J. C. Penney Company, Inc. (“jcpenney”) announced that it has begun to dramatically simplify its business model in order to align operations with the changes it is making to become America’s favorite store. The Company’s new approach to pricing, promotion, merchandising and the customer experience requires a more competitive operational structure, with fewer layers of management, wider spans of control and greater accountability throughout the organization.
To begin putting this framework in place, the Company is reorganizing the workforce at its headquarters in Plano, Texas, where it will be taking a range of actions to realign its management structure.
Ron Johnson, chief executive officer, said, “Simplicity is one of the guiding principles of our transformation. In years past, we’ve motivated our customers with endless promotions and discounts, and that required a lot of process-oriented work. At the new jcpenney, we’re beginning to inspire customers with great merchandise, an exciting shopping environment and Fair and Square pricing. Just 60 days into our transformation, we can see – more clearly than we even imagined – that this is a simpler way to do business and a better way to compete.
“We are also transitioning from a culture based on management to one based on leadership,” Johnson continued. “We are going to operate like a start-up. We are going to extend the reach and span of control of our very best talent. We are going to be nimble, quick to learn, quicker to react and totally committed to realizing our vision to become America’s favorite store. Often in business, companies must streamline in order to leap forward. In our case, this has involved some very difficult decisions that have had an impact on many of our associates, but these changes are essential to help us achieve our long-term goals and, ultimately, grow our associate base as we grow our business.”
Today’s announcement is part of the Company’s plan, announced on Jan. 26, to reduce annual expenses by $900 million by the end of 2013. This includes $200 million in savings from its corporate headquarters, as well as $400 million in cost savings in store operations and $300 million in advertising expense savings. The changes are expected to reduce expenses to below 30 percent of sales by the end of 2013 and position the Company to achieve an expense run rate of 27 percent by the completion of its transformation in 2015. The Company also announced that it plans to close its customer call center in Pittsburgh, Pa.
Mike Kramer, chief operating officer, said, “We are on the cutting edge of a new approach to retail. Even this early on in our transformation, it’s clear that many of the processes required under the old business model are no longer needed. We are putting in place a new operating structure that creates a winning organization built on efficiency. For instance, we’re rebuilding our merchandising and planning & allocation teams to continually curate our product offering, edit brands and assortments as appropriate, and ultimately organize our stores into a series of exciting Stores, Shops and Boutiques, which will feature newness on a monthly basis in the rhythm of our customers’ lives. Actions like this will enable us to quickly take advantage of a variety of expense savings opportunities while enhancing our profit formula for the long term.”