News emerged today that many in the finance and business community are calling for several retailers, including JC Penney (JCP), to release holiday results before the end of the trading year. In short, they say, it’s “time to tell investors whether to have any hope about the (the company), or if 2013 will be an even greater struggle for (it) than 2012 was.”
By now, we know the story by heart – Target-turned-Apple retail darling Ron Johnson, he of the Genius Bar and re-vamped Target brand legend - took the JCP gig in June, 2011, ready, he said, to start a retail revolution. Sure, Johnson casually admitted (with seeming disregard for the fact that JCP is 110-year old storied and publicly traded company with 10,000s of employees relying upon responsible management and service to keep food on their tables), "Lots of people think we're crazy. But that's what it takes to get ahead."
Now, no one’s saying turnarounds don’t take significant time and effort – never mind a $17B retailer with several delipidated locations, an up-to-now average (increasingly below-average) website, and an indistinct sales strategy (in the dying department store space). And JCP’s numbers have certainly reflected the ugly reality of this attempted turnaround: after all, “J.C. Penney is expected to book a $1.81 cents a share loss (including items) for the year” while in the most recent quarter, “sales at established J.C. Penney stores fell by 26%.”
Many interpret these dreadful numbers as proof that it’s the “turnaround’s fault.” That “these” things take time. And patience. And, most importantly, money (or cash, specifically). But make no mistake: Johnson is off the mark. This attempted turnaround will, in one (or many) way(s) or another, fail. Sure, almost any turnaround is a frustrating process, but to successfully launch one as immense and public as JCP’s takes extensive research and analysis and, perhaps most importantly, a brutal examination of not just where management wants a company to go – but where it should, naturally, proceed.
In short, Ron Johnson was, and continues to be, the absolute wrong man with the wrong strategy for the job.
There is a key difference between revolution and turnaround – turnaround comes before revolution. Look at IBM and Lou Gerstner. When the former American Express and RJR (where he served as Chairman and CEO) executive took the company’s reigns in 1993, IBM was about to dis-aggregate while “banking on its legacy hardware business -- long after computer hardware started to be a commodity.” Instead of outwardly, publicly, and completely revolutionizing the (at that time, 82 year old) brand, Gerstner undertook the unsexy task of making “the company solvent.” This involved not just re-orienting the company’s focus and strategy, but cutting services and business units that, while important to IBM’s culture and staff, were ultimately unprofitable. What can we learn from IBM’s example?
Don’t believe the optimists, including Johnson, when they say “give this a chance – turnarounds take time.” Yes, they do. And turnaround can be trying and difficult and, at least in the public sphere, ugly. But they shouldn’t serve as an excuse for bad (and tone-deaf) strategy, awful implementation, and, perhaps worst of all, the wrong (yet confident) management.
Yes, the department store, as we remember it in all its brick-and-mortar glory, is dying, in need of change and evolution. In short, in need of a turnaround. But, as Ron Johnson’s abject failure (thus far) at JCP has demonstrated, not everyone can expertly and profitably operate and execute a successful turnaround.
After all, it all starts at the top. With the right (wo)man for the job.
Margaret Bogenrief is a partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at margaret@acm-partners.com.