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Wednesday, April 17, 2013

Ron Johnson Lost Penney Employees As Well As Customers

Among the many mistakes made by former J.C. Penney CEO Ron Johnson as he tried to transform the venerable retailer was one that deserves to be highlighted: He lost the company's employees.

And when you're attempting to pull off a change in target market and corporate culture as huge as he was, this was simply one thing Johnson couldn't afford to do.

That Johnson lost Penney's employees was true both literally and figuratively. Employment at Penney had been at least 150,000 people for the decade before the former head of Apple's retailing operations was handed the top job, with high expectations, at the Texas-based retailer early last year.

But by this February, that figure had fallen to just 116,000, as Penney slashed its payroll in a futile attempt to catch up with the brand's 25-percent swoon in sales during 2012. Alone, such a precipitous decline would test the engagement levels and morale of the hardiest staff.

At the same time, Johnson's entire management style seemed designed to disengage Penney's loyal employees just as his philosophy of retailing was meant to shed the brand's traditional, sale-conscious customers in favor of a younger, hipper, more upscale -- and presumably discount-disdaining -- clientele.

For one thing, the team of executives that Johnson brought in openly disparaged the house brands that accounted for about half of the chain's sales and moved to reduce Penney's reliance on them, according to the Wall Street Journal. Among other things, that attempt involved the layoff of many of the merchants and designers who had invested blood and sweat and pride in the company's own brands in order to make them compete credibly with designer brands.

Among other mistakes, Johnson also essentially shot, then aimed, with Penney's new strategy. Presumably beguiled by hubris fed by his success at Apple, Johnson simply arrived and then quickly applied most of his vast, extremely disruptive strategic brush strokes without testing them out first.

Undoubtedly, Penney's staffers saw and didn't appreciate such recklessness. And soon, as Johnson's presumably brilliant higher knowledge resulted only in the utter crumbling of Penney sales, without offering the prospect for a turnaround, the new CEO "lost" the ones who were left.

Perhaps the worst single move made by Johnson was that he disdained moving himself -- as well as some of his new top lieutenants -- to Plano, Texas, in Flyover Country, where the chain has been headquartered since its move from Chicago many years ago. Johnson stubbornly decided to try to run the retailer from the northern California base that he established while working for Apple.

But not only did this mistake send the wrong signal to Penney employees about his low opinion of them -- Johnson also hurt his own cause because he didn't allow himself to thoroughly understand the corporate culture he wanted to overhaul so radically, what had made it what it was, and what the "old" Penney might still have to offer to the "new" Penney he was trying to build.

To be sure, when you're trying to turn a company upside-down, there are going to be casualties in the ranks. And sometimes -- as in the case of Steve Jobs' Apple, whence Johnson came -- you can argue that the ultimate success of the "new way" made the necessary sacrifices acceptable, or the company might not longer exist at all.

But clearly, Penney wasn't Apple. And Johnson's blind spot for the company's culture, and for the engagement and contributions of the retailer's loyal employees, surely will be a major object lesson as corporate historians pick apart the carcass of his misguided leadership of one of the biggest names in American retailing.

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