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[19 comments]

Did J.C. Penney make a mistake eliminating sales commissions?

January 20, 2014

Along with the bigger news of plans to close 33 stores leading to the layoff of 2,000 workers, J.C. Penney also revealed last week that it was reinstating commission pay for associates in its window coverings, furniture and fine jewelry departments.

The switch, set to occur in February and March, will affect more than 3,000 associates.

"Offering a competitive salary base that includes a commission incentive not only helps in retaining some of our best sales associates, it motivates them to build and maintain stronger customer relationships," Penney stated in an email sent to media outlets.

Along with promotions and labels such as St. John's Bay, bringing back commissions marks yet another reversal of moves set in place by Ron Johnson, who was CEO from November 2011 to April 2013.

Through its history, Penney had paid associates minimum wage plus a percentage of each sale in six departments: furniture, window coverings, jewelry, shoes, salon, and men's suits. Apparently, the latter three will remain non-commission.

The May 2012 move to de-commission those departments led to charges that the associates would wind up earning less money in the end. But Penney said the new pay scale would be based on the prior year's pay averages.

Mr. Johnson's former retail stops, Apple and Target, both featured non-commissioned sales floors. In a November 2011 blog on the Harvard Business Review entitled, "What I Learned Building the Apple Store," Mr. Johnson praised the benefits of incentivizing associates around the shopper experience.

"Their job is to figure out what you need and help you get it, even if it's a product Apple doesn't carry," wrote Mr. Johnson. "Compare that with other retailers where the emphasis is on cross-selling and upselling and, basically, encouraging customers to buy more, even if they don't want or need it. That doesn't enrich their lives, and it doesn't deepen the retailer's relationship with them."

Penney's new structure still falls well short of its largest competitor, Macy's, which provides commission in various scales to all full-time associates. Kohl's, another close competitor, doesn't offer commission on any category. Nordstrom, Dillard's and Sears are other competitors that offer commission to some of their employees.

Ironically, Sephora — a non-commissioned retailer in a heavily commission-driven category — began operating in-store shops inside Penney in 2006 under Mike Ullman III, who has returned to lead Penney.

FINANCIALS:     [NYSE:JCP] [ ]

Discussion Questions:

Do you agree with Ron Johnson (anti) or Mike Ullman (pro) on the issue of commissions paid to retail sales associates? Do you believe cross-selling and upselling are detrimental to a retailer's relationship with its customers?

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 important is a commission-driven pay structure to the department store model?

Comments:

It's not really about the department store. It's about the departments where the commissioned sales people are/were located. You need commissioned sales people in furniture. Period.

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Paula Rosenblum, Managing Partner, RSR Research

Any post that starts, "Did J.C. Penney make a mistake..." is rife with easy comments.

The junk that goes for "visionary" thinking like Johnson's quote that upselling and cross-selling doesn't deepen the customer relationship is rubbish. And from someone in an ivory tower with stockholder money in their pockets.

Real merchants understand customers don't want to forget something, to settle for something, to forget for example the batteries to the toy, the curtain rods for the window coverings, the additional trouser for the suit. Commissioned sales helps this happen - and has since the dawn of time.

To think it is perfectly okay for an app to suggest additional items based on an algorithm in a store is acceptable, but paying a human to actually think how to make a sale and make both the customer and store happy seems misguided.

I was at the Apple store one day getting a new clicker for my speaking presentations. As the girl eagerly whipped out an iPhone to check me out, I asked if they had an external drive for backup I needed. "Don't buy it from us, we're too expensive." She walked me over to an Apple computer, opened a browser to NewEgg, entered the information, printed the screen and thought she did a good job. No commissioned salesperson would have done that. Heck, no salesperson worth their salt would have done that.

Selling isn't a bad thing - it's the only thing. Rewarding those who know how to do it is no different than the bonus plan many execs are on who do far less for the customer.

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Bob Phibbs, President/CEO, The Retail Doctor

I'm all for having as many people on commission as possible. The problem with being on commission at J.C. Penney is that they are low volume stores. If you are good at what you do and a good salesperson, you will not be working at J.C. Penney. You really can't attract good employees to work on commission when you are operating at Kmart-esque levels.

I agree with Johnson and Ullman that you must offer a competitive salary first because commissions alone in a low volume store will just result in high turnover. Cross-selling and upselling is fine when done by the right people in the right store. However, when it's done in a failing concept like J.C. Penney, it often comes across as tacky.

David Livingston, Principal, DJL Research

 
13

In my opinion, the employee compensation debate is the least of the reasons why J.C. Penney has been struggling for so many years. However, I strongly believe that a commission-based retail sales organization attracts a very different type of employee, both for better and worse, than does a salaried sales team. I do not believe that current product mix, brand mix, or price point mix lend themselves to a commissioned type of sales organization specific to J.C. Penney, so I think it will be yet another mistake in judgment by management.

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

Commissions do not determine the loyalty of the customer. Quality of product, quality of company, and the quality of the salesperson. Without the first two, you may sell more the first time, but you won't get the customer back. A lot more needs to be done at Penney's besides paying certain sales people more.

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Mel Kleiman, President, Humetrics

I am with Ron Johnson and Kris Kringle from the "Miracle on 34th Street." That is what would keep me coming back. Bob Phipps example is sterling. "'Don't buy it from us, we're too expensive.'" She walked me over to an Apple computer, opened a browser to NewEgg, entered the information, printed the screen and thought she did a good job." Bob and I just happen to disagree on the conclusion.

If a retailer or sales person is customer oriented they will do exactly what the Apple salesperson did. The results will be a trusting and loyal customer. If she sells the product at a higher price, the customer will ultimately understand that they are being ripped off and in the future will look other places for products first.

Either the salesperson works for the customer or the store. If the salesperson works for the customer, the store and the customer win in the long run. If the salesperson works for the store at the expense of the customer, both lose in the long run.

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Gene Detroyer, Professor, Independent

Assuming one is paying sales associates a decent wage, I favor the Ron Johnson approach.

Customers are smart enough to know when they are being hustled. The answer to all JCP's woes isn't undoing everything Johnson introduced.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

JCP sales associates need some kind of incentive beyond a simple paycheck and minimal benefits to show up in the morning, whether that's in the form of commissions, prizes for reaching sales quotas, stock options, or something else. The difference between the sales teams at Macy's and JCP was noticeable as soon as I entered the stores before the holidays. Macy's people were smiling and helpful and gave me an extra coupon at checkout. The JCP people were grumpy and actually overcharged me (by mistake, I hope).

On the cross selling issue, these programs really need to be thoroughly analyzed using both structured and unstructured data. My feel is that they can frequently improve the store's relationship with the shopper, as in the case of putting together complete outfits with accessories, but they can also turn off customers if pushed to heavily.

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Ron Margulis, Managing Director, RAM Communications

Ron Johnson's perspective on sales commissions, largely shaped by his tenure at Apple, doesn't apply well to the J.C. Penney environment. In Apple's case, customers flock to the stores, the customer experience is consistent and reliable, and their products sell themselves.

At Penney's, the sales associates and customers alike have been whiplashed by ongoing changes in the brand's retail strategy, pricing, offerings, etc. Paying commissions once again may be more of an employee retention tool than anything, while they try and figure out how to get customers back into the stores. Cross-selling and upselling only work when done in an authentic, natural manner. Penney's customers will/would likely see this as awkward, and not in keeping with the experience expected.

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Jeff Hall, President, Second To None

My concern is that you can't "turn" every hourly worker into a commission-driven salesperson. Picking a compensation model and institutionalizing it isn't the only consideration because different people are motivated by different incentives. Some employees will find the reinstated commission structure a welcome challenge while others will see it as a pressure-cooker (with commissions come comparison).

I favor a commission-based structure - it may be the only way to drive add-on purchases in these tight-fisted times, and at a retailer that for now reads "meh." That said, J.C. Penney skipped a step by not evaluating its sales associates prior to making the move.

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Carol Spieckerman, President, newmarketbuilders

If commission are linked to sales goals, great. Achieve X in sales and receive commission on sales above X. Just stay away from spiffs offering higher commission on select products.

'REMader'

If you pay someone a commission on zero sales, they still earn nothing. The problem isn't paying people commission, the problem is getting people into the stores! JCP has to change their image. Period. What do you think of when you hear JC Penney? I think of my grandma. When I hear Macy's or Dillard's, I think of style. When I hear Sears, I think appliances. When I hear Penney's, I think strange, old lady store. If I was a waitress, I could probably find the old black waitress shoes in there.

Rename, rebrand and revamp Penney's. Then worry about how to pay commissions when you have something to pay them on.

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Janet Dorenkott, VP & Co-owner, Relational Solutions, Inc.

Reversing the policy in and of itself has some merit. However, given that the brand, reputation, and fortunes of JC Penney have slid significantly, the sales associates are starting at a disadvantage. Individually they can not restore the brand image, reputation, or attraction of the stores. They are starting with a smaller customer base and are now having part of their salary dependent upon commissions. That may not be a desirable position for them.

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

Definitely on the Mike Ullman side of this view. Successful Compensation and Incentive Pay should take several items into consideration:

1. Is the program consistent with company objectives?
2. Does it guide associates to act in a specific manner?
3. Does it excite associates?
4. Is it easy to administer?
5. Is the compensation paid in a timely manner to keep the program flourishing?

Ullman and JCP are taking the right steps with these three categories. It wouldn't surprise if they quickly added other store categories, as well.

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Roger Saunders, Managing Director, Prosper Business Development

My vote is for Mr. Ullman on this one. Salespeople are motivated by commission. Remove the commission and you get staff who, best case, are happy to serve the customer but not motivated to make the sale. A commissioned sales model works to the retailers' benefit when it is implemented and managed properly.

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Larry Negrich, Vice President, Marketing, nGage Labs

I fall on the side of Ron Johnson on this one. Customer satisfaction is where the focus should be placed. If a salesperson meets my needs, whether 100% at their store or partially elsewhere, I am much more likely to be back. If, on the other hand, I find out I was taken advantage of either on quality or price, I won't be back. In this case, going back to commission on a lower sales base and without top notch talent or brand identity, the result may well be ho-hum.

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Brian Numainville, Principal, The Retail Feedback Group

The number one feature of Brick & Mortar retail and its biggest differentiator from online are the people. How the staff in the stores act, based on the objectives of the retailer, has more to do with the success of a brand than any other component.

An outstanding customer experience can be most effectively driven by the retail salespeople, and research has shown that RSPs are the number 2 driver of product selection and purchase, following trusted friends. Advertising, merchandising, plannogram, product mix, etc., are all important levers, but it's the people that make the difference.

To produce an outstanding retail customer experience, you have to have top people who have motivation to deliver it. Paying commissions is one method of getting this, but it's really a tactic vs an objective. Therefore, to really evaluate whether Ron and Mike are making the right move, we'd need to understand what they are driving for with respect to the customer experience at Penney's, and how they are positioning this tactic with their staff to drive the results they want.

For example, Nordstrom has used commissions to attract and retain top staff, and with a strong approach to personal shopping for its customers, has seen little customer negativism to commissions, upselling or cross-selling. By contrast, commissions at Circuit City were a turn-off for customers who didn't receive personal attention to their needs, and were instead presented with staff who where more interested in hard-selling them. It's not just a simple question of commission vs non-commission, but how this fits in the the broader objectives and behaviors a retailer wants to drive.

David Berett, Vice President, GMR Marketing LLC

I've worked at retailers with both approaches and whether or not it's coincidence, business was always better at the ones without it. If your brand is hot enough, people will almost pay you to work there.

Which is JCP's problem. After sacking their only hope for 're-invention' due to a lack of patience and focus on the short term, the slow death spiral is beginning. And to add to it, the thought of very aggressive sales people in their stores hawking goods will speed things up, in my mind.

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Lee Peterson, EVP Creative Services, WD Partners

Money changes everything. Why do we pay CEOs big bucks and not the people that make it possible to give them their pay?

Kate Blake, Social Media Manager, Take Five with Kate Blake

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