Can J.C. Penney Be Saved? Apply the knowledge of management presented in this chapter to the following

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Can J.C. Penney Be Saved?

Apply the knowledge of management presented in this chapter to the following case. The goal of this case analysis is to enable you to understand what happened at J.C. Penney by applying theory.

Read the case below and answer the questions that follow.

J.C. Penney was founded in 1902. It began as a Wyoming dry goods store and grew to be one of the largest department stores and catalogue retailers. Given the growth of Internet shopping, Penney's sales, along with those of other big retailers, began to fall in the 2000s. The company hired former Apple retail store executive Ron Johnson as CEO in 2011 to turn things around.

Johnson's vision was to make Penney hipper, and he changed long-held strategies and management practices that defined the company's culture and identity. One of his first actions was to fire 600 employees at corporate headquarters. He continued to cut costs over the next two years by firing 19,000 store employees. This created a toxic environment in which people feared for their jobs, and morale plunged.138

Johnson replaced most of the company's top executives with people from Apple, who brought with them a culture that clashed with that of Penney. These executives decided to eliminate Penney's long-standing strategies regarding discounting and promotional pricing. He then converted stores toward a boutique shop image and dropped many private label brands driving Penney's past sales.139Existing employees did not completely buy in to these top down strategies, creating resistance to change.

According to Fortune, "The makeover bombed, sales plummeted, and some 40,000 jobs were eliminated" during Johnson's tenure as CEO. Further, "the chain's inventory management and e-commerce operations were in chaos, and Penney ended up with some $5 billion in long-term debt."140 Johnson was fired in 2013, and the company hired former CEO, Myron Ullman, as interim CEO.

New Leadership

Ullman immediately brought back Penney's promotional pricing strategy and the private label brands. Cost cutting, however, continued as the company was near bankruptcy.

J.C. Penney hired Marvin Ellison as the new CEO in November 2014. He had 12 years of senior management experience at Home Depot and was responsible for Home Depot's very successful omnichannel strategy. Omnichannel strategies integrate different methods of shopping (e.g., online, in-store, catalogues, phone) into a consolidated sales approach. Penney has adopted an omnichannel growth strategy to fuel sales.141

One condition of Ellison's hiring was that he would spend a year as president under Ullman. Penney wanted Ellison to learn the business and understand the company's culture. The two men conducted more than 60 employee town hall meetings and visited 100 stores. They also traveled the world, visiting vendors and partners, so that Ellison could learn more about apparel factories, sourcing, and merchandising.

These face-to-face interactions were instrumental to Ellison as he was looking for disconnects between corporate strategy and store operations. One example involved seeing senior management in stores wearing designer clothes that store employees or customers could not afford. Ellison created a policy requiring executives to wear J.C. Penney clothes when visiting stores, along with the same name tags worn by store employees.142

New Strategies and Goals

Ellison and his management team established a goal of $1.2 billion in Ebitda, which stands for "earnings before interest, taxes, depreciation, and amortization," for 2017. This goal is double what the company earned in 2015. To accomplish this goal, Ellison established several strategies and action plans:

1. Hiring experienced senior executives to lead efforts in e-commerce, supply chain, information technology, and marketing.
2. Creating internal promotion opportunities for employees and involving them with implementation decisions.
3. Opening 60 more Sephora cosmetic shops inside the stores.
4. Redesigning the center court areas of the stores, where the stores experience high traffic volume and sell high-margin products like jewelry, sunglasses, and accessories.
5. Investing in technologythe company committed 29 percent of its capital expense budget to technology.
6. Expanding the number of private label clothing brands.
7. Reducing the number of out-of-stock items by improving inventory management.
8. Using data analytics and Big Data to determine products desired by customers.
9. Reducing the company's dependence on weather-sensitive categories such as apparel and experimenting with selling appliancesthis is a new product linein 22 stores.
10. Implement a program that ensures customers can buy online and pick up in the store on the same day.143

Are the Changes Working?

J.C. Penney paid off millions in debt under Ellison;145 however "some experts say he didn't do enough to bring back the core customer and clearly define the shopping experience for them," according to Business Insider.145The company's stock plunged to an all-time low in August 2018, and its cash reserves dropped 40% between 2017 and 2018.

Ellison left J.C. Penney for Lowe's in July 2018 and Jill Soltau was hired to replace him in October 2018. Analysts believe her ability to turn around the organization are dim. "JCPenney has been in a slump that I think is irreversible," Forrester retail analyst Sucharita Kodali told CNN Money.146

The danger facing J.C. Penney is very similar to another American retail icon, Sears. "Both JCP [J.C. Penney] and Sears are doomed. I wouldn't touch either stock with a ten-foot pole ..." said Luke Lango of InvestorPlace in August 2018. Sears announced bankruptcy two-months later. Is J.C. Penney next?147

138. R. Best, "Why JC Penney's Most Important Asset Is Its Management Team," March 8, 2016, http://www.investopedia.com/articles/markets/030816/why-jcpenneys-most-important-asset-its-management-team-jcp-aapl.asp.

139. R. Best, "Why JC Penney's Most Important Asset Is Its Management Team," March 8, 2016, http://www.investopedia.com/articles/markets/030816/why-jcpenneys-most-important-asset-its-management-team-jcp-aapl.asp.

140. P. Wahba, "The Man Who's Re-[Re-Re-] Inventing J.C. Penney, Fortune,March 1, 2016, 77-86.

141. R. Best, "Why JC Penney's Most Important Asset Is Its Management Team," March 8, 2016, http://www.investopedia.com/articles/markets/030816/why-jcpenneys-most-important-asset-its-management-team-jcp-aapl.asp.

142. P. Wahba, "The Man Who's Re-[Re-Re-] Inventing J.C. Penney," Fortune, March 1, 2016, pp. 77-86.

143. See "CNBC Exclusive: CNBC Transcript: J.C. Penney CEO Marvin Ellison Speaks with CNBC's Courtney Reagan on 'Power Lunch' Today," February 29, 2016, http://www.cnbc.com/2016/02/29/cnbc-exclusive-cnbc-transcript-jc-penney-ceo-marvin-ellison-speaks-with-cnbcs-courtney-reagan-on-power-lunch-today.html; K. Gustafson, "Guess What? JC Penney Is Now Ahead of the Curve," May 13, 2016, http://www.cnbc.com/2016/05/13/guess-what-jc-penney-is-now-ahead-of-the-curve.html; and C. Kern, "JC Penney Focuses on Ecommerce to Continue Turnaround," August 19, 2015, http://www.innovativeretailtechnologies.com/doc/jcpenney-focuses-on-ecommerce-to-continue-turnaround-0001.

144. R. Best, "Why JC Penney's Most Important Asset Is Its Management Team," March 8, 2016, http://www.investopedia.com/articles/markets/030816/why-jcpenneys-most-important-asset-its-management-team-jcp-aapl.asp.

145. M. Hanbury, "JCPenney's new CEO is a good choice because the department store needs a woman in charge after years of 'inability to connect with women shoppers,' analyst says," Business Insider, October 4, 2018, https://www.businessinsider.com/jcpenney-new-ceo-will-boost-company-analyst-says-2018-10.

146. P. La Monica, "JCPenney's latest results were absolutely dreadful," CNN Money,August 16, 2018, https://money.cnn.com/2018/08/16/news/companies/jcpenney-earnings-retail/index.html.

147. L. Lango, "JCPenney vs. Sears: Which Retailer Will Head Out the Door First?" InvestorPlace, August 16, 2018, https://investorplace.com/2018/08/jcpenney-vs-sears-which-retailer-will-head-out-the-door-first/.

Questions

1. ?INTRODUCTION: Small changes in an organization can cause uneasiness and large changes can cause considerable stressbut they are often necessary for a company's survival. In this case analysis, you will begin by reading about the issues facing JCPenney and how the organization needs to change.Describe one of the external or one of the internal areas for change that JcPenney's has been going through over the last 5 years.
2. Using Lewin's Force Field Analysis--Provide examples for each force for change at JCPenney. News reports and/or the company's website can be used to gather information, and the change does not have to be ongoing (it can be a recent change).