A shopper strode out of J.C. Penney at Ridgmar mall
without making a purchase because it didn't have what she was seeking at the
Sephora makeup counter.
"I used to come a lot but not now. Actually I wasn't thrilled with the changes. They're ending coupons and I cut up my Penney's credit card when they started using Ellen DeGeneres" as a celebrity endorser, said the Springtown resident, who identified herself only as Connie. "I'm very conservative."
Like other once-loyal Penney's customers, Connie was turned off by abrupt changes implemented by Ron Johnson, the chain's CEO of 17 months who was sacked last week after annual sales dropped 25 percent at stores open at least a year.
Before recently backpedaling, Johnson cut way back on coupons and promotions in favor of everyday low prices, and began filling its 1,100 outlets with branded mini-stores like Joe Fresh, many of them youth-oriented.
Business students at Southern Methodist University who recently surveyed Penney customers found that some were alienated by the changes, the loss of coupons -- even though they've been brought back -- and the feeling that it was no longer "their" store, said Ed Fox, a marketing professor at SMU's Cox School of Business. "They were put off by the changes and they found it difficult to find things."
Fox noted that Johnson did away with coupons and promotions -- which was easy and cost nothing -- long before he fully implemented his ambitious "shop in shops" concept, so there was nothing to attract customers.
"He got the order wrong," the SMU professor said. "Why come? Where was the refreshed merchandise?"
Traditional Penney shoppers deserted the chain in droves.
"Ron had many good ideas but he alienated people, both customers and long-time employees," said Allen Questrom, who was Penney's CEO in 2000-04.
"He knew what he wanted Penney's to be in a grand scheme. The problem was he didn't test any of the strategies. And he neglected his customers' issues and gave up what they came to your store for," Questrom said, noting that Johnson dropped more than 400 suppliers and brought in new ones. "God only knows if they'll come back."
While retailing's entire midmarket is shrinking, two major Penney's competitors -- Macy's and Dillard's -- saw same-store sales rise 3.7 percent and 4 percent respectively in the last fiscal year, as they lured customers with promotions and, in the case of Macy's, had strong online sales.
So where have Penney's customers gone?
"Clearly Macy's has been taking market share away from them and capitalizing on Penney's problems," said Robert Leone, a marketing professor at the Neeley School of Business at TCU. "And even Target, despite recent missteps, has improved in the market, offering fashionable items at good value."
Fort Worth-based retail consultant Vic Gallese expressed surprise that competitors in the midmarket category -- which along with Macy's include Kohl's, Dillard's and Belk -- hadn't grabbed even more business.
"I would have thought 80 percent of Penney's loss would be picked up by the major rivals," Gallese said. "But the midmarket consumer has drifted off -- either upstream or downstream."
He figured they got 50 percent, while dollar stores and extreme discounters like Ross and Marshall's got much of the rest.
"And I don't know if they'll come back to Penney's even if they start doing everything right," Gallese said, referring to the new leadership headed by Myron Ullman, Johnson's predecessor who was reinstalled as CEO of the Plano-based chain.
Ann Marie Bishop, a Penney spokeswoman, said Ullman plans to meet with various stakeholders, including customers and suppliers, to assess the problems and develop a plan of action. She said he would evaluate the "shops" concept implemented by Johnson to see whether changes need to be made, but she stressed that coupons and sales are back to stay.
"We now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the checkout," she said.Making Penney's task harder is the widening wealth gap in America, where income distribution "looks more like a developing country than a developed one," according to a recent study by Kantar Retail and PwC. Moreover, the United States is the only major developed economy where income classes define the retail channel -- the "haves" gravitating toward upscale department stores and specialty supermarkets while the "have-nots" patronize conventional supermarkets and deep-discount chains.
Ever more shoppers are falling into the "have-not" category, defined as those who are having a tougher time bouncing back from the recession and are "likely to remain a core challenge to retailers," the study said.
"Our consumer market is becoming more polarized," said Al Meyers, a Dallas-based consultant with PwC, formerly PricewaterhouseCoopers. "By 2020, 75 percent all income will be going to 40 percent of households, with the remaining 25 percent going to the have-nots."
None of this makes it easier for Penney's to recover.
"Post-2008, many argue that the hollowing out of the middle class has continued, meaning there are fewer and fewer customers for midmarket stores," said Bruce Clark, who teaches marketing at the Northeastern University D'Amore-McKim School of Business. "People are either migrating upmarket to Macy's and Nordstrom's or down market to Target and Wal-Mart."
Schoolteacher Danny Knowles and his wife drove over to Penney's at Ridgmar last week.
"We're here because we got a coupon," said Knowles, who explained that they don't collect coupons, hadn't missed them when Johnson cut back on the offers and would have come to Penney anyway. "They have decent variety and good prices."
In the end, his wife, also a schoolteacher, made no purchases, but he picked up a few shirts and undershirts, totaling $56 after the 20 percent discount from the coupon.
"Aesthetically, it was a better experience than before," the English teacher said. "What was lacking was customer service. There was really no one close by to ask where the big and tall department was. I eventually found someone but she didn't know."
Together, they eventually found Foundry Supply, Penney's private brand big and tall department. The chain laid off 30 percent of its staff during the downturn.
Danny Knowles' experience illustrates another challenge for Penney.
"As they let people go, they also brought people in for the mini-shops but they apparently aren't trained out," TCU's Leone said.
"I think Penney's future is going to be tough and an uphill battle," he went on.
"The quicker they make the decision on what they want to be and launch a campaign to say who they are, the better their chances. It might just be admitting they lost their way and that the Penney's you knew is back."
(c)2013 the Fort Worth Star-Telegram
Distributed by MCT Information Services
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