An Open Letter to the Board of J. C. Penney

How to experiment your way into the 21st century

This is the short story of the past two years at J. C. Penney, a mid-20th-century retail chain with just over 1,100 stores in the United States. In this essay, I argue that bringing in a “genius” from Apple was clearly the wrong approach, and that the board can help shareholders and customers both by adopting the principles of business agility.

There are many examples of where companies have gone wrong by bringing in people with vision. In 2011, it seemed that Ron Johnson was the visionary guy for the job. He had overseen the building of Apple’s retail store empire. He also had the benefit of two Steves: Steve Jobs, who built the iTunes platform on which the company’s consumer catalog would explode; and Steve Balmer at Microsoft, who spent ten years trying to port his legacy enterprise mindset to the Web, in the process shoveling customers who didn’t want to buy a Windows phone (quel surprise!) at Apple by the handful. That blasted a gaping hole in the personal computing market big enough for Apple to fall into just at the time when Apple had enough products to put on shelves. From there, the man who had made $400 million on Apple stock options went to Texas to head J. C. Penney, an ailing retailer famous for weekly and monthly sales.

Just a few months after his arrival in late 2011, Johnson announced his team’s new vision for the chain — creating mini-stores dedicated to well-known brands (something Macy’s and Bloomingdales did 20 years ago). According to Johnson himself, he makes big decisions by gut feel: “All my ideas just sort of come. I don’t know how to explain it. It’s all intuitive I think.” His plan was to roll out the vision to 100 stores and then expand from there. He spent much of his time working on a secret high-tech concept store in Dallas. At an analyst meeting in August, 2012, Johnson said, “I’m completely convinced that our transformation is on track.” Unfortunately, Q4 2012 was a disaster for the chain. Johnson’s dream ended in April, 2013, when the board fired him.

And who replaced him? Mike Ullman, the retailer’s former CEO, who immediately started putting up “sale” signs again.

This isn’t a management failure. This is a board failure. This is a) confirmation bias, b) groupthink, c) the Halo Effect, and d) misunderstanding cause and effect. Not only did they bring in a guy who was going to spend a ton of money getting 100 stores ready for his big new vision, but he neglected the core business and fired him before he had a chance to show whether his plan could even work. Why make such a huge bet in the first place?

Rather than working on stealth concept stores with your smartest, most creative people, spend time listening to managers who listen to customers.

Here is how business agility can help J. C. Penney and other retailers survive, if not win, in the 21st century: set up a training center where store managers can find an array of technologies, ideas, examples, and resources for trying things with their customers. Put them through a three-day experiment boot camp that shows them how to run controlled experiments, measure results, and set up the analysis properly. Help them with online, advertising, word of mouth, the store experience, the after-purchase experience — every place where their brand touches consumers. Then, put all these results into an online system, so everyone (not just the C-suite executives) can see a comprehensive, evidence-based dashboard of all the experiments — what hasn’t worked, what’s working, what needs improvement, what they have learned about their customers, etc. This lets all the managers cooperate, teach, and help each other as they steer toward ever increasing conversion rates for their stores. This could all be set up and working within six months, and it doesn’t hurt existing revenues.

[Update, January, 2014: J C Penney closes 33 stores.]

2013 is a year of rebuilding for the J. C. Penney board of directors. I hope they will come to and take advantage of some of the resources there.