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Reimagine That: J.C. Penney Has Morale Problem

December 6, 2012

If there is a head scratcher story of the year this just might be it.

A lot of mistakes have been made at J.C. Penney since Ron Johnson and his team took over at the department store chain. While many point to changes in pricing and promotion as the why behind plummeting sales at the company (Q3 comp sales down 26.1 percent), another reason may have been spelled out in Penney's recent SEC filing.

The company pointed to the loss of workers whom Penney has found "difficult to replace." Workforce reductions were brought about through firings and attrition.

According to a Bloomberg News report, workforce reductions have meant that more responsibility is being piled on the remaining employees and that even more may be asked of workers in the future as further cuts may be in the offing. The possible changes "may negatively impact communication, morale, management cohesiveness and effective decision-making, which could have an adverse impact on our operating efficiency."

FINANCIALS:     [NYSE:JCP] [ ]

Discussion Questions:

Do you think J.C. Penney management has lost or is in danger of losing the faith of its employees? What would you recommend Penney do to address its morale problem?

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:

How likely is J.C. Penney to rebound if it doesn't have buy-in from employees?

Comments:

Poor morale goes hand in hand with any retailer in decline. JCP won't be able to fix this problem until they can win over customers again. JCP seems more like another Kmart to me. All press release and no business.

David Livingston, Principal, DJL Research

The pricing strategy they adopted was a disaster. If you think that you can change to EDLP and become a Walmart, then you are crazy as only Walmart can be who they are.

The employee morale issue is another story. When you slash the workforce, any employee is wondering when they are next. Retail at all levels is brutal, and J.C. Penney is at the bottom of my list to shop for the same goods I can get at Macy's or Kohl's, who run better sales and have better service, with a great online service as well.

There are going to be some losers in this economy, and J.C. Penney may be the one to suffer the most.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

On a recent Saturday morning, I went into a JCP in one of the major malls in the Boston area. It was around 11:30 and on one floor (about 40k square feet) I found one, yes you read that right, associate.

Ron Johnson gained his fame with the Apple Stores, which changed the face of specialty retail. He deserves high praise for that. He also needs to guard against the hubris and sense of omniscience that comes with it.

This is not the Apple Store. This is an old-line company that has been around for over 100 years. It has its own DNA and its own company culture. Mr. Johnson and his team seems to think that a lot of bright ideas, younger assortments, and flashy graphics are all it takes to make JCP relevant and successful. That may be true in the corporate office, but the customers and the associates that deal with the customers are not in the corporate office. They are in the stores. They need to be part of this change, because they are the ones who will (or won't) implement it. Like all businesses, if the front line deserts you, you're done.

Bill Emerson, President, Emerson Advisors

The more I read about the attempted turn-around at JCP, the more I understand the problem. Some of the changes implemented were quoted as "being paid for by additional efficiencies" or words to that effect. Clearly that meant changes that won't make the workforce happy. Employees are being asked to do more with less. There are no longer any commissioned sales employees. Customers have defected. Wouldn't you be worried if you worked there?

It's the "why" of it that presents the most serious dilemma. JCP was not a cash machine to start with—having only generated about $23 million in cash in 2011. This year, the expected and unexpected precipitous drop in sales has led to a serious cash hemorrhage. There are some estimates that say the company may run out of cash by late 2014. Yes, it has a large seasonal line of credit, but banks can be....capricious around inventory-based lines.

All this is by way of saying there may be no way back for the Johnson team. The chain is half-pregnant with change, and there's nothing to do but go forward. This will not make the workforce any happier, unless they can be shown a clear vision for the future, one in which they matter.

I think we've all been a bit disappointed in the way things have gone so far. Here's hoping the situation can be turned around. Soon...as in this quarter.

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Paula Rosenblum, Managing Partner, RSR Research

On Tuesday I had lunch with Ira Neimark the former CEO of Bergdorf Goodman. We were discussing his new book "A Retailer's Lifetime of Lessons Learned" as well as the state of retail today. One of my favorite "Lessons Learned" from speaking with Ira and reading his books is MBWA (Management By Walking Around). I would encourage the entire J.C. Penney senior staff to leave headquarters and start working the floors of several stores around the country one or two days each week. Ira is absolutely correct that the best way to understand your business is to understand your customers and that does not come from analyzing data at headquarters, it comes from meeting, greeting and speaking with your customers and associates in store. You want to build morale and stand side by side with associates in store.

I have been a big fan of what J.C. Penney has been attempting over the last year, but am now concerned that the senior management team is not involved at a store level to truly understand what associates and customers are experiencing.

MBWA will certainly be a step in the right direction for improving morale and customer experience.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

As I just wrote in my blog, J.C. Penney - Don't Be The Next Retail Trainwreck - this is the worst makeover ever. Why? Because there is no plan to deal with people—the salespeople or the customer. It's all about one man's hubris on an untested vision.

It confuses everyone and has resulted in Penney's losing more in the first 9 months of this year than SAKS sold in all of 2011. The numbers cannot be glossed over. And if you haven't seen a JCP lately, look at the pics I took yesterday on my blog post ...

Quite simply, this emperor has no clothes.

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Bob Phibbs, President/CEO, The Retail Doctor

Faith without needed sales causes morale problems and then faith fades away.

JCP now means "Just Couldn't Pull-it-off."

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Gene Hoffman, President/CEO, Corporate Strategies International

If Johnson actually still thinks he is going in the right direction and "gaining traction," as he apparently does, he's got to go. The sooner the better. The significant and abrupt changes were too much too soon (if they should have come at all). There's a difference between Apples and oranges. Only a new helmsman who can earn employee trust stands any chance at saving this business.

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Warren Thayer, Editor & Managing Partner, Frozen & Refrigerated Buyer

My primary interaction with JCP during the past few years has been on the operations and technology side and I sense that while there has been a drop in morale, those teams are far from throwing in the towel.

Yes, the new regime has tossed out some very valuable managers and lost some of the institutional knowledge needed for continuity. And yes, there have been a few fits and starts in terms of the technology direction the company is taking. Even with this upheaval, there are still dedicated professionals really trying to support the stores and compete effectively with Macy's on one side and Target on the other.

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Ron Margulis, Managing Director, RAM Communications

The first time an organization goes through a force reduction, it changes the culture of the organization. This is particularly true if essential, hard-to-replace personnel is part of the layoff. The message this sends to the remaining employees—already going through some level of survivor's guilt—is that you can be let go at any moment even if you are perceived as essential to the operation by your peers.

If the company's numbers do not improve, the intensity of inward focus and political jockeying increases as employees want to make sure they are not part of the next round of firings. A company that is focusing inwardly is not taking care of its customers and so the cycle continues. As the cycle progresses, employees stop believing that management has their best interest at heart and lose faith that management will be able to pull the company out of the tail spin.

Kurt Seemar, President, Analytic Marketing Innovations

Nobody wants to work for a loser or a company that is currently perceived as a loser. Makes no difference if you are sipping cocktails at a party or having a beer with friends, when someone asks where do you work and you tell them you work for a company where all the news of late is bad, it's not fun.

Add to this the negative impact of layoffs, hours being cut, etc., you definitely have an environment that will produce poor morale. At this point I don't think that is any question that JCP as it is now known has lost the faith of it employees and its customers.

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Steve Montgomery, President, b2b Solutions, LLC

The old adage goes employees treat customers the same way they are treated. If they feel threatened and are not valued, they will treat customers in the same negative way.

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Mel Kleiman, President, Humetrics

Maybe it is a forced comparison, but it feels like we saw this movie before. Wasn't it titled, "Circuit City"? Try to compete on price, don't offer anything truly unique, destroy employee morale, reduce staffing, etc.

Haven't we been here before?

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David Zahn, Owner, ZAHN Consulting, LLC

Ron Margulis is right. This is no time to throw in the towel.

Penney's has terrific merchandise, clean and sparkly stores, and great pricing. A healthy dose of word of mouth will do a lot to spread the word and get customers into the store. And if the lines I'm seeing there are any indication, reports of JCP's death are greatly exaggerated.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Reimagine this! What's not a surprise that we see another JCP issue. Now employee morale, and during the major part of the holiday selling season. This is one that must be addressed now or the over/under on another major change at the top is less than six months, in my humble opinion.

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

There is a huge disconnect between the sanguine public face that Ron Johnson has presented to investors and the business press, and the much more serious situation described in the latest SEC filing. Describing it as "malfeasance" may be too strong a word, but many RetailWire panelists saw the morale issues coming a long time ago. It's not just a matter of a reduced workforce (in the stores and especially at corporate headquarters), but a perception that JCP is in a downward spiral; this makes it nearly impossible to recruit new talent to replace the "legacy" managers who were let go.

The other part of the SEC filing is equally revealing, since it speculates that JCP's changes in marketing and merchandising may cause a risk to the business if customers reject the new strategy. Oh, really?!?

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Dick Seesel, Principal, Retailing In Focus LLC

JCP fell victim to the seductive charms of a seemingly retail genius who would literally change the way that JCP does business (pricing, product, promotion) and in so doing, not only turn the company around, but gain market share by meeting existing customers needs and attracting new customers.

It was an idea whose implementation (and failure) we witnessed only too recently with Walmart's failed assumption (under John Flemming) that the proliferation of market segmentation (spurred by online comp) meant that wholesale changes must be made to marketing and merchandising (narrowed assortments, tiered pricing, etc). The failure to understand Walmart's core competency and core customer led them far astray and resulted in market share loss, customer dissatisfaction and customer loss. They are still recovering today.

In a purely clinical analysis, I love their assortments, their cleaner and trendier stores and marketing materials, but unfortunately I am not a core J.C. Penney customer.

Penney must reclaim their heritage while making themselves more relevant in the marketplace. In so doing they can help to stem the bleeding in employee morale and customer satisfaction. The big question is whether they have the time or deep pockets to do so.

Charles P. Walsh, President, OmniQuest Resources, Inc

I have to say that I have really liked the attempts made by the Johnson team. They have created a brand with zipped up stores and good prices that could be a great tween brand.

The problem to me is, that was not who JCP was before. Perhaps had they changed the name and started some cool marketing campaigns this could have been a great NEW brand. If you have been in a JCP lately, the store-in-a-store concept is cool, polished etc. You just can't pull this off with the same old sales approach and SAs accustomed to dealing with a different customer.

The Johnson can't go back, but I still think there's hope to go forward. But, Ron, it's critical now so make the right move!

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

Johnson and his team don't have a clue and this puppy is already dead. Question is what is salvageable and how cheap will it eventually be? It would seem that Penny could find a sweet spot clothing all of the unemployed and downsized workers and the millions yet to come. They used to have a reputation for having some pretty decent PL men's clothing. But as business attire trends toward tie dyed tee shirts and Birkenstocks—maybe no!

Best for Penny if Johnson gives up now and they can go get someone from Walmart to right the ship. With regard to your question, do you think anyone with options is sticking around? If so, give me one reason!

Ed Dennis, Sales, Dennis Enterprises

If you don't have any customers anymore, do you still need any employees... at all?

The only winner I see in all of this is Sears; not because they are actually gaining any business from this—though of course they may be—but because we've all been pulled from their deathwatch to tend to another patient.

'notcom'

Bill Marriott said you cannot have customer relations without employee relations. This rule is still applicable even in the mobile world.

'REMader'

This has already been lost. Penney needs to become customer and employee centric. Making Penney a great place to work will translate as a great place for their customers to shop. These examples are seen in many other environments including TJ's, Whole Foods Markets, USAA, ERAC, Apple, Starbucks, and many other stellar places to work.

Changing the work environment to please their employees will fix their morale, employment and other issues. Do this, do it right, and do it now should be Penney's mantra.

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Kai Clarke, CEO, American Retail Consultants

They said of JCP in May 2012: "Bet the horse, not the jockey." It's a muddy track and we're going around the clubhouse turn....

Vahe Katros, Consultant, Plan B

How could JCP not lose top workers and face declining morale of remaining staff? Revenue and comp store sales are falling precipitously and management intends to maintain this strategy until success or bankruptcy, whatever comes first.

The best, most sought-after workers go first. They can leave whenever they want, and without a retention bonus plan, are already gone. The remaining workers have to pick up the pieces, and with more staff cuts to come, are balancing out their job search with work priorities.

None of this is a surprise to me. The JCP new strategy is bold and innovative, but seems to have left customer needs behind. Employees also feel left behind and a decrease in service levels and customer experience are what comes next.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

Yes, not at store level, but control at the central office; policy that is being made at the central office by people who have limited store experience. The Penney Company was built by Company leadership at the store level and developed by merchants at the central office.
The success in retailing is: location, quality of merchandise, pricing, and good personnel. Change is necessary; however, never forget the four principles of retailing.

'BJ55320'

J.C. Penney doesn't have employees to worry about, they have part timers that do not care any more. I have never seen such unbridled arrogance in any free market enterprise. This is an overdue train wreck with huge unemployment numbers looming on the near horizon.

'gjarnoldjr'

Eliminate, automate, streamline ALL non-selling tasks! If they have not done a major re-engineering in the last 2 years, they must attack it with rigor!

'vgallese'

Watching JCP over the last several years has been frustrating and painful—a death planned and produced by the doctor supposed to mend the patient who meant well, but was misguided. Have you seen the ads? We ALREADY have a store like Target—IT'S TARGET). All of Myron Ullman's good work flushed down the toilet!!! The situation does not seem very good and when talking with various people at different levels of involvement, the whole situation is very concerning. It would be very sad if this can not be righted.

William Passodelis, associate, ML Co.

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