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Tech and exec disasters put J.C. Penney in a bind

Kim S. Nash | Nov. 25, 2014
J.C. Penney's moves in the last few years stand as prime examples of how not to manage, how not to implement technology and how not to respond to looming business threats.

"Retail CIOs have chronically underspent for generations. Now the future is based on your ability to have state-of-the-art technologies," says Brian Kilcourse, managing partner at Retail Systems Research and a former CIO at Longs Drugs.

Mike Ullman, a retail lifer who had led the company since 2004, stepped down as CEO in 2011 as a couple of activist board members agitated for someone new. That someone was Ron Johnson, a golden child from Apple. Johnson had worked directly with Steve Jobs to develop Apple stores, a risky idea now regarded as one of the most successful retail launches in history.

Johnson swept into J.C. Penney intending to remake not just the ailing retailer but the entire department store segment. He wanted to go upscale with the latest technology to enhance the customer experience. He also sought to change the look of the stores as well as the retailer's pricing strategy, which relied on frequent discounts and promotions to attract shoppers. At one point, he discussed getting rid of cash transactions.

"He came in with ideas he wanted to execute right away," says a former CIO at J.C. Penney, who declined to be named. "We [in IT] talked to him but he had a mindset."

But traditional bargain-minded customers quickly rejected Johnson's changes. They didn't want an experience. They wanted affordable clothes. The board of directors disliked the sinking sales and requested Johnson's resignation after just 17 months on the job. The board then asked Ullman to come back. After 18 months, the company announced in October that Ullman's role as caretaker CEO will end with Ellison's elevation from president to CEO in August.

"J.C. Penney is a brand on life support," says Doug Stephens, president of Retail Prophet, a management consulting company. "I liken this to a doctor examining a patient and he says, 'You have a chronic illness and we have to do surgery immediately.' That was Johnson," Stephens says. "Halfway through the procedure, everyone gets squeamish and they close the patient up, pretend nothing happened and replace the surgeon. In comes Ullman, and everyone goes back to the status quo."

Ullman contends J.C. Penney will be revived. "The company was down but not anywhere near out," he told Wall Street analysts in October, at an event to tout his turnaround. "We're back. We're driven. We're once again competing effectively," he said amid speeches, videos and a fashion show.

Disaster 1: iPods, iPads, Aye Yi Yi
Johnson sought to inject some cool into J.C. Penney stores, moving cluttered racks and shelves to create clean, open spaces, specialty shops and denim bars where shoppers could consult about their next pair of Levi's. Part of the new panache would come from technology. Checkout counters would be eliminated and store associates with iPods and iPads would roam around to help customers check out on the spot. Wi-Fi and RFID tags would make items quickly scannable.


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