears) were not exactly booming either.

The pricing really reminds me of Forever 21. It is like a clone of that. I'm surprised nobody else has drawn that comparison? Am I the only twenty-something year old person following this thread?

I really hope these changes work out. My main concern is perhaps too radical of a change, too fast, by this new CEO?

'storewanderer'

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