136 Part 2: Strategic Actions: Strategy Formulation
NOTES
new strategy appeared it to be a failure. Total sales in 2012
were $4.28 billion less than in 2011, and the firm’s stock
price declined by 55 percent. Interestingly, its Internet sales
declined by 34 percent compared to an increase of 48 per-
cent for its new rival, Macy’s. All of this translated into a net
loss for the year of slightly less than $1 billion for JCPenny.
It seems that the new executive team at JCPenny
thought that they could retain their current customer
base (perhaps with the value pricing across the board),
while attracting new customers with the new “store-
within-a-store” concept. According to Roger Martin, a
former executive, strategy expert, and current Dean at
the University of Toronto, “... the new JCPenney is com-
peting against and absolutely slaughtering an import-
ant competitor, and it’s called the old J.C. Penney.” Only
about one-third of the stores had been converted to the
new approach when the company began to heavily pro-
mote the concept. Its new store sales produced increases
in sales per square foot, but the old stores’ sales per square
foot markedly declined. It appears that Penney was not
attracting customers from its rivals but rather cannibal-
izing customers from its old stores. According to Martin
the new CEO likely understands a lot about capital mar-
kets but does not know how to satisfy customers and
gain a competitive advantage. Additionally, the former
CEO of JCPenney, Allen Questrom, described Johnson
as having several capabilities (e.g., intelligent, strong
communicator) but believes that he and his executive
team made a major strategic error and was especially
insensitive to the JCPenny customer base.
The question now is whether the company can sur-
vive such a major decline in sales and stock price. In
2013, it announced the layoff of approximately 2,200
employees to reduce costs. In addition, CEO Johnson
announced that he was reinstituting selected discounts
in pricing and offering comparative pricing on products
(relative prices with rivals). The good news is that trans-
formed stores are obtaining sales of $269 per square foot,
whereas the older stores are producing $134 per square
foot. Will Johnson’s strategy survive long enough for all
of the stores to be converted and save the company? The
answer is probably not, because Johnson was fired by
the JCPenny board of directors on April 8, 2013, about
1.5 years after he assumed the CEO position.
Sources: P. Wahba, 2015, J.C. Penney still blaming Ron Johnson-era for
slow profit growth Fortune, http://www.fortune.com, March; N. Tichy, 2014,
J.C. Penney and the terrible costs of hiring an outsider CEO, Fortune,
http://www.fortune.com, November 13; J. Reingold, A. Sloan, & D. Burke, 2013,
When Wall Street wears the pants, Fortune, April 8, 74–81; S. Schaefer,
2013, Ron Johnson out as JCPenney chief, Forbes, http://www.forbes.com,
April 8; M. Nisen, 2013, Former JC Penney CEO says Ron Johnson is ‘a
very nice man’ who will probably fail, Yahoo! Finance, finance.yahoo.com,
accessed April 6; B. Byrnes, 2013, How J.C. Penney is killing itself, The
Motley Fool, http://www.fool.com, March 31; B. Jopson, 2013, JC Penney cuts
2,200 jobs as retailer struggles, Financial Times, http://www.ft.com, March 8;
J. Macke, 2013, J.C. Penney’s last shot at survival, Yahoo! Finance, finance.
yahoo.com, accessed March 1; S. Clifford, 2013, Chief talks of mistakes
and big loss at JC Penney, New York Times, http://www.nytimes.com, February
27; M. Halkias, 2013, J.C. Penney CEO Ron Johnson says changes will
return retailer to growth, Dallas Morning news, http://www.dallasnews.com,
February 9; They’re back: JCPenney adds sales, 2013, USA Today, http://www.
usatoday.com, January 28; A. R. Sorkin, 2012, A dose of realism for the
chief of J.C. Penney, New York Times DealB%k, dealbook.nytimes.com,
November 12.
Case Discussion Questions
- What strategy was the new CEO at JCPenney seeking to imple-
ment given the generic strategies found in Chapter 4?
- What was the result of change in strategy implemented?
3. Why was this strategy a disaster for JCPenney?
4. What does it mean to be “stuck in the middle” between two
strategies (i.e., between low cost and differentiation strategies)?
- J. Garcia-Sanchez, L. F. Mesquita, &
R. S. Vassolo, 2014, What doesn’t kill you
makes you stronger: The evolution of
competition and entry-order advantages in
economically turbulent contexts, Strategic
Management Journal, 35: 1972–1992;
H. Greve, 2009, Bigger and safer: The
diffusion of competitive advantage,
Strategic Management Journal, 30: 1–23.
- O. Schilke, 2014, On the contingent value
of dynamic capabilities for competitive
advantage: The nonlinear moderating
effect of environmental dynamism,
Strategic Management Journal, 35 :
179–203; M. A. Delmas & M. W. Toffel, 2008,
Organizational responses to environmental
demands: Opening the black box, Strategic
Management Journal, 29: 1027–1055.
- M. E. Porter & J. E. Heppelmann, 2014,
How smart, connected products are
transforming competition, Harvard
Business Review, 92(11): 64–88;
M. G. Jacobides, S. G. Winter, & S. M.
Kassberger, 2012, The dynamics of wealth,
profit, and sustainable advantage,
Strategic Management Journal, 33:
1384–1410.
