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"Shop Your Way" into a hybrid of Amazon and Facebook. Story Sources Kimes, M. 2013. At Sears, Eddie Lampert's warring divisions model adds to the troubles. Bloomberg Businessweek, July 11. http://www.businessweek.com/articles/2013-07-11/ at-sears-eddie-lamperts-warring-divisions-model-adds-to-the-troubles. http://en.wikipedia.org/wiki/Sears_Holdings http://www.forbes.com/profile/edward-lampert http://www.searsholdings.com http://www.shopyourway,com 1.1 The Story of J. C. Penney Issues to Consider as You Read This Story 1. What aspects of Ron Johnson's turnaround strategy were appropriate, praiseworthy? 2. What mistakes did Ron Johnson make? 3. What would you suggest he could have done differently? Chapter 1 Managing Change: Stories and Paradoxes 11 The Setting J. C. Penney Company, Inc. (known as JCPenney, or JCP for short) was one of America's largest clothing and home furnishing retailers. An iconic brand, founded by James Cash Penney and William Henry McManus in 1913, the headquarters were in Plano, Texas. By 2014 , with annual revenues of around $13 billion, and 159,000 employees, JCP operated 1,100 retail stores and a shopping website at jcp.com. JCP once had over 2,000 stores, back in 1973, but the 1974 recession led to closures. The company's main customers were middle-income families, and female. JCP had a promotional department store" pricing tions and coupon offers a year. Mike Ullman, chief executive since 2004, had grown sales with a strong private label program, with brands such as Sephora, St. John's Bay clothing, MNG by Mango, and Liz Claiborne. Another 14 stores were opened in 2004, and the e-commerce business exceeded the $1 billion revenue mark in 2005. The Problems When the stock reached an all-time high of $86 in 2007, JCP was performing well. However, the recession in 2008 affected sales badly; core customers had mortgage and job security problems. Between 2006 and 2011, sales fell from \$19.9 billion to $17 billion. JCP had one of the lowest annual sales per square foot for department stores (around $150 ). Macy's and Kohl's, the main competition, had sales per square foot of around $230. In 2011, the catalogue business, with nineteen outlet stores, was closed, along with seven other stores and two call centers. The New York Times accused JCP of "gaming" Google search results to increase the company's ranking in searches, a practice called "spamdexing." Google's retaliation dramatically reduced JCP's search visibility. In 2008, JCP struck a deal with Ralph Lauren to launch a new brand, American Living. sold only in their stores. But JCP was not allowed to use Ralph Lauren's name or the Polo logo. The idea failed. Sales continued to fall. In 2011, 50 to 70 percent of all sales were discounted, based on a "high-low" pricing strategy. An item would be priced initially at, say, \$100. Customers would see the product and like it, but not like the price. After six weeks, the price was marked down, say, to $50, and the goods started to sell. But those items had been sitting on a shelf doing nothing for over a month. The Solutions In 2010, two billionaire investors, Bill Ackman and Steven Roth, approached Ullman with an offer to buy large amounts of JCP stock. They felt that the company had potential. Ackman and Roth were invited to join the board, attending their first meeting in February 2011. Leaving that meeting, Ullman was involved in a serious car accident, suffered multiple injuries, and spent three months in a neck brace, making his existing health problems worse. The board wanted a replacement, and there were no internal candidates. UlIman suggested Ron Johnson, who was working for Steve Jobs at Apple. Johnson then met with Ackman and Roth to explore possibilities. Johnson said that he was concerned about the lack of innovation in department stores, and he brought a positive, "can do" approach more typical of Silicon Valley than retailing. In November 2011, Ron Johnson was appointed chief executive officer. JCP stock rose 17 percent on the announcement. Johnson had been responsible for setting up Apple's