William Ackman, JCPenney’s largest shareholder
Week 4 Discussion
William Ackman, JCPenney’s largest shareholder, was beaming when Ron Johnson became the department store chain’s new chief executive officer. Johnson led the development of Apple’s successful retail stores and previously had crafted the “cheap chic” concept at Target Corporation. Johnson held the promise that he could spin the same magic at JCPenney, which was losing ground to other retailers. “Ron Johnson’s record of retailing success makes him the ideal leader to fix JCP,” Ackman concluded. Less than two years later, JCPenney’s sales had plummeted by 32 percent, and Johnson was replaced by JCPenney’s previous CEO, who reversed most of Johnson’s ill-fated decisions. Ackman publicly acknowledged that Johnson made “big mistakes” and that the results were “very close to a disaster,” right before he sold most of his JCPenney stock.
What went wrong? The main explanation is that Johnson and his executive team were overconfident in their diagnosis of JCPenney’s problems and their preconceived solutions to those problems. In fact, Johnson apparently defined JCPenney’s malady as a solution: It needed to be more like Apple. Johnson frequently described Apple practices to justify his changes, and at least six of his new executive team members previously worked at Apple.
Apple rarely discounted its products, so Johnson replaced JCPenney’s popular coupons and store sales (he counted 590 of them each year) with “fair and square” everyday low pricing. He tried to replicate Apple’s “genius bar” with a “Town Square” in JCPenney’s heavy traffic area. “Just like in the Apple store, you have to walk through the products to get to the Town Square,” Johnson explained. Johnson also scaled back JCPenney’s in-house products to make room for external brands (e.g., Sephora, Martha Stewart) as specialized boutiques within in each store. These and other changes worked well at Apple, but JCPenney customers no longer believed they were getting a good deal at the department store.
Many industry specialists were especially shocked when Johnson launched JCPenney’s turnaround with little or no input from employees or customers, and without first testing the changes in few locations. These are standard practices in the retail fashion business, because customers can easily switch to competitors if they don’t like what they see. But whether due to overconfident decision making or reliance on Apple’s practices, Johnson changed the company without knowing how customers would react. When a colleague suggested testing the no-discount strategy at a few stores. Johnson decisively replied: “We didn’t test at Apple.” “Successful executives often delude themselves into thinking they are infallible,” warned industry consultant Steven Snyder just before Johnson was ousted. “We saw this kind of behavior when Johnson was declined to test his pricing overhaul for JCP prior to an all-store rollout.”
Based on this case and other sources you may have found, what could JCPenney have done differently to come to better decisions about turning itself around?
From McShane, S. L., & Von Gilnow, M. (2015). Organizational Behavior Emerging Knowledge, Global Reality (7th ed.). New York, NY: McGraw Hill Education. Reprinted with permission.
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