Archive for May 17th, 2012

Rude awakening: Selling “rags” isn’t as easy as selling iPhones.

May 17, 2012

Punch line: Ron Johnson earned fame by designing Apple Stores.  He was lured to JC Penney to inject some of his merchandising magic.  Johnson immediately set out to remake JCP into Apple Stores: no discounting, corner boutiques, hangout areas.  Based on initial results, it’s safe to conclude that JCP isn’t exactly Apple.  Hot, world class products can make a lot of store formats work … but, apparently, hot store formats can’t make “ordinary” products  explode.

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Excerpted from WSJ: Penney’s Stock Plummets on a Big Loss

J.C. Penney CEO Ron Johnson is getting a taste of what it’s like to run a retail operation without world-beating products, and so far it is not pretty.

JCP is in the early stages of a transformation led by Mr. Johnson, the former senior vice president of Apple’s retail operations who took over the retailer last fall.

Mr. Johnson, who won plaudits for reinventing the retail experience with Apple stores’ clean lines and empty space, has laid out an ambitious yet risky plan that involves carving stores into a warren of specialty shops, turning the center selling space into an entertainment and hangout area, and eschewing constant “sales” in favor of lower prices every day.

So far, consumers don’t seem to like the strategy,

Company executives said that weaning of shoppers from their coupon addiction has hurt sales and store traffic more than anticipated.

65% of sales were at full price, but store traffic dropped 10% and average customer spend dropped 5% compared with a year earlier.  

JCP’s quarterly earnings report marked the first time that investors could gauge the impact of the new strategy.

The company missed nearly every financial target it had set for the latest quarter.

The retailer reported a $163 million loss, more than twice what analysts were expecting.

Same-store sales slid 19% … margins narrowed to 37.6% from 40.5%.

Investors whispered to each other about the “bloodbath.” 

Penney’s shares plummeted 13% to around $29 as the company suspended its quarterly dividend and announced that it will not meet its previous annual earnings target.

Fitch Ratings lowered its credit ratings on Penney to junk territory, citing risks of rolling out the new pricing strategy.

The earnings report is a blow to Mr. Johnson, who said  the turnaround has been a lot harder than management expected.

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Ken’s Take:

(1) When economic times are tough and daily deals (think Groupon) are the rage, it’s a fool’s mission to try peddling “ordinary” merchandise at list price. You’re just a sitting duck for competitors who will discount off your benchmark price.

(2) Unless you have exclusive, hot products or a substantial competitive cost advantage (think Walmart), everyday low pricing won’t work … you have to provide a lot of shopping “experience” to justify higher prices.

(3) Stop by a JCP store and ask yourself: Are these folks clamoring for a shopping “experience’?  Or, flip the question: Are there a lot of folks who are looking for a shopping experience thinking “let’s rush over to Penney’s”?

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Obama: “I was for it before I was against it … but now, I’m for it … unless the polls go against me.”

May 17, 2012

Unless you were on Mars last week, you know that President Obama – inadvertently coaxed by bumbling Joe Biden – announced his support for gay marriage.

Not much surprise there, but the revelation sparked some interesting politics.

Quick out of the chutes, Newsweek – the reliably liberal news mag – hit the stands with a very controversial cover announcing Obama as the first gay president … apparently a play off of Bill Clinton’s old claims that he was the first black president.

My bet: it’ll be the highest selling issue of Newsweek ever … with most of its distribution in early November … used by both the far left left and the far right to rally their bases.


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Interesting Twist

On the heels of the Newsweek feature article, a New York Times survey reported that 2 of 3 people saw through Obama’s “evolution” as being more politically expedient than morally driven.

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The political motives

Consistent with the NY Times survey, the Newsweek article outlined the political rationale:

There was, of course, cold politics behind it.

One in six of Obama’s fundraising bundlers is gay, and he needs gay’s money.

When Obama announced recently that he would not issue an executive order barring antigay discrimination for federal contractors, the gay donors all but threatened to leave him high and dry.

If money was one factor making the move necessary, the youth vote — essential to his demographic coalition and overwhelmingly pro–marriage equality — clinched the logic of it. The under-30s were looking worryingly apathetic, especially compared with 2008. This would fire them back up.

The latest Gallup poll, moreover, offered another incentive.

Marriage equality is now supported by half of Americans in polls.

Independents favor gay marriage by 57 percent.

So it’s been confirmed: gay rights is indeed a wedge issue.

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Another plot twist

Newsweek’s political logic makes sense, except…

The New York Times/CBS News poll indicates that most respondents said that the president’s position (on gay marriage) will not impact how they vote.

But among those who say it will influence their choice, 26 percent said they are less likely to vote for Obama as a result, while 16 percent say they are more likely to.


Doing the arithmetic, that means a net loss of 5% (25% minus 16% = 10% times 50% = 5%) voting for Obama in what’s generally considered a 50/50 race.

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Dissing the media

To close the loop, Obama campaign deputy manager Stephanie Cutter went on MSNBC to dismiss the CBS/New York Times poll as “flawed”.

Note that we cited Newsweek, the NY Times, CBS and MSNBC … not FoxNews or the WSJ …  wow.

Stay tuned, this political saga isn’t over.

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