Don't Let the Silo System Destroy Your Business: A Lesson From J.C. Penney

Multichannel commerce is in J.C. Penney's DNA, and that may be the corporation's saving grace.
Customer Experience

It can't be easy being J.C. Penney. The department store was once a giant of the retail world, a pioneer in multichannel marketing, and an overall driving force in the selling game. Then came smartphones, a recession, and the demand for quality mobile experiences, and it simply couldn't keep up. By 2011, it was unable to attract the middle-class families that once flocked to its stores in droves.

The sad part, though, is that J.C. Penney's decline could have been prevented. Although certain economic circumstances were out of its control, outdated corporate structures and strategies ultimately prevented it from marketing effectively. What's worse, J.C. Penney operated under a silo system, constricting departments to their narrow areas of expertise.

It's a traditional system that doesn't allow for much interdepartmental collaboration. And as J.C. Penney learned the hard way, traditional doesn't cut it anymore.

A Hazardous System

Picture a swath of farmland with a few silos standing tall but solitary across the wide plain. Each one is tightly packed with grains, guarding its contents closely. That's what a company that uses a silo system is like: a large entity comprised of distinct departments, each of which houses useful information that stays within its neat compartment.

In the past, this wasn't problematic - at least, not the way it is today. Different departments could go about their standard tasks, delivering assignments without needing support from one another. But in the digital age - when marketing and sales strategies must be consistent and compelling across mediums- this simply doesn't work. And companies that use a silo system often end up with disjointed messaging.

The future of commerce in all industries doesn't lie within any one channel. It's omnichannel, meaning companies need a strong, cohesive strategy for cross-platform sales. Successful companies pinpoint the different consumer channels (e.g., in-store, online) and preferred platforms (e.g., mobile, desktop) and create cohesive omnichannel experiences to meet customers wherever and whenever they're shopping.

Before smartphones swept the country and customers abandoned in-store shopping, J.C. Penney stood out as a savvy multichannel commerce retailer. The company distributed its famous catalog, which became one of the largest catalog businesses in America. It was also one of the first retailers to capitalize on the Internet when it began selling online in 1983.

So how did J.C. Penney go from a successful multichannel retailer to one struggling in every channel? It's simple: the silo system.

The (Near) Downfall of J.C. Penney

J.C. Penney has faced a lot of problems in recent years. The economic recession affected all economic sectors, but according to Harvard Business School marketing expert Rajiv Lal, J.C. Penney was hit particularly hard because it struggled with an identity crisis.

When Ron Johnson took over as CEO, he aimed to entirely revamp J.C. Penney's customer experience. After all, there was no clear reason for shoppers to choose the store over other retailers like Macy's, Target, or Walmart.

Johnson wanted to appeal to a high-end demographic instead of the traditional working-class market on which J.C. Penney had built its success. However, moving away from its target only made the bad situation worse, and his attempt to remove the company's standard high-low pricing model ultimately damaged the company's bottom line.

But where the company really went wrong was maintaining its silo system model for marketing and commerce.

Finally, in 2011, J.C. Penney moved to omnichannel but created separate strategies for its brick-and-mortar stores and e-commerce platform. This became a problem when associates couldn't refer customers to the website because it might not list the products they were looking for. Similarly, customers browsing in a store for something they saw online often found that the store didn't carry that item at all.

While it was a poor strategy, it's a great example of how the silo system endangers a company. Had there been more collaboration between its e-commerce and in-store strategies, the company might have offered a more cohesive experience for customers, leading to better financial performance.

On the other end of the spectrum, Sephora is a retailer that gets omnichannel right in spades. The beauty retailer has been interacting with customers' smartphones since 2010 via its mobile site and app. CMO and CDO Julie Bornstein knows that the complete customer experience starts with relationship-building at the stores and moves to digital interactions. For example, customers can create a "Digital Beauty Bag" and save items for a rainy day.

Sephora knocked down the silo model by marrying marketing and tech, and it's paid off with a knockout presentation. The company earned a "genius" designation and was ranked No. 1 on L2's 2013 Digital IQ Index.

A Light at the End of the Tunnel

While Sephora serves as a model for other big retailers making sense of omnichannel commerce, J.C. Penney is still struggling to nail it. However, the future is looking brighter, and it expects to exceed its 2014 sales forecast.

According to Business Insider, when the company integrated its commerce channels in 2013, it saw a 6 percent growth in e-commerce sales and 26 percent growth in the first quarter of 2014 compared to the same period the previous year.

Current CEO Mike Ullman said that the company's main focus is "re-establishing J.C. Penney as the premier shopping destination for the moderate consumer." As it wisely integrates an omnichannel approach into its sales and marketing strategies, J.C. Penney is playing to its strengths and regaining lost ground.

Shifting from the standard silo system to one that's more collaborative - or at least more communicative - is more challenging for large corporations like J.C. Penney than it is for startups.

The nature of startups, after all, often demands an all-hands-on-deck approach, and small teams make communication easier. Large corporations, on the other hand, are often structured so each department is essentially its own world, which is hard to combat.

Company leaders can cultivate an omnichannel culture in a number of ways - whatever the size of their business. Here are four key strategies:

1. Eliminate silos. Company heads should work across all departments. They should be able to see customers, no matter what channel they're in, and use data to improve all areas. Collaboration across the enterprise is crucial.

2. Implement many-to-many marketing. Using one marketing channel to reach millions of potential customers doesn't fly anymore. A company's message should be broadcast using several tools at once, including social media.

3. Integrate tech. Software and development is no longer solely the domain of the IT department. Tech touches every aspect of a company, and leaders should encourage innovation to improve the customer experience wherever possible.

4.Keep the customer first. Companies should always strive to make their shoppers' experiences as painless as possible. At the end of the day, people care about convenience, not the internal set-up of an organization.

Multichannel commerce is in J.C. Penney's DNA, and that may be the corporation's saving grace. Companies that can build omnichannel strategy into their core make-up will be spared a J.C. Penney-esque saga and the need for a comeback story of their own.