And the “New Coke” Award Goes to….

If you’re under 35, you may not remember the great “New Coke” debacle, which I’m sure became a business school case study illustrating the truth of the saying “if it ain’t broke, don’t fix it.”  For younger readers here’s the short story…

In early 1985, after two years of preparation, Coke launched “New Coke.”  The new formulation was a response to the perception that younger folks preferred Pepsi’s sweeter taste to Coke’s more crisp taste.

There was a huge backlash.  “Old” Coke quickly returned under the moniker “Classic Coke.”  Within 90 days, “New Coke” disappeared.

If you’ve been following Penney’s sales strategy, you’ll understand why I believe it has no competition for receiving this year’s “New Coke” award.  Let’s review the highlights…lows.

In February 2012, Penney’s new CEO decided to end the constant “sale” and “clearance” events in favor of an “everyday low prices” approach.  He believed this strategy would set Penney’s apart from other retailers and boost its bottom line.

But it didn’t…

At the end of the first quarter using the new approach, sales fell 19%.  Its stock price fell by about the same percentage.  But Penney’s decided to stick it out; consumers just needed time to become used to the approach, the new CEO reasoned.

Second quarter sales fell 22%.  Penney’s… adjusted… by bringing back “clearance” events in August 2012 but did not otherwise abandon the new strategy.  Third quarter sales fell 26%.

Although we don’t shop much anymore, we do like to “look.”  And we didn’t like what we saw in the new Penney’s.  Apparently, we weren’t alone.  This month, Penney’s abandoned the new strategy and returned to sales.

Last weekend, we were in Panama City Beach for their Mardi Gras.  We decided to check out the Penney’s at Pier Park, which is much larger than the one where we live.  We liked what we saw…

We bought $49 worth of clothes for Susie.  Three of the five items were on “clearance” and everything but one item was $10 or less, including a pair of casual shoes with a “zebra stripe” pattern that were “originally” $30.  It was the first time we bought from Penney’s since it went to the “no sales” approach.

So almost one year after Penney’s embarked on a new strategy, it has returned to the old way of doing business.  The experiment cost Penney’s a lot of profit and half its stock value.  When all it had to do was read up on New Coke…


11 responses to “And the “New Coke” Award Goes to….

  1. New Coke was dreadful stuff. Speaking of business, I’m now reading the biography of Steve Jobs, who was batshit crazy. He wanted an elegant product, and that’s what he got. He was very disdainful of Bill Gates, who was shrewder and more practical (not an “artiste”), so Microsoft eventually ate Apple for lunch. (Good pun.) I doubt that’s true any more, since Apple is way out in front with the iPhone and iPad, and Microsoft is trying to play catchup, which makes them look like second-rate copycats. But I haven’t gotten to that part of the book yet!

  2. It is cool to say you think outside the box, but there is a box for a reason.

    That said, I’d have bought a Saturn car when the company first started and had that no haggle policy, because I hate the charade we have to play with car dealers. Unfortunately, I didn’t like the car.

    • Really, Omaarisan? I adored my little Saturn2. Besides the no-haggle policy, they were just always nice at the dealership. And every time you took it in for service, they washed it for free. And every year, they would send a birthday card for the car 🙂 Sure, that’s a gimmick, but I found it charming. That car was totalled in a flood after I’d had it only two years, and I wanted another one, but by that time they had become shockingly expensive. It’s really too bad they didn’t make it. They had all the right ideas when it came to customer service.

    • My recollection (which should not be relied on, is that Saturn started out well but “fell off the wagon” somewhere down the line. Initially, Saturn owners were fanatics about their vehicle….

  3. The coke experiment was without a doubt the stupidest move ever in branding a product. The most recognizable brand in the world and they want to change it. The brainchild behind that must have been North Korean.

    JCP is a different story. They are in a changing world and have just been out branded by mega retailers. The Department Store is a dinosaur, they have outlived their time and the dirt cloud is descending all over them. I worked for Wards for 10 years in the 70’s mostly and watched them mismanage and destroy their brand. It was kinda sad but I got out in time to start over.

    • > The Department Store is a dinosaur

      Do you say that because of online shopping? While I do a lot of that, I still like to buy clothes in person, so I can see, feel, etc. the merchandise.

  4. SC The reason for being for Department stores wsa to provide a world of products under one roof. And the model worked well for 50 years. But the mass retailers started eating into profit margins in the 70’s and then the bottom fell out with well run companies like target and walmart. Department Stores can no longer dominate the supplier markets and thus can’t out bid or monopolize products. They are simply passe. They can’t attract the really good employees either nor the cost of inventories so they are losing in every sector.

    Retail is now a niche market in the middle with upscale stores at the top like Bloomies and Nordies, and Walmart and Target mopping up the low-ball prices.

    • I agree with your analysis.

      There was a time when I shopped at department stores. I switched to the “outlets” for “outer” clothing because their prices and selection were better. I can rarely find a “small” in a “name brand” (like Nautica) in a department store, but I find them in the Nautica stores at outlet malls.

      That Penney’s purchase was a rarity. I needed some new waterbed sheets and found them at a good price on the Internet. Free shipping too. About the only stores I shop at regularly now are groceries and drugstores. But Walgreens has an online store with lots more stuff and free shipping on orders with a low minimum.

  5. And I combine grocery and drugs by going to Publix for both. Back to Saturn for a sec…I don’t think they “fell off the wagon”, I think they were just mismanaged. Remember, after all,they were a subsidiary of GM. And I agree that pt is absolutely right, too. But I’m not sure they’re absolutely dead yet, although we may be seeing their last gasps.
    I personally despise shopping for clothes and when I must, I go to either Macy’s or Target. Buying clothes online never works for me, they never fit. Also, I’m with you on seeing and feeling the merchandise, sc. Especially at someplace like Target, you can see some amazing flaws…like one sleeve being longer than the other in a sweater. You wouldn’t know that if you bought online.

  6. I had really become a fan of Penney’s again when they made this change. The store nearest me, which used to have a huge selection of everything, suddenly had a minimal selection of everything. The new low prices couldn’t beat the other stores’ sales and the whole place seemed “junkier.” I probably wouldn’t even think to go back there except that I just read your blog post. I might give Penney’s another chance.

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