JCPenney Dumps Associate Sales Commissions

As JCPenney continues to recover from its self-inflicted nice-price-all-the-time effort, the chain's latest cost-cutting move came this week when it quietly killed associate commissions and cut back many of their hours. Cost-cutting is fine, but killing commissions right now—as it desperately tries to fight off E-tail incursions in its stores—seems stunningly ill-advised.

As retailers complain about showrooming—and its posterchild, Amazon—the only meaningful way to fight back is to make the store experience so pleasant, efficient and fun that consumers would much prefer to shop than click away on a phone, tablet or laptop. The key is enthusiastic, well-informed and truly helpful associates. As JCPenney cuts their hours and their salaries—and, as of next year, some benefits—how joyful are its associates likely to be? And with no commission incentive, how motivated are they likely to be? This seems like an idea that an Amazon plant within JCPenney's executive team must have concocted.

Historically, there have been those who argued that a generous salary can motivate associates just as much, with the added benefit of the associate not pressuring a customer to upsell if it wouldn't help that customer. Note: You don't think salaried retail sales reps will get pressured to upsell unnecessarily? You don't think bonuses—and perhaps continued employment—won't be leveraged?

Even if you buy into those legitimate arguments, they apply to generous salaries. It doesn't speak to the removal of commissions at the same time as hours and salaries are being cut back, along with future reduced benefits.

JCPenney is arguing that this move will indeed make associates perform better. The chain doesn't say why it expects that to happen. "Our new business model requires that we move away from a commission-based environment, so that every team member is motivated by meeting the needs of our customers," said JCPenney spokesperson Kate Coultas.

"Therefore, our commission pay plans will move from a commission-based structure to a competitive hourly rate structure," she said. "By bringing their compensation levels back to what they earned last year with commissions, team members can have a better sense of their incomes. This new, collaborative approach to taking care of our customers will not only enable our teams to be even more effective in winning the hearts and minds of our customers but, over time, will provide greater opportunities for personal growth and development."

But by cutting back many full-timers to part-time and by reducing hours overall, it's certainly likely that many associate incomes will fall and some will fall sharply. Coultas wouldn't offer figures on how many associates will have their hours slashed. "In regards to how many associates will go from full-time to part-time, we don't have a number or percentage. Our staffing levels vary store to store," she said.

But if you want to combat showrooming, this is not the way to do it.

If you were willing to pay your associates more—as an investment in improving the store atmosphere—then a transition to a salary-only model could work.

Here's why this is such a showrooming issue. The very nature of almost all E-Commerce sites is self-service. The sites are WYSIWYG. If you search for an XYZ27, that's exactly what it will show you. If you want help deciding—or an expert associate to say that the product you want won't do what you need it to do—few sites will help.But those sites will be fast, efficient, convenient and lower cost. The only advantage a physical store has is the associates. To the extent that they are enthusiastic, knowledgeable and truly helpful, to the extent that they go above-and-beyond, E-tailers don't have a chance. But if those associates are lackluster and doing the bare minimum, the store will lose.

To make that transition from commission to non-commission, you need an extensive training program for associates as well as multiple levels of managers. That takes time and money. And during the transition, you'll likely have the worst of both worlds. Is JCPenney, stinging from weak financials, really going to make the level of training investment necessary? And if it doesn't, what will the result likely be?

One of the best retailers at fighting off online incursions is Apple. Apple cheats, though, because it controls 98 percent of the products it sells, dictates prices universally and controls who can sell its products. Apple, therefore, can't really be undersold by Amazon. Its used products can certainly be priced low on eBay, but a used iPad is so last year.

For those reasons, mimicking many of the Apple Store techniques won't work at places like Target, Walgreens and, certainly, JCPenney. Ron Johnson, the Apple Senior VP who has served as JCPenney's CEO since November, should know that better than most.

Stealing the Liberace-like décor of Apple is one thing. But assuming that Apple's sales are the result of not paying commissions to its store associates, that's very different. Not only does Apple pay its associates quite well, but its process certainly doesn't make upselling—regardless of what the customer needs—any less common.

In a wonderful Popular Mechanics piece published last year, an Apple Store associate described the sales process there.

"We aren't paid on commission, but you fear for your job if you're not selling enough. We have a posted list of our metrics, and you can see everybody else's. It shows you how much money each person is pulling in for the company. If you aren't doing very well, you start getting manager meetings, and they sit you down and try to figure out why you aren't selling more," the Apple associate said.

And here's the key phrase, the—please forgive me—money line. "When I'm there, I get sucked into the competitive culture. Normally I'm pretty low-key, but when I'm at the store, it's all sell, sell, sell!" said the Apple associate. "I wanna work my way up, get promoted and eventually get to the Genius Bar—which is where you want to be. Who doesn't want to be a genius?"

Be honest. Does that sound like what you expect a non-commission, paycheck-reduced JCPenney associate will sound like?