Learning the dangers of repositioning – JCPenney and Carrefour Planet

This report is the European Retail Briefing - but we should not be geographical purists. And we think it is worth looking beyond Europe to the self-inflicted troubles at US-based JCPenney under recently-departed Chief Exec Ron Johnson and in particular to the parallels to the abandoned turnaround strategy at Carrefour under former CEO Lars Olofsson.

JCP straying from its roots

Ron Johnson was hired from Apple in November 2011 to bring some of the magic of that company's retail operations to underperforming discount department store chain JCPenney.

Johnson promptly scrapped JCP's longstanding offer of deep-discounting (often based on highly-questionable 'original' prices) and widespread couponing in favour of everyday low prices (EDLP) and a limited number of Sale days per month under a new 'Fair and Square' tagline. Ticket prices were slashed as Sales were largely abandoned.

Revamped stores included greater space for branded shops-in-shops such as Levi’s denim bars and replacing check-outs with roaming staff equipped with handheld devices.

Figure 1: JCPenney’s Levis’s denim bar, 2012-13
[graphic: image 1]
Source: JCPenney

Shoppers, accustomed to bargain-hunting and coupon-clipping, turned away in their droves - as JCPenney's quarterly sales indicated.

The slowing of negative growth in Q1 2013 needs to be considered in the context of very weak comparatives from Q1 2012.

Figure 2: JCPenney: Year-on-year net revenue growth, Q1 2011-Q1 2013
[graphic: image 2]
Source: JCPenney/Mintel

April 2013 saw Johnson finally ousted from JCPenney – ending what must be one of the greatest retailing misadventures in corporate history. Johnson was replaced by his JCP predecessor CEO Mike Ullman.

Johnson arguably brought some of Apple's contempt for market research and retailing convention, yet while that may have worked for an aspirational, upper-midmarket, mono-brand retailer it failed at a value-positioned, multi-brand store that depended on regular, loyal shoppers.

What were his mistakes?

  • Failure to listen to customers;

  • Crucially, a failure to trial the revamp before a full roll-out;

  • Most importantly, straying from the roots of the JCP brand and attempting a wholesale repositioning.

We feel there are some parallels with the now-defunct Carrefour Planet store formats first launched in 2010 by now-departed CEO, Lars Olofsson.

Carrefour’s Planet repositioning

At Carrefour, the Planet store model was launched in August 2010 to revive the retailer's underperforming hypermarkets.

Faced with the threat of shopping in some general merchandise categories moving online and losing share to second-place Leclerc, Olofsson ploughed cash (a planned total of EUR1.5 bn) into overhauling Carrefour's largest stores to make them shopping destinations.

The Planet stores were focused around three zones: FMCGs with a value emphasis, foods with a fresh focus, and non-foods with a multi-specialist positioning. High-quality merchandising was coupled with in-store services such as hairdressers to drive customers back in store.

Figure 3: Carrefour Planet, 2012
[graphic: image 3]
Source: Carrefour

The stores looked hugely impressive – yet they apparently failed to chime with recession-hit customers:

  • The revamps did little to counter the perception that Carrefour was more expensive than rivals such as Leclerc – indeed, they arguably shifted Carrefour's stores upmarket at a time when shoppers were looking for value.

  • The stores were perhaps too radical a change of pitch – particularly in the context of Carrefour's previous shifts in positioning. As with JCPenney, Carrefour was straying from its roots.

Carrefour's French sales saw sporadic negative growth – until Olofsson's replacement abandoned the Planet concept and refocused on value and product ranging.

Figure 4: Carrefour France: Year-on-year revenue growth, Q1 2011-Q1 2013
[graphic: image 4]
Based on revenues including VAT, excluding petrol.
Source: Carrefour/Mintel

Like Johnson at JCP, Olofsson was ousted. In February 2012, Olofsson was replaced by experienced retailer Georges Plassat: as with JCP, Carrefour looked to a safe pair of hands following the failure of experimentation.

Backtracking

Both retailers have subsequently reversed or abandoned elements of these changes.

At Carrefour, new CEO Plassat scrapped the Planet conversions, instead focusing on the basics of retailing: greater control has been devolved to regional managers, giving them more choice over ranging; a ‘Lowest Price Guarantee’ was launched across 500 branded lines in 2012; and a recent innovation to drive value perception has been the launch of 'Courses Eco' discount aisles in Carrefour stores.

JCP, meanwhile, is in the process of returning from EDLP to regular Sales and discount vouchers. In the short term, however, this involves raising prices significantly in order to offer such 'discounts'.

Moreover, JCP has published videos online, apologising for failing to listen to its loyal customers and most recently thanking its customers for “coming back” after it “brought back the things you like about JCPenney”: https://www.youtube.com/watch?v=1vI9WTbJuTw

Lessons learnt

Neither Ron Johnson at JCP nor Lars Olofsson at Carrefour were traditional retailers – they were, in different ways, specialists in branding.

Ron Johnson brought the disdain for market research from Apple – but while this attitude may have worked for an aspirational brand, it failed at a lower-midmarket retailer. Olofsson was a marketing man from Nestle. Both were replaced with experienced retailers.

  • It's clear that what sounds good to brand experts does not always convert into successful mass-market retailing that requires regular footfall from loyal shoppers.

The JCP experiment also suggests the irrationality of many shoppers: they eschew everyday lower prices in favour of 'deep' discounts based on highly-inflated 'original' prices – even if they end up paying more.

Yet the most important lesson is the risk of changing your position and especially your target market: alarm bells should have rung when Ron Johnson announced he was treating JCP “like a startup company”.

  • Mass-market retailers – dependent on frequent, habitual custom - reposition themselves at their peril.

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