Penney debacle has been in the making for a while

Staff writerApril 14, 2013 

In this business, there’s a risk in relying too much on reporting by anecdote and metaphor, but as the great business consultant Yogi Berra once noted, “You can observe a lot by watching.”

You could observe, and learn, a lot on a recent tour through the basement level of an area J.C. Penney store. Some sections had features and fixtures that didn’t appear to have changed since the 1980s. Others didn’t feature much of anything at all — little inventory, some shelving units haphazardly scattered so as to make it unclear whether the department was being moved in, renovated or dismantled, and no hints to the public about what was coming or going.

That’s a good summation of J.C. Penney’s muddle of a retailing strategy in general, but in at least one department the department-store chain has made a definite change — the executive suite, where Ron Johnson, brought in to remake the retailer, has instead been moved out as CEO.

Johnson came from Apple (before that he had been at Target) to define and refine Penney’s place in the retailing spectrum. In less than two years on the job, he managed to make a further hash of what already was a challenging situation, by changing the policies on sales and trying to make Penney a hip young apparel retailer. Penney moved away from its solidly and stolidly middle-class customer base, but unlike Apple (for a time the hottest retailer in America) it had no hot, trendy image or product line or fanatically loyal customers upon which to build sales.

Penney named Johnson’s immediate predecessor as CEO to be his successor, which perhaps is fitting because the retailer’s problems also predate Johnson. In a news release, the old/new CEO is quoted as saying that while J.C. Penney “has faced a difficult period, its legacy as a leader in American retailing is an asset that can be built upon and leveraged.”

What legacy? Do legacies matter these days? Sears – America’s other retailing problem child of the moment – at least has some widely recognizable brand names, Craftsman tools and Kenmore appliances. Penney doesn’t. And that legacy business of being a retailer to the middle class is overrun with competitors, from the discounters such as Target and (in the Northwest) Fred Meyer to Macy’s, Kohl’s, Costco and even to Amazon.com, whose legacy as a going concern is less than 20 years old. Johnson might have seen little future for or utility in Penney’s legacy; the problem was coming up with something to replace it.

Whether Penney does ever come up with a viable retailing model (the fourth-quarter and full-year results released in late February featured a lot of an ink color that is never in fashion in business – red), its problems aren’t just a matter of interest to the store’s customers (those that remain), or to its employees. There’s also the matter of retailing real estate and the future of retailing development.

In this region alone, Penney has stores at Westfield Capital Mall in Olympia, Tacoma Mall, South Hill Mall, Southcenter, Capital Hill Mall and Kitsap Mall in Silverdale. That’s a lot of square footage with an uncertain future. Penney has closed stores in recent years, and closing stores is always a favorite stop-gap, “I gotta do something” move for a new CEO with impatient investors to satisfy.

In the old days of mall development, you could anchor a major regional retailing center with Sears at one end, Penney at the other end, and whatever the regional choices were (Frederick & Nelson years ago, The Bon Marche) in the middle or at the other corners.

Some of those regionals are gone (F&N). Others got consolidated by Macy’s (The Bon). The remaining anchor tenants either have well-defined niches (successful though it is, Nordstrom would not seem to fit the definition of a mass-market retailer) or, in the case of Sears and Penney, trying to figure out whether they have a niche, however it’s defined.

The modern American shopping mall still has a viable legacy if the crowds thronging them (more reporting by observation) are any hint. But mall operators face the challenge of how to fill the vacancies and draw in shoppers, jobs once performed by those anchor tenants.

Retailing developers face the challenge of coming up with a new model if the old one, based on department-store anchors, no longer works because department stores no longer work.

Analyzing a company through its marketing slogans, like observational reporting, can be alternately revealing and misleading. In the case of J.C. Penney, though, it’s more the former.

A few years back, the company replaced “It’s all inside,” which can be defended for at least suggesting to potential shoppers the nature of its retailing business. The replacement was “Every day matters,” a headscratcher unless one thinks of it as describing the company’s increasingly urgent need to come up with a plan for survival. Then it makes perfect sense.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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