Penney remakes culture to remake image
By MARIA HALKIAS
The Dallas Morning News
Monday, February 12, 2007
When Mike Ullman became chairman and chief executive of J.C. Penney Co. in January 2005, the company had just completed one of the most remarkable turnarounds in retailing history - a multiyear, top-to-bottom makeover that will be studied in management courses for years to come.
But inside the corporate walls, the mood was of a company just happy not to be dead - happy not to be another Montgomery Ward.
Such a mood isn't conducive to growth, Mr. Ullman realized. The solution he came up with may become Penney's next chapter in the business school textbooks - the remaking of its 100-year-old corporate culture.
On Tuesday, J.C. Penney will unveil a new advertising campaign as it tries to elevate its brand among consumers to the status of beloved names like Neiman Marcus, Starbucks and Southwest Airlines.
But before it could try to remake consumers' perceptions, Mr. Ullman said last week, Penney had to remake its own employees' perception of themselves, the company and their role in it.
Penney had to undergo another turnaround - from the inside out.
For five years, the Plano-based department store chain's 150,000 employees had been instituting and dealing with painful changes - store closings, the sale of subsidiaries, new ways of thinking.
CEO Allen Questrom had led the turnaround. Mr. Ullman was brought in to take the company to the next level.
He had served on the boards of Polo Ralph Lauren, Starbucks, Segway and Taubman Centers. He had domestic and international retail experience through chief roles at LVMH Moët Hennessy, Louis Vuitton, DFS Group Ltd. and R.H. Macy & Co.
Even with that experience, Mr. Ullman did a lot of listening during his first few months on the job. He talked with Penney employees and executives who'd led turnarounds at companies such as International Business Machines Corp.
"A group of us went to IBM to learn," Mr. Ullman said. "What we heard was not to celebrate the turnaround too long; you end up pleased that you're not dead.
"Their advice was to hit the accelerator. Don't coast."
Top Penney executives, including president Ken C. Hicks and new chief human resources officer Michael Theilmann, visited other successful companies - Southwest Airlines, Wegmans Supermarket, the Container Store.
"We hired zero consultants. I really felt like all the answers were here," Mr. Theilmann said. "Mike had to shock the system. Some like it, and some don't. Penney was a system that didn't like to be shocked."
Fred Foulkes, professor and director of the organizational behavior department at Boston University School of Management, said such change has to start at the top.
"It's very difficult to change a culture, and it has to be done at the CEO level and then move it throughout the organization," he said. "It has to be pervasive.
"CEOs have to signal that this is really different because you will have people in an organization as old as Penney saying, 'This is a phase, and it will pass and we'll go back to the way things were.'"
Selling the staffers
Penney had to become a great place to work, Mr. Ullman said. "The associates are the first customers we sell. If it doesn't ring true to them, it's impossible to communicate and inspire the customer."
The grand, sprawling corporate headquarters in Plano was saddled with decades of decorum.
Quick changes were made. As the head of human resources, Mr. Theilmann declared that the cubicle police were gone - decorate your space as you like.
A casual dress code was adopted at the office. Everyone, including Mr. Ullman, was on a first-name basis, with new badges shouting it.
For the first time, the company held a blowout Christmas party, with a live band and alcohol, attended by more than 7,000 Penney staffers and their spouses. It was supposed to end at 11 p.m., but people were dancing at midnight.
Hallways were stripped of expensive artwork to make room for photos of employees celebrating milestones. Corporate staffers were told they could take off 10 Friday afternoons a year - just work one hour extra Monday through Thursday and clear it with your supervisor.
Those and more symbolic changes were just a start.
For Penney to be a great place to work, people had to feel they could build a career there. Leaders had to be identified.
No training was to be outsourced, Mr. Theilmann said. "We wanted to teach our point of view, not someone else's."
The search for the best and the brightest started last year.
It's good to be called a "hypo" at Penney. Those identified as high-potential get to attend Retail Academy.
Mr. Ullman and Mr. Theilmann each logged 164 teaching hours last year. Mr. Hicks taught 101 hours, including two five-day, four-night off-campus retreats.
At the opening session of a recent retreat, looking professorial at a lectern in front of a tiered classroom, Mr. Hicks told 40 Penney buyers, logistics staffers, and district and store managers why they were there.
"You have been selected for this class because you people are the future of this company."
It's a powerful thing to hear at the start of a demanding week. Breakfast starts at 6:45 a.m. Classes last through dinner, then groups split into smaller teams. They present answers to an assigned case study on Friday.
Networking
Most of the "students" don't know each other, but they'll leave with a class picture and contacts to draw on as they move up the corporate ladder.
Clark McNaught, merchandise manager for men's clothing and accessories, said hearing the same message over several days from various executives gave him "the conviction to pass it on to the people I work with. It's not just a sound bite."
The men's department of a Houston Penney store is posting higher sales because of a contact Mr. McNaught made with a district manager at Retail Academy.
A store manager believed he could sell some of the chain's better men's merchandise because a Foley's in the mall was closing.
"There was pushback on the idea because this store didn't usually get a full selection - there was no history to support the decision," Mr. McNaught said. "The district manager was in my class, and he called me and we worked it out. When you leave there, you have bonds like you form in a sorority or fraternity."
Cramming
Siiri Dougherty, merchandise manager for women's dresses, suits and outwear, said she hadn't stayed up that late on consecutive weeknights since college.
"I left the class thinking about new ways to approach problems and learned about all these other functions in the company and how they can help us with our problems," she said.
Other classes are held weekly at headquarters, where 150 top members of management attend sessions taught by Mr. Ullman and other executive officers.
Last week, Mr. Ullman and Michael Taxter, executive vice president and director of stores, taught "Leading a Store" to four groups of 30 newly promoted assistant store managers from around the country. In a few weeks, they'll teach "Leading a District."
The idea is that better-trained managers will be more nurturing with front-line store staffers.
Last year, Penney finished replacing cash register terminals with 35,000 checkout computers. The devices not only ring up blouses but also give employees immediate access to news from the home office and let them complete training during slow periods on the sales floor.
Penney calculated that employee churn in one year cost it $400 million in lost productivity, retraining and hiring.
The quality of applicants has taken a leap, Mr. Ullman said.
Penney has nine recent alums - either interns or new hires - from New York's Fashion Institute of Technology. "Graduates from one of the best design schools want to work here," Mr. Ullman said.
Dozens of retailers recruit from Texas A&M's Center for Retailing Studies. Penney's desk was jammed at the annual retail-only career fair two weeks ago, said Cheryl Holland Bridges, director of the center.
"Without a doubt, they're seeing more students and hiring a higher-quality student than in the past. Students know how they're doing."
Penney will hire 2,000 people for field and home office management positions this year, which is twice its 2006 number.
The bottom line
On Thursday, Penney released sales results for January, the end of its fiscal year, and confirmed that it posted its 15th consecutive quarter of sales gains. This month, it is expected to post a 15 percent increase in earnings per share for the fourth quarter and a 33 percent increase for the year.
Penney isn't quite where it wants to be with its huge workforce. In 2005, employees were asked to answer a 45-question survey covering everything from whether they believe their pay is competitive to how they would rate their supervisor. The results were sliced by department and used to set goals for the next year.
In the first survey, 67 percent of employees were engaged, meaning they were happy, and last year that increased to 73 percent.
Such engagement surveys are useful only if they identify weaknesses and result in change, Dr. Foulkes said. "Penney's numbers sound good, especially for a retailer."
A high-profile firing
And in a high-profile failure, Catherine D. West, a well-regarded banking executive with no retail experience, was hired as chief operating officer and fired less than six months later - with a $10 million severance package - when she and the company agreed the cross-industry experiment wasn't working.
But her firing in December didn't seem to disrupt business. Penney has been adding exclusive merchandise lines, partnering with companies that it would have been hard-pressed to approach before the turnaround.
Mr. Ullman's connections to European cosmetics chain Sephora, which became part of LVMH when he was running the Paris-based company, was a coup. So was the recent agreement for Polo Ralph Lauren to design a new line for the middle-income department store.
"We couldn't do a lot of these things before. We didn't have the credibility," Mr. Ullman said.
"Success is about executing everything at the same time."
J.C. Penney counts half of U.S. consumers as customers. Now Mr. Ullman is comfortable inviting the other half in for a look.
Penney hoping love is in store
Retailer remakes its brand with a new focus on service
By MARIA HALKIAS
The Dallas Morning News
Tuesday, February 13, 2007
J.C. Penney Co. wants to be loved.
More important, the 105-year-old department store chain says it's ready to be loved - ready to form a more intimate, emotional connection with shoppers.
Will consumers ever feel as passionate about Plano-based J.C. Penney as they do about such beloved brands as Nordstrom, Apple and Starbucks? Since flirting with extinction around the turn of the century, Penney has undergone a multiyear turnaround. Shoppers have noticed a difference in its stores, catalog and Web site, reflected in the company's 15 consecutive quarterly sales increases.
Penney has broadened its merchandise, with both its own labels and through partnerships with designers like Chris Madden, who has an exclusive home collection with the retailer.
And tonight, in a Manhattan ballroom, Penney hopes to take its transformation to the next level by unveiling a new branding and advertising campaign.
"Six years ago, this company was in deep, deep trouble. We had a good marketing campaign, but we weren't delivering," said Michael Boylson, chief marketing officer. "Branding takes a long time. It's not something you can do overnight. Now we can deliver on our promise."
For tonight's coming-out party in front of New York's influential fashion and financial world, Penney has rented a ballroom just two blocks from competitor Macy's flagship store at Herald Square.
Meanwhile, training materials have gone out to its 1,033 stores, and Penney managers are briefing sales associates on the new branding and why they're the key to the process.
The advertising campaign debuts on the Academy Awards television broadcast Feb. 25. The next morning, store aisles will have signs noting displays of outfits that were featured in the commercials.
In the commercials, people are dressed in Penney's clothes in everyday situations, at work, the beach, taking a walk and playing with their children.
FROM LIKE TO LOVE
Saatchi & Saatchi CEO Kevin Roberts has written two books on turning trademarks into "lovemarks." The trick, he says, is to move a brand up the axes of love and respect.
Low love and low respect: These are commodity brands, like gasoline for your car or lumber for your home-improvement project.
High love and low respect: These are fads that fade quickly, like Pet Rocks and Beanie Babies.
Low love and high respect: Where most brands are - including J.C. Penney, Microsoft and your neighborhood grocery store.
High love and high respect: These are brands people swear by, like Starbucks, Apple and Nordstrom, and it's what Penney aspires to.
SOURCE: The Lovemarks Effect: Winning in the Consumer Revolution by Kevin Roberts
The campaign will come out of the department store chain's annual billion-dollar-plus advertising budget. Penney's new slogan, "Every Day Matters," replaces the old "It's All Inside."
"'Every Day Matters' is more than a tag line. It's a way of life, a way of thinking," Mr. Boylson said.
A fresh face
The timing's right for a rebranding, said Gerald A. Hirschberg, a Standard & Poor's analyst who has covered the retailer for more than 20 years.
"They've changed a lot. It's not a bad idea to put a fresh-faced image in front of the public that says, 'Come and look at what we're doing now,' " he said. "It's really not the old J.C. Penney anymore."
Penney has been working with a new ad agency, Saatchi & Saatchi, since last fall, after a six-year relationship with Omnicom Group's DDB Chicago office.
With Saatchi, Mr. Boylson said, Penney came to the conclusion that the retailer can graduate into the hearts and minds of shoppers as a "lovemark."
Saatchi & Saatchi CEO Kevin Roberts has written two books on brands as lovemarks, a concept he named and has developed since 2000. His second book on the topic, The Lovemarks Effect: Winning in the Consumer Revolution, was published in November.
Mr. Roberts argues it's time for love to be firmly entrenched in marketing and for people to be willing to talk about it.
"This is a big step up from when I used to mention the 'L-word' and CEOs slid under their boardroom tables," he writes. "Love is here to stay. Emotional connections with consumers are an irrefutable differentiator in the market."
Starting with employees
But before Penney could ask shoppers to love the company, Penney chairman and chief executive Mike Ullman says, Penney had to become "a great place to work." He's been orchestrating a remaking of the corporate culture so Penney's workforce could communicate the good feelings to customers.
Mr. Ullman is on the board of Starbucks Corp., whose founder, Howard Schultz, created a corporate culture from the beginning that kept employees engaged.
In a letter to Penney employees about the rebranding, Mr. Ullman said store employees are the ones "who will bring 'Every Day Matters' alive" for the customers.
Mr. Ullman isn't asking its sales staff to be personal shoppers the way a Neiman Marcus or Nordstrom associate does for their best customers. Instead, he's asking Penney associates to be "prepared to offer encouragement, be their friend and inspire them and to show them that we know every day matters."
"Every day matters" isn't just a slogan for the public, it's something he's adopted at the home office, Mr. Ullman said. "My goal is to never walk around here looking like I'm upset about something. We have great opportunities, every day. Every day matters."
Difficult turnaround
Mr. Ullman has been addressing Penney's image inside and out after the company completed one of the most difficult turnarounds in the history of retail, led by his predecessor, Allen Questrom.
Penney's stock has also seen a turnaround; it closed Monday at $82.48, down 37 cents, but still near an all-time high.
Penney has broadened its merchandise, with both its own private labels and through partnerships with companies that wouldn't have considered the chain in the 1990s. Last fall, it reached an agreement with Liz Claiborne to launch Liz & Co. for women and Concepts by Claiborne for men.
Penney sells Nicole by Nicole Miller and Bisou Bisou and is adding Sephora cosmetics shops inside its stores.
Polo Ralph Lauren Corp.'s new division to develop brands for specialty and department stores made its first deal with Penney. It's designing a line called American Living, due in 2008.
Giving the shoppers reasons to keep coming back is at the center of Mr. Ullman's rebranding.
That dynamic was on display Monday afternoon at the Penney store at New York's Queens Center mall, one of the chain's highest-producing locations. Lines at the registers were four or five deep as Raquel Carrasquillo, 19, and Viviana Cordero, 21, both of Queens, checked out the Sephora shop.
The women said they normally go to Macy's, Gap, Banana Republic and local boutiques, and to Penney for something specific like sandals or stockings. But Sephora has changed the equation.
"We started coming here when we realized they had Sephora," Ms. Carrasquillo said.
She and Ms. Cordero said they would think of Penney as a value destination for clothes and household items as they grow older.
Big comeback
Only a few companies have achieved what Penney is doing, Mr. Hirschberg said.
"It's not easy, once you're down, to come back in the eyes of the consumer. Several of us here were talking about that recently. We came up with J.C. Penney and McDonald's. Someone mentioned J.Crew."
Former Gap Inc. CEO Mickey Drexler is getting accolades for leading a restructuring at J.Crew, including forming two new chains, CrewCuts and Madewell.
Fast food giant McDonald's Corp. stumbled badly in the 1990s and early 2000s, but it cleaned up its stores and improved its menu. Customers and profits returned.
Brand strategy and design consultancy Lippincott Mercer, based in New York, helped McDonald's rework its store environment. Peter Dixon, senior partner and creative director at the firm, said McDonald's had to change many things at once, as did Penney.
"It wasn't that long ago that it seemed people were going to write off the whole category of department stores," Mr. Dixon said. "Penney has fixed its merchandise, figured out who its customers are and focused on making fashion right for them. Then they've moved forward trying to also reach a younger customer with new relationships such as Sephora.
"That's a very smart way to differentiate itself from the department store cosmetic counters," Mr. Dixon said. "They're getting a lot of traction on that."
As Penney attracts new customers, it has to deliver a positive experience, he said.
"Advertising is only a component of brand building. It's a way to reach people. It becomes a joke if you don't deliver," Mr. Dixon said. "When people come back one more time, you have to deliver, because people want to identify with a place that makes them feel good."
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