Marketing Disconnect Led To Penney Prez’ Demise

If yesterday is any indication, investors aren’t buying JC Penney’s quick fix for its failure to get across its “everyday low pricing” strategy to consumers: the beheading of president Michael Francis in a terse press release dated this Sunday. Its share price plunged more than 8% even as CEO Ron Johnson and lead investor Bill Ackman sought to put a positive spin on the future.

Covering the story from New York for the UK’s Guardian, Dominic Rushe writes that “investors have panicked following JC Penney’s decision to ditch a leader player in the ‘dream team’ planning an up-market makeover for the troubled retailer.”

“Penney’s the gift that keeps on giving not just to the short-sellers but to this troika of very lucky competitors,” says “Mad Money” host Jim Cramer. That very capitalist troika consists of Target, Macy’s and Wal-Mart to whom Plano, Texas-based Penney “appears to be handing over billions of dollars in sales,” claims Cramer.

Hey, have a little patience, says Penney.

“Penney has repeatedly said the transformation would take three years,” Dana Mattioli points out in the Wall Street Journal. “Shareholders aren’t showing much patience.”

Although the company did not give a reason for Francis’ departure in its press release, it joined in with analysts and other observers who have been pointing to the debacle in executing the “everyday low price” strategy that is the brainchild of Johnson, who joined the company last year after leading Apple’s retail surge since 2004.

“The bottom line is, the marketing strategy wasn’t working,” says Pershing Square Capital Management’s Bill Ackman in a piece by Bloomberg Businessweek’s Lauren Coleman-Lochner. “Ron decided that he really needed to take over the marketing and advertising.”

The fact that Pershing Square Capital is the company’s largest shareholder lends some weight to Ackman’s observation that he is “very comfortable” with the decision and believes in the strategy Johnson will now guide hands-on. “The problem was, the pricing message wasn’t conveyed to the customer properly,” Ackman avers.

Francis had a “very artistic and streamlined approach to marketing, but it wasn’t getting the message across,” Macquarie Group analyst Lizabeth Dunn tells Coleman-Lochner. “It seemed as though that was a philosophical difference with Michael Francis and the rest of the management team.”

But some analysts see the move more cynically.

“Since Ron Johnson was unlikely to fire himself due to early turnaround missteps, he appears to have decided to swing the axe over the head of the person he handpicked as president of JC Penney,” writes NBG Productions’ Brian Sozzi in a widely quoted note.

“What they were doing hasn’t worked. [Francis] is the fall guy,” says retail consultant Walter Loeb, in a story by the AP’s Anne D’Innocenzio, who writes that the company is not only attempting to “better explain” its pricing structure in revamped marketing efforts but also is “backpedaling” a bit.

“It added five ‘Best Price Friday’ sales throughout the year, including one on the Friday before Memorial Day weekend,” writes D’Innocenzio. “That’s in addition to the Best Price Friday sales, which are held on the first and third Friday of every month.” And the word “sale” is no longer verboten.

“We have to wonder that if a marketing whiz in Francis was unable to clear the path for improved customer perception, if a turnaround of the brand is proving more challenging than even negative developments would suggest,” NBG Productions’ Sozzi also wrote, as quoted by Forbes’ Steve Shaefer.

Mattioli points out that the strategy is swimming against the steam.

“Johnson’s attempt to reset the pricing on mass-market clothes comes after several seasons of steep discounts in which retailers have effectively trained consumers to wait for markdowns — even if prices were artificially marked up in the first place.”

Francis, who was lured to Penney last October with a $12-million signing bonus, had been leading Target’s marketing and merchandising efforts since 2008, when he added CMO to his EVP title. He’d spent most of his career at Target, in fact, beginning his career an executive trainee with Marshall Field’s in 1986. He joined Dayton Hudson, Target’s parent, when it acquired Fields in 1990.

Penney’s announcement of Francis’ hiring said that he “will be responsible for all merchandising, marketing, planning and allocation, and product development and sourcing functions….”

Johnson tells the WSJ’s Mattioli that he may not hire a replacement for Francis. It may be fitting that today is actually the summer soltice as, with all those added responsibilities, he is clearly facing some very long nights at the office.

via MediaPost Publications Marketing Disconnect Led To Penney Prez’ Demise 06/20/2012.