Monday, March 5, 2012

Musing on Bank of America vs. JC Penny’s Fair and Square

To state that global economic downturn has taken its fair share of toll on corporate America would be an understatement. However, a few industries have been more impacted than finance and retail. Last year saw the bankruptcy of iconic Kodak and liquidation of ubiquitous Border’s book stores. While retail superstores didn’t see the same impact on their businesses, slowing foot traffic and an assault from online retailers has certainly taken its toll. Retailer Sears began closing many of its stores last year and any of us who have shopped in the remaining ones are bound to find the experience less than satisfactory.

Banks and financial institutions continue to struggle though many have begun to turn a corner after the blood-letting during the downturn. Much of this is at the cost of the average Joe/Jane customer. Just last week, J.P. Morgan created a buzz when it said that “70% of customers with less than $100,000 in deposits will become unprofitable for the bank”  (Bloomberg)

This is really ironic since interest rates are virtually at zero. I wonder how many customers who do happen to have 100K liquid funds would like to park it with a bank for little, no interest just to have the privilege of a “free” checking account?! 

In this market, one customer facing business, that seems to be rewriting its playbook in a more visible way is JC Penny. I had read many articles on transformation at JCP after the new boss from Apple took over last year (Tech Giant's RetailChief Tapped to Remake Venerable Chain). On a weekend shopping trip at the local mall, I was stuck by the simplicity of the idea: fair-and-square pricing also means that the ubiquitous red “Sale” banners hanging all over the store are replaced by tasteful signage. Yes, one can still find the $5 shits tucked away in the a rack, without a large sign pointing to it: a much more pleasant and esthetic shopping experience if you will. And the brilliance of the idea is that it caters to the frugal deal seeking shoppers without putting off those seeking a better shopping ambience.  

Though it is extremely premature to eve speculate on how of JPM or JCP’s move will play out or whether it will slow the consumer shift towards online “deals,”  shopping and banking, it is certainly interesting.  One thing is for sure, banks and retailers that continue to focus on mining for high-net-worth customers at the cost of building a critical mass of loyal customers are going to loose out when the economic tide turns.

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