JC PENNEY, INC: The impact of rebranding on internal and external communication

JC PENNEY, INC:
The impact of rebranding on internal and
       external communication

                      Written by:

                   Joshua Beltran
                   Nick Franscioni
                  Morgan Hagedorn
                     Joyce Pak
                     Eleni Press

                   Dr. Robyn Walker
                    Faculty Advisor
           Center for Management Communication

                    Prepared for:

                    Case Study Initiative
          Center for Management Communication
                           2013

Belran, Franscioni, Hagedorn, Pak, Press 2

Introduction

Gerald approached the break room, seemingly for the last time in his 18-year career with JC Penney.
Somehow, he still couldn’t accept the reality that his store in High Point, North Carolina was closing
under the new company-wide strategic campaign. As he strolled into the employee break room to gather
the last of his things, he ran into his fellow tenured employee, Norma. The expression on her face, lifeless
and drained of color, said everything he felt in his heart.

“Still hasn’t sunk in, has it?” Gerald said. “For years, you and I have witnessed and experienced so much
within our little store here in High Point. It's hard to believe we aren’t among the survivors. Have you
heard from people at any of the other stores about whether or not they made the cut?”

Noticing Gerald’s state of disbelief, Norma replied, “From what I heard through the grapevine, we are
one of five stores closing. The other stores that I heard got the axe are in Morrow, Georgia; West Dundee,
Illinois; Des Moines, Iowa; and Culpeper, Virginia. I also heard that two call centers were closed during
this restructuring process as well. All in all, we are among thousands of newly unemployed workers. How
great does this new brand image appear now, I wonder?”

“That's unbelievable,” Gerald replied. “I didn’t think this brand strategy would have such an impact on
other aspects of this company. Just a couple of weeks ago, we were adjusting to our new CEO from
Apple, and now we are adjusting to having no jobs. Doesn’t seem like it could get much worse, does it?”

“For us and the thousands of others who are unemployed, it wouldn’t appear that way. Even our fellow
employees who have retained their jobs are talking about how difficult the new company-wide policies
are to adopt. The rounded-dollar pricing, the loose-return policy, the three-tiered pricing buckets--very
few employees fully understand how best to shift from the previous norms to adopt the new status quo. In
some ways, can you really say you envy the employees of the ‘new’ JC Penney?”

Norma continued, her frustration building, “Have you had a chance to read the customer backlash that’s
ensued from this rebranding? Very negative and very critical of the new company outlook. One customer
went as far as to say that the new JC Penney is not customer friendly and suffers from an identity crisis. Is
JC Penney now the ‘Target’ of department stores, trying to appear as the ‘cheap chic’ alternative? Many
of our longtime customers may abandon the brand completely.”

“Well, I know one thing for sure. The JC Penney I worked for is going to walk out that door with me.
Take care of yourself, Gerald. Try not to dwell on the past memories here too much.”

Just like that, Gerald’s friend and colleague walked out the door behind him. There was a lot of truth in
Norma’s departing words. Gerald quickly grabbed his remaining belongings and turned to leave the
employee break room one last time. As he pushed open the door, he said to himself, “How did things get
to this point? Was Norma right when she said that the old JC Penney was going to walk out of the door
with us?” Without hesitating further, Gerald followed Norma out of the room.

JC Penney’s Struggles

When online retail shopping began to boom, JC Penney blindly splashed into the water with both hands
tied behind its back and immediately found itself struggling to integrate its business function into an
online environment.

Belran, Franscioni, Hagedorn, Pak, Press 3

In 2010, jcpenney.com was unable to handle large amounts of traffic during its Cyber Monday sale, and
its Facebook page exploded with angry comments from frustrated consumers who were not able to place
orders. This lack of preparation showed that JC Penney overlooked the potential for error in the system,
ultimately pushing its customers toward competitors. JC Penney’s failure to translate its business model
for an online atmosphere prevented growth outside its outlets and ultimately led online consumers to take
their spending elsewhere.

Taking a look at how the business was struggling internally, JC Penney was slow to embrace methods
that strong competitors were using successfully as they navigated profound changes in the retail
landscape. When JC Penney encountered problems with its online store, company executives struggled to
develop an efficient multi-channel return policy that would minimize the cost of returns for both online
and offline purchases. Customer relationship management did a poor job of understanding its consumers
and their behavior in the context of returning online purchases, which directly led to significant financial
problems. JC Penney lacked the ability to adopt the proper business strategies that would have kept the
company growing and left its consumers with a satisfying shopping experience. And in addition to these s
internal struggles, JC Penney faced continuing challenges in trying to establish brand identity.

During the late 1990s, JC Penney was burdened by high operating costs and got caught in a difficult
middle market for clothes.1 With competition along a range of retailers – from heavy discounters, such as
Wal-Mart, to high-end retailers, like Saks Fifth Avenue – JC Penney was not able to meet the demands of
consumers in a distinctive way. Furthermore, organizational alignment became another problem since JC
Penney was known to purchase products from foreign suppliers who held little regard for the treatment of
their laborers.2 This sociopolitical issue was perceived by critics as un-American and left JC Penney’s
consumer base to question whether it should support such a business. By failing to protect itself, JC
Penney damaged its brand identity and left many customers uncertain if they would shop there again.

JC Penney’s struggles were evident when looking at company sales. During the company’s last fiscal
year, sales at stores that had been open for at least one year rose merely .2 percent, which is a significant
drop from the 2.5 percent increase these stores saw the year before. Macy’s, on the other hand, saw a 5.3
percent rise store sales.3

In an effort to regain a competitive edge in the market, JC Penney brought in a new CEO in November
2011 – Ron Johnson, a veteran executive of Apple Inc. and Target Corp. – who was to pave a new path
for future growth.

The New JCP

JC Penney has recently developed a new brand identity, complete with new pricing models, a new return
policy, a fresh, patriotic logo, and a restructuring of its store layouts to make the shopping experience
more convenient and enjoyable for patrons. These changes were intended to help the company strengthen
its position in the market while also maintaining ties with past customers and appealing to a younger
demographic.

In terms of pricing, JC Penney has developed a new, three-tiered system. This “fair and square” pricing
model is broken into “everyday prices,” “month-long values,” and “best prices.” The red-tagged
“everyday prices” indicate daily low prices that are about 40 percent lower than previous ones.

1
  Cohen, Elizabith.
2
  Armbruster-Sandoval, Ralph.
3
  Reuters.

Belran, Franscioni, Hagedorn, Pak, Press 4

“Month-long values” indicate discounts on merchandise that are changed each month. The blue-tagged
“best prices” are clearance prices, which will be established on the first and third Fridays of each month.4
These changes are aimed at promoting the company image as a higher-quality retailer, such as Macy’s,
that offers its products at a discounted price, comparable to lower-end retailers like Kohl’s.

Many customers in the past expressed dissatisfaction with JC Penney’s strict return policy, which
required them to have a receipt in order to return items. The new “Happy Return” policy is meant to
satisfy customers by allowing them to return “any item, anytime, anywhere, no restrictions.” If a customer
has a receipt, he or she will be able to exchange the product or get a full refund. If a customer does not
have a receipt, the item can still be exchanged, or that customer can earn a complete refund in the form of
a JC Penney gift card.5

JC Penney also revitalized its brand by altering its logo.

The new logo, which can be seen on the right side, is much sleeker and more modern. The two squares
(the blue square on the interior and the shape of the logo itself) signifies the new “fair and square” pricing
model. It is designed to resemble the American flag, exemplifying the idea of patriotism and implying
that JC Penney is an accessible, All-American store.

Continuing to capitalize on nostalgic parallels to a sense of Americana, the large aisle passing through the
middle of the store is called “Main Street,” and the outdated central jewelry counters have been replaced
by a “Town Square.”

Accompanying these changes is a brand new face of the organization. Ellen DeGeneres, who worked for
the company as a teenager, has already been featured in multiple advertisements that highlight the new
changes. Her role has sparked some controversy, as conservative groups such as “One Million Moms”
have protested her position as the company spokesperson since she is homosexual. JC Penney has
continued to publicly stand by DeGeneres.

Communication Problems

The process of rebranding JC Penney has created an identity crisis for the retailer. Consumers are unsure
of where the company falls on the retail spectrum: Is the company now positioning itself closer to a
lower-end discounter or a higher-end department store? Confusion over the quality and pricing of JC
Penney’s products has led to traditional JC Penney customers shopping elsewhere. JC Penney has focused
more on gaining new customers, appearing to abandon its traditional customers.

4
    Mohammed, Rafi.
5
    Vann, Korky.

Belran, Franscioni, Hagedorn, Pak, Press 5

Employees share this same confusion when adjusting to this new company-wide rebranding strategy. For
example, in regard to the new pricing buckets that are part of the “fair and square” model, some
employees, especially those within the jewelry department where deep discounting is the norm, have
struggled with the three-tier everyday low price approach. On top of the employee and customer
confusion, some department stores and call centers have actually been closed as a result of the
aforementioned changes.

The new “fair and square” pricing model is also unexpectedly communicating a change within JC Penney
that long-time core customers are not buying into eagerly. These long-time customers grew accustomed to
the old system of coupons and aggressive seasonal sales that once represented the JC Penney brand. The
rapid and radical change on JC Penney’s part has created confusion and vociferous objection to the new
system. Ninety-six percent of 420 recent reviews of JC Penney on the Consumer Affairs website rate it
below two stars for satisfaction.6 Many customers argue that the departure from coupons has created a
more expensive and less enjoyable shopping experience. JC Penney now faces a combative climb back to
profitability, as it launches new campaigns and strategies to attract new customers but continues to
alienate its established core customers.

With customer fallout from the rebranding strategy and employee confusion about the new internal
policies, JC Penney faces a unique challenge moving forward. What communication problems does JC
Penney currently face, and what can the company do to help clear up these underlying issues? What can
JC Penney do in order to successfully communicate its new brand both to employees and customers?

6
    “JC Penney.”

Belran, Franscioni, Hagedorn, Pak, Press 6

                                       JC PENNEY TEACHING NOTE

The purpose of this case is to demonstrate the internal and external communication problems JC Penney
has encountered while undergoing a radical brand transformation.

The major problems are:

       The current direction of the JC Penney transformation was not effectively communicated to
        potential consumers.
       JC Penney failed to clearly communicate the new changes, which were radically different from
        the store’s traditional model, to its old customer base.
       JC Penney did not effectively communicate nor implement the new pricing strategies within the
        store’s departments.

The critical issues in this case study are:

       The transformation of JC Penney’s brand image and policies is resulting in the loss of traditional
        customers and is not attracting new customers, which is greatly impacting the current and
        potential revenue of the company.
       The lack of effective communication between JC Penney and its customers regarding the reasons
        for the changes leads to feelings of ill will toward the stores and decreases people’s willingness to
        shop at JC Penney.
       The lack of internal communication between managers and employees results in departments not
        understanding the new pricing system.
       The lack of communication and information flow between managers and employees reflects
        badly on the store and leads to poor store experiences for shoppers.

Stakeholders

       JC Penney: seeks success in the future, is trying to stay competitive
       Stockholders: want to retain profits and improve portfolios
       Consumers: are worried about different selections, price sensitivity, poor reward system (loyalty)
       Employees: could lose their jobs with closing of multiple stores (job security)

Most Desirable Outcome

       To retain and increase the consumer base.
       To solidify JC Penney’s position along the difficult middle-market retail spectrum.
       To communicate JC Penney’s new branding to the current marketplace.

Possible solutions for JC Penney:

        1. Design an ad campaign that shows direct care for their customers by addressing their
           concerns in the ad. After they lost so many of their core consumers, JC Penney’s first attempt
           to retain those customers should be to show how it has made a transformation to satisfy their
           shopping needs.
        2. Improve the loyalty reward system to further please its customers, giving them more
           incentive to remain faithful to the company. This could mean giving discounts to loyal
           customers.

Belran, Franscioni, Hagedorn, Pak, Press 7

        3. Refine the shopping experience by soliciting customer feedback via surveys to gain a better
           understanding of what works and what doesn’t.
        4. Integrate an efficient process to ensure employees are informed of changes to pricing models
           and policies.

Possible tactics for implementation:

        1. Send letters to current customers explaining the transformation JC Penney is undergoing,
           putting a higher priority on the customers who had frequent catalog orders
        2. Conduct regular employee training programs before implementing changes to ensure
           everyone is aware of them.
        3. Continue to emphasize the changes after the training programs to provide better service to
           customers.
        4. Change the culture of the company to emphasize information flow between managers and
           employees.
        5. Improve the website to decrease online returns and utilize the website to help communicate
           the changes taking place.

Questions

       Do you think these strategies were implemented too quickly?
       How do you think JC Penney should have reached out to the current customers before making
        massive changes?
       How can the company build a stronger presence online?
       What effect does its new brand image and logo have on you?

·

Belran, Franscioni, Hagedorn, Pak, Press 8

                                            Works Cited

Armbruster-Sandoval, Ralph. “Workers of the World Unite? The Contemporary Anti-Sweatshop

       Movement and Struggle for Social Justice in the Americas.” Sage. 32.4 (2005): 464-485.

Cohen, Elizabith. “From Town Center to Shopping Center: The reconfiguration of Community

       Marketplaces in Postwar America.” The American Historical Review. 101.4 (1996): 1050-1081.

"J.C. Penney." Consumer Affairs. 10 Mar. 2012. Web. 25 Apr. 2012.

       .

Mohammed, Rafi. "J.C. Penney's Risky New Pricing Strategy." Businessweek. 30 Jan. 2012. Web.

       .

Reuters. "J.C. Penney: No Guarantees New Price Strategy Will Work." Chicago Tribune. 28 Mar. 2012.

       Web. .

Vann, Korky. "JC Penney Rolling Out A New Pricing System." Hartford Courant. 31 Jan. 2012. Web.

       .