Story
The Clerk Who Named the Store After the Standard
James Cash Penney was born in Hamilton, Missouri, on September 16, 1875. He was a store clerk. He worked for a small chain called Golden Rule, and in 1902 his employers, Guy Johnson and Thomas Callahan, offered him a one-third partnership in a new store they wanted to open. He put up $2,000 for his share. The store opened on April 14, 1902, in Kemmerer, Wyoming, a coal-mining town where families counted every dollar. In its first year it cleared $8,000 on sales of more than $28,000.
His method was ordinary and he never dressed it up. Find good people, train them well, sell quality goods at a small markup so the price stays low. When Callahan and Johnson dissolved their partnership in 1907, Penney bought full interest in all three stores. There were 34 by 1912. In 1913 he took the Golden Rule name off the door and put his own on it, eleven years after he had earned the right to. Nearly 200 stores by 1917. More than 1,000 by 1928, with gross business of $190 million. About 1,400 by 1929.
Then 1929. He had borrowed against his holdings and much of the collateral was lost. He borrowed against his life insurance policies so the company could meet payroll. A Florida bank where he served as board chairman failed in 1930, and he was personally liable. He paid several million dollars to cover the losses of the bank's depositors while his own finances were collapsing. He sold one of his homes. His health broke and he checked himself into the Battle Creek Sanitarium. It took years to rebuild. He stayed on the company's board until he died at 95, in 1971, and by then his estate was valued at about $35 million. In 1940, in the middle of the long climb back, he stood in a Des Moines store and showed a young trainee named Sam Walton how to wrap a package using as little paper and ribbon as possible.
The Code
Code 7 — Provide Undeniable Value Every Time
Code 7 of 7 · Business Brainwash
Be so good, so consistently, that the value is undeniable and the price is a formality.
Say what you mean, mean what you say. Apologize fast, kill your ego faster. Be afraid NOT to improve.
- Say what you mean. Mean what you say.
- Apologize fast. Kill the ego faster.
- Be afraid not to improve yourself and your systems.
Lessons
Four shifts that make this Code real.
A small markup is a strategy
He sold quality goods at a thin markup on purpose, in a town where the customers were miners. He told his managers to say the lower price out loud to every person who walked in: "You miss the mark unless you call to the attention of every man or woman that comes into the store that many (of our) lines have been priced lower than they have ever been."
Value that the customer never hears about is not value. It is a secret you are keeping from the person paying you.
He put the standard on the door first
The first stores were Golden Rule stores. His own name did not go up until 1913, after eleven years of results in three states.
The standard comes before the signature. Anyone can name a company after himself on day one, and most of them do.
He paid when he could have walked
The Florida bank failed in 1930, in the worst credit market in American history, and he was personally on the hook. He paid several million dollars to cover depositors while selling his own house and borrowing against his life insurance.
What you do when the bill arrives at the worst possible moment is your actual reputation. Everything before that is marketing.
Wiped out is not finished
He lost most of his personal wealth, his health gave out, and he spent years rebuilding. He was still serving on the board of the company forty years later, at 95.
A collapse ends the balance sheet, not the operator. What survives is whether the thing you built was worth something to somebody other than you.
Data
The arithmetic of one store in a coal town
Penney's numbers were never spectacular in any single year. They were small, honest, and repeated, which is why the chain outlived the man who lost his fortune inside it.
Wyoming State Historical Society; Wikipedia
Penney's total personal losses in the crash were never itemized publicly. These are the figures the historical record actually supports.
Strategy
The play: make the customer win first, then say it out loud.
The Kemmerer store cleared $8,000 on more than $28,000 of sales. That margin was thin because he chose it. He bought quality, marked it up a little, and instructed every manager to tell every customer at the counter that the price had come down. The people in that town could not afford to be sold to. They could only afford to be dealt with straight, and dealing with them straight is what built 1,000 stores in twenty-six years.
That is Code 7, Provide Undeniable Value Every Time. Not good value. Not competitive value. Undeniable, meaning the person on the other side of the counter cannot argue with what they just received for what they just paid. Penney named the store after the rule before he trusted himself with his own name on it, and when the rule cost him several million dollars he did not have, he paid it anyway. That is the whole standard. What it costs to hold is the part nobody advertises.
He wrote it in 1950, twenty years after the collapse, which means it is one of the rare business memoirs written by a man who had already been wiped out once and had to explain it.
Write down what one customer paid you last month and what they actually received. If the second number is not obviously larger than the first, fix that before you spend another dollar on marketing.
References
Sources for this article.
- James Cash Penney: From Clerk to Chain-store Tycoon — Wyoming State Historical Society
- James Cash Penney — Wikipedia
- JCPenney — Wikipedia
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