Did J.C. Penney make a mistake eliminating sales commissions?
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.
- J.C. Penney Brings Back Commissions to Boost Turnaround – Bloomberg News
- J.C. Penney cutting 33 stores and 2,000 jobs; sales commission returns – Los Angeles Times (tiered sub.)
- J.C. Penney ending commission pay in stores – Dallas Morning News
- What I Learned Building the Apple Store – Harvard Business Review
- Ron Johnson: How I built the Apple Store on experience, not commissions – 9to5mac
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?