Don’t try to innovate in a mature industry. You may get screwed…
I was reading an article in Bloomberg tonight about JCP and their “downfall”. The article entitled, “Can Penney Get Off The Down Escalator” talked about the short tenure of ex Apple executive Ron Johnson (fired April, 8) who attempted to reinvent the company over the last few years. He was also featured on a recent CBS Sunday Morning piece. I like Ron Johnson, and not just because I’m typing this blog on a Mac. I like him because he’s an innovator. What Johnson tried to do with JCP was, in theory, a great idea that has worked in the past. Every heard of Galeries Lafayette?
GL is a European department store headquartered in Paris with international operations all across Europe. I had the privilege of visiting their store in Berlin, Germany this past summer and conversing with their Marketing Manager when I was studying abroad with Davenport University. Their retail business model is completely different from that of US retail stores. GL sets up their stores with different high-end boutiques that operate within the walls of GL. This is an extremely common business model for European department stores and it has been met with great success across the Eurozone.
Where did JCP go wrong? In my opinion, the US retail market is a mature industry. What drives mature industries you may ask? Well, in many cases, it is the lowest common denominator…pricing. If you compete in a mature industry and your business level strategy is not pricing, you may get screwed… That’s what happened to Johnson. It’s not that his idea was bad; in fact, I think it was quite good. I liked the new JCP stores (I bought two ties there for $10 a couple months ago…I have a thing for ties…and watches. You can get me a watch for Christmas). I am part of his ideal target market. I think his problem was he did too much too fast and JCP didn’t have the cash or the debt to weather the storm. JCP’s customer base was used to coupons. Americans like coupons. Especially where I’m from-we’re all cheap Dutchman. JCP moved their business strategy from discounting their products to offering lower prices right from the start. No more sales!?! Blasphemy!!!!
Probably what Johnson should have done is introduced his master plan in stages instead of forcing his consumers to kick the sales habit cold turkey. Again, I thought it was a great, innovative idea that would give some much-needed life to an otherwise stuffy brand. That it did, unfortunately not the type of life Johnson was looking for.
So if you’re in a mature industry, what do you do to manage and sustain a competitive advantage? Good question. I’m not sure I can answer it but here are some tips.
First manage your economies of scale. Figure out what you do best and then figure out how to be as efficient at it as possible. Managing your economies of scale can allow you to spread your fixed costs out over time. Much of the overhead cost your business may be experiencing can possibly hurt a little less if you can figure out how to be as efficient as possible at what you do.
Second, leverage your learning curve. Learn from your team’s cumulative experience. When you tackle a new project that you’ve never dealt with before, it’s going to take longer than expected. This however, should not be viewed as a bad thing. The cumulative learning experience of your team can serve as an infrastructure for future projects. Be sure to leverage your successes and your failures into future project ideas and processes.
Last, control your inputs. This may seem like simple economics but if your inputs are more expensive then your outputs, you’re in trouble. Just ask Tesla Motors. Work to figure out a way to control your inputs in every project. Automate technology, cut down on business dinners, don’t hire idiot contractors etc. Simple math can do a lot for a struggling company.
Johnson had a great idea. It was innovative and daring. Unfortunately, it wasn’t executed well given his industry. Learn from his mistakes, as I’m sure he will, and look to maximize your market potential with different types of innovation.