‘Fair and Square’ JC Penney Sued For $40 Million By Vendor For Stealing Design: The Risks Of An Ethical Brand
JC Penney is being sued for $40 million by Hudson + Broad, a display vendor. The company developed an LED box display that changes colors to complement the February JCP rebranding. The vendor, knowing the inherent difficulty in going to battle with a large corporation, has chosen to mount a PR offensive aimed directly at JC Penney’s new “Fair and Square” positioning. Part of Hudson + Broad’s campaign is a YouTube video to JCP spokesperson Ellen DeGeneres.
A court will determine if the allegations by Hudson + Broad are true, and if JC Penney is financially responsible to Hudson + Broad. But the controversy raises important questions: what risk does a dramatic change in the positioning of a major brand create for the organization? If the CMO changes the brand positioning, can that obligate the CEO, COO and the procurement chief? Does an ethical brand tie the company to ethical business practices that may go beyond its obligations under state or federal law?
First a little background:
JC PENNEY’S “FAIR AND SQUARE” REBRANDING
In June last year, JC Penney hired Ron Johnson, the head of Apple’s retail store division as their new CEO. With this high-profile move, a major rebranding was all but certain. JC Penney rolled out a new strategy in February, under the mantra of “Fair and Square”. Part of the strategy was everyday low pricing, but the brand turnaround went further. The new positioning aggressively pushed the philosophy of treating the customer right. At the launch event for the repositioning on January 12th, the company proclaimed:
We’re simply going to treat people as we’d like to be treated ourselves. Fair and Square.
This brand turnaround survived an early challenge in February as an anti-gay-rights group “One Million Moms” came out vocally against the selection of Ellen DeGeneres, who is gay, as the spokesperson for JC Penney. Ron Johnson and JCP stood behind DeGeneres and the resulting publicity was largely positive for the company. In fact, the stance appeared to add credibility to the new brand positioning. Although critics (including Jennifer Rooney here at Forbes) pointed out that the promise of the rebranding was not being met on the sales floor, Wall Street embraced the changes.
HUDSON + BROAD CRIES FOUL
Hudson + Broad alleges that JC Penney’s internal business methods are at odds with the “Fair and Square” branding. The agency filed suit against JC Penney in New York on April 25th and have launched an unusually direct PR campaign stating their claims. At the beginning of a YouTube video addressed to Ellen DeGeneres, Hudson + Broad President James Maharg states:
I think you should be aware that we filed a lawsuit against JC Penney. Hudson + Broad designed and engineered the iconic fair-and-square fixture. Then JC Penney misappropriated it and gave it to another vendor to knock off.
Maharg claims that Hudson + Broad was engaged by JC Penney to design a new fixture for the rebranding and came up with the design for the square LED, color-changing fixture which he says is unique. After installing the fixtures in JC Penney’s Manhattan store and the JCP corporate offices in Plano, Texas, Maharg claims that he was told that 1872 pieces would be place in 682 stores and that Hudson + Broad would get the order for the fixture (which JC Penney had agreed was to be proprietary to both JCP and Hudson + Broad.) Then Hudson + Broad heard at a trade show that another vendor was sourcing materials for the same product. Maharg claims that JC Penney subsequently used the other vendor to knock off the design – presumably at a cheaper price. “This practice is very prevalent,” he told me when I reached him for comment, “It plagues our industry.” (NOTE: JC Penney has not responded to a request for comment on this story.)