Too Big To Fail

I've been waiting for J.C. Penney to replace Ron Johnson since shortly after they hired him. He had a fundamental failure to understand the J.C. Penney customer. While I was not the Penney's customer, I've worked for them and my great-grandfather was friendly with their founder. Actually, let's hear from the man himself.

“We told store managers that, unless they knew their communities and unless they were prepared to enter sympathetically into community life, they could not make a success of their stores.” - James Cash Penney

Penney believed in meeting the customer on their own level. He believed strongly in individual service as a path to success. This is a basic truth of retailing that I rarely see deployed. Even this otherwise spot on article misses that point. The best tool a retailer has is not pricing but staffing. Current trends in retail are to reposition payroll hours into stock and cashier positions while expecting stockers to do double duty as service persons. In some retailers this works. Target has a customer who expects little to no service and a call button system that loudly reminds those in the store that floor personnel are timed in their response. Some retailers staff adequately but train and deploy that staff poorly. (Looking at you, Best Buy.) Staffing is an art, best handled by the store manager, not by a chart from the home office. Retail workers wages have declined steadily. Walking into a store I can tell you who makes what. The paycheck shows in the performance.

Penney's customer is a service driven budget shopper. Their shopper can't (or chooses not to) pay high end department store prices but wants to have the same shopping experience. The Penney's customer is not a person of leisure. They're busy. Generally they know what they want but they are also willing to add purchases. They prefer to order things that are out of stock rather than waste time hunting sizes or styles down. If they like an item, they may order the full color range.  Before Johnson came in Penny's was losing customers by increased centralization of ordering and reduction of staffing. If the Penny's customer has to hunt down their own purchases, they might as well shop at Target. It's not a surprise to me that Johnson wanted to reposition Penny's as Target without the groceries. The problem is that Target already does Target, and quite well. That customer is being served. 

At the top of retail choices are made that lose sight of what those at the bottom of retail know. The key to success is not focusing on the customer you don't have, it's increasing the amount of money your customer spends. Find out what your customer likes and give them more of it. As James Cash Penney knew, this requires local involvement. School event with specific dress code coming up? Let the stores order for it. Lots of size 5 feet in the area? Stop shipping them size 14. When the customer walks into a Target in Miami and sees a wall of ear muffs you might as well throw that merchandise away. The widget model cuts costs and excites Wall Street but it's the retail equivalent of telling the customer you neither understand them nor care to. You see a shipping model with a loss threshold offset by  organizational practice savings. The customer sees a bunch of idiots running this place. 

Penney's is a common tale. (I play a game with former coworkers called "Months Till Closing" where we put major chains on deathwatch.) I've worked for or shopped at any number of retailers who were once Goliath but are now gone. They fail because failure seems impossible to them. They are too big to fail. For part of my career I worked for Service Merchandise. It was a great job with a highly profitable company. We had real benefits, real wages, respect from corporate and a fair amount of local control. They hired a new CEO. This guy was already known to rank and file as the dude that broke Dalton's. He gave his first internal broadcast briefing. I gave notice and sold my stock holdings. It was clear he didn't understand our concept or our customer. In the broadcast he showed serious class blindness by using Spam as the prop for a series of jokes about low profitability. To much of his audience Spam was a luxury purchase, not a punchline. His opening move was to show contempt for the people he was trusting to execute his vision. You know who made a fortune by taking over the Service Merchandise concept? Amazon. 

*Too bad they didn't adopt the profit sharing model of Service Merchandise's founders.