TO: Ron Johnson, Plano, TX
FROM: A Higher Authority
RE: The Way to the Promised Land

Cecil B. DeMille, where are you now that we need you?

The expedition that Ron Johnson is leading the Penney-ites on will not last 40 years – he’ll be lucky if he gets 40 months – but in just about every other way, the trek is of biblical proportions. Johnson is trying to free one of the most enslaved retailers in the business from what seems an eternity of lackluster merchandising, dysfunctional buying and a generally disjointed business strategy that seems to go in every direction but forward.

Frogs and pestilence have nothing on this saga.

Whether he can lead the company to the Promised Land remains to be seen. Frankly, 2012 was just a warm-up and the real test comes this year when JCP has to start anniversarying its lame numbers that started last February. If they can’t beat those comps, Bill Ackman – the hedge fund honcho who has been manipulating this whole thing from the other side of the balance sheet – is going to show why patience is not one of his virtues and there’ll no doubt be a new

sheriff in Plano before long. So, as Johnson tries to part the retail seas and find a route for JCP to succeed, I say it is his Home business that is going to help lead the way. More so than at any other national general merchandise retailer, JCP Home is a larger percentage of overall sales, led by soft home. That has always been a core strength of what those in the trade still call “The Penney Company,” and regardless of the name over the front door these days, if Home doesn’t work, JCP doesn’t work.

That’s why every time Ron Johnson visits that test store near corporate headquarters in Texas, he’d better be holding a tablet – preferably an iPad – containing the 10 Commandments of Home. So, at the risk of burning a few bushes, here’s a look at the shalts and shalt-nots they need to be practicing down in Plano, if they want passage out of the retail desert.

I. Thou Shalt Not Have Multiple Merchandising Strategies.
When Johnson came on the scene a year ago he promised a simple, singular merchandising plan. It’s been anything but. In his haste to avoid using phrases like everyday-low-pricing or coupons, he has danced around enough euphemisms to fill up the Old Testament. And, this past holiday season the store was all
over the place – there were sales that were refused to be acknowledged as sales. There were coupons called everything but. One analyst even went so far as to praise Penney for this new promotional bent, comments that no doubt caused Johnson to sweat profusely in his Izod sweater. Johnson has to define his strategy – to his buyers, his salespeople and his customers – and he has to stick with it. Walmart customers know they will get low prices. Kohl’s shoppers know they will buy everything on sale. Macy’s customers know they need coupons. JCP shoppers don’t know what they are going to get.

II. Thou Shalt Not Have From-the-Grave Images or Likenesses.
Joe Fresh is fresh, sure, but Michael Graves? Conran? Even Martha? Johnson has chosen a curious collection of has-beens, barely-weres and generally used-up brands and names on which to stake its home business. The brands he inherited – Royal Velvet and Liz Claiborne – are not much better.

III. Thou Shalt Not Take Budgets in Vain.
Right now, JCP is burning through cash faster than you can build a 21st Century Golden Calf. The plan was that all of the changes in the store were going to be financed by cash flow and savings from cost cutting. But the burn rate is increasing while sales continue to plummet. Putting 100 shops into 800 JCP units is one hell of a tab, but it’s the basis of the entire turnaround strategy. Don’t be surprised to see those plans scaled back if cash flow doesn’t improve soon. But as with many things for the supremely confident all-or-
nothing strategy Johnson espouses, it makes you wonder if there’s a back-up plan…and what in the world it might be.

IV. Thou Shalt Remember the Holidays.
These month-long promotionsare going to kill Penney. For better or worse, shoppers expect big sales on President’s Weekend, Columbus Day and every other cockamamie holiday. March is not a holiday. Maybe schools and offices aren’t even closed on days like Valentine’s Day and Election Day, but no matter: there’d better be a sale that day – and a preview-shopping day the day before…or else.

V. Thou Shalt Honor Thy Mother and Father…and All the Other Older Shoppers.
When Johnson first presented his grand plan, he talked about how Penney was only getting four out of 100 shoppers into the store as customers, and if he could even increase that by one, that would represent a 25% increase in traffic. True, but that logic was based on keeping those original four shoppers as customers and there’s every reason to believe that is not happening. The traditional Penney shopper is among the most loyal customers a business could have: after all, she’s been shopping the store for generations. But she doesn’t quite get the new JCP. From the Home perspective, she still wants her floral sheets and promotional towels. For any plan to succeed at Penney it must find a way to retain the existing customer base while bringing in new shoppers.

VI. Thou Shalt Not Kill the Window Coverings Department.
Once upon a time – and not all that long ago – J.C. Penney controlled more than a third of all the curtains and draperies sales in the country. It was an amazing position, virtually unparalleled in general merchandise retailing. Before Johnson came to town, prior management was already starting to scale that business back. It’s labor intensive, somewhat messy, and more than a little complicated. Yet that’s the kind of thinking that has turned many department stores into glorified clothing stores. The truth is, window coverings are a core business, one that gets the newly formed household into your store and exposes them to the rest of your merchandise offerings. It is the shoe department of Home. It needs to thrive.

VII. Thou Shalt Not Commit Advertising Adultery.
The ground-breaking ad programs run by Target and Apple are among the most important and influential campaigns in the history of the business. The fact that Johnson was affiliated with both companies
is impressive. But the JCP advertising we’ve seen over the past year is among the most derivative, unoriginal and ineffective example in marketing. It started off last February setting the stage for what was to come… but the “it” never came. When the holiday ads promoting products and prices finally broke, they bore no real resemblance to the campaign that had preceded it and they never stood a chance against
the Macy’s and Kohl’s spots that hit it hard. You can get away with just your logo without a voiceover if you are, in fact, Apple or Target. But not if you’re JCP…or Penney…or whatever your name is.

VIII. Thou Shalt Not Steal
Okay, so maybe going after Martha Stewart wasn’t exactly stealing, just an inside job, with Ms. Stewart a willing accomplice, but it was clearly an attempt to take another retailer’s possession. I happen to be one of those who believe Martha Stewart does have a lot of life left in her brand and that using her as a linchpin for Home is not necessarily a bad idea. But the Martha move was fraught with peril right from the start, trying to box out Macy’s. Now Martha is not going to be a very big part of the picture this year – at least – and there is not a credible Plan B from all appearances.

IX. Thou Shalt Not Bear False Promotions.
Home remains one of the most price-promoted products in the store. Let’s face it, nobody really needs another set of white towels or a new frying pan. That’s why, unlike fashion where new styles drive business, or cosmetics and fragrances where the newest name gets a shopper all hot and bothered, sales are what makes people buy home products. When Ralph Lauren first got into the home business three decades ago, he refused to run sales and tried to sell everything at full boat. It was a disaster. It wasn’t until Ralph relented and got on the White Sale schedule that the brand started to click. It’s one of the reasons Walmart’s home business is underdeveloped compared to its closest competitors. Everyday low pricing does not work in Home. If you don’t believe me, ask a Bed Bath & Beyond shopper with a handful of 20%-off coupons.

X. Thou Shalt Not Covet Kohl’s or Any Other Store For That Matter.
Give Johnson credit for this one. He really is trying to create a new retailing format. For years, Penney tried to be Kohl’s and it learned there already was one. It’s the same lesson Target learned when they started to do an end-run around Walmart 15 years ago. Ultimately this will be the way Ron Johnson is judged: can he create a store that is different enough from his competitors while similar enough to still be competitive? That’s the only way we’ll know if JCP gets to the Promised Land…or just wanders around aimlessly until it becomes utterly lost.