Ron Johnson: JCPenney’s Ousted Genius

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Ron Johnson: JCPenney’s Ousted Genius

When Apple retail chief Ron Johnson announced he was leaving to become CEO at JCPenney, everyone had high expectations that he would work that old Apple magic on the Midwestern stalwart. As the mastermind behind the store layout and the Genius Bar, according to Harvard Business Review, he was part of the executive dream team, headed by Steve Jobs, and flanked by designer wunderkind Jonathan Ive and iOS chief Scott Forstall.

JCPenney, having trouble finding its footing amid the growth of e-commerce, offering him a role as an advisor, but he countered, adding he’d prefer to be CEO. JCPenney’s board thought, “Who better to lead us back than the man responsible for those sleek stores?” So he joined the company and a few months later unveiled his blueprint for a turnaround.

Over last year, he’s slowly “Johnsonized” the brand — stores look cleaner and brighter, and racks of outdated designs were gradually replaced by a cheerful, modern mix of merchandise. New logos hit the airwaves, advertising featured sunlit imagery and crisp copy re-enforced an optimistic and cheap-chic lifestyle. The move was signature Johnson, with hallmark elements of his past at Apple and Target.

But there was a big problem: no one came to the stores. Underneath the makeover, business was a mess. By disregarding long-time retail strategies, he alienated core customers and failed to replace them with a new base. The company went into freefall, becoming one of the most dramatic failures in retail history.

Earlier this month, the board ousted him, leaving analysts to now question whether the company can actually survive. His disastrous moves caused the epic fall, and no doubt, business schools will dissect his tenure as a textbook example of what not to do in a turnaround. But more dramatic, and disappointing, is the blemish on the record of a former member of an Apple dream team.

Making His Mark

Compared to his Apple compatriots, Johnson is a reticent, private man. Unlike Jobs, who has whole biographies devoted to him, or even Apple’s design head Ive, Johnson rarely gave interviews. But here’s what we do know: he was born in 1958 in Minnesota, attended Stanford and later Harvard Business School. His public resume is small, but significant: he put in time at Mervyn’s, a California-based department chain, but made his mark at Target, the Minneapolis-based discount retailer. Target is known as a cheap-chic discount department store — a snazzier, more fashionable competitor to Wal-Mart — but when he started out, it was just another K-Mart.

Under Johnson, as vice president of merchandising, the chain began to distinguish itself. There was the quirky spotted dog mascot, the cleaner, cheerful look of the ads, the wider aisles of the stores. Even the lighting was warmer, making for a more pleasant experience.

Retailing and merchandising is essentially crafting store experiences to create a distinctive, unified brand identity, and he made shopping fun. More importantly, he brought renowned interior designer Michael Graves to create an in-house line of housewares, including an iconic teapot that found its way to MoMA’s permanent collection.

Judging from Target’s upscale transformation, he understood the potent ability of stores to create a brand and customer loyalty — and how to translate these into sales. He brought genuine sensibility to an industry where identity is often the result of marketing firms and focus groups. His style was optimistic and modern, a friendly and accessible take on often severe minimalism, made understandable and appealing to mainstream America.

Johnson in Appleland

His sensibility would reach its apotheosis at Apple, where he harnessed his mainstream take on minimalism to superb product lines and a highly-disciplined company culture. When he joined Apple in 2000, the company was known primarily for its computers. But through his 11-year stay, Apple experienced one of its most explosive periods of growth.

Under his guidance, in 2001, he spearheaded the launch of its first standalone stores in Virginia and California. In October of the same year, Apple announced the iPod — a game-changer of a device that pioneered its own market, according to the Wall Street Journal, giving rise to the iTunes retail store and serving as a warm-up to the blockbuster iPhone.

That trajectory of product releases propelled Apple into one of the biggest companies in the world — and his stores would prove a valuable conduit in helping cement its growing status as an industry giant and tech titan. He pioneered the idea of Genius Bars and transformed boring, dull electronics showrooms into sleek playrooms where you could hang out for hours, check your e-mail and play with gadgets.

Beyond the stores’ look and feel, he also helped shaped less tangible aspects of the Apple retail experience: employees were known for their near-evangelical loyalty to the product and brand, as well as for generally excellent customer service. From the inside and out, Apple stores were an important part of the company’s success. The company could have, of course, simply sold its products at other retailers and online, but those stores communicated Apple’s vision to an increasingly adoring public. A decade ago, walking into an Apple store was a visceral experience, at the edge of the present and the future — and customers bought an iPod or an iPhone as a souvenir.

“People come to the Apple Store for the experience,” he told Wired. “They’re willing to pay a premium for that.”

What did all that translate into? Profits. His success was astonishing: In 2011, Apple stores generated, on average, $473,000 in revenue per employee, according to the New York Times.

“The Apple Store succeeded not because we tweaked the traditional model. We reimagined everything,” he told Harvard Business Review in an interview. “We completely rethought the concept of ‘try before you buy’: You can test-drive any product, loaded with the applications and types of content you’re actually going to use, and get someone to show you how to use it.”

In terms of sales per unit area, in 2011, the stores sold $3,085 worth of goods per square foot, according to the New York Times, nearly double the next-highest retailer on the list, Tiffany & Co.

“If you buy it, we’ll set it up for you before you leave the store. If you need help after that, you can come back for personal training. If there’s a problem, you can usually get it fixed faster than a dry cleaner can launder your shirt,” he added.

Apple, of course, rewarded him handsomely — reportedly over $400 million, according to Business Insider, during his time at the company — for his retail magic.

“It seems that anything Ron Johnson touches just turns to gold. He’s a mastermind,” Graves told USA Today. “He understands retail in a way that I’ve never met in anyone.”

Stodgy and Staid

If there was any one company that was almost the polar opposite of Apple in 2011, it was JCPenney. The department store is an especially storied company, with roots in the American West — it began as the Golden Rule store in Wyoming in 1902, became JCPenney in 1913 and by 1917, began expanding across the U.S. Throughout the decades since, the company adapted to changes in retail and consumer behavior: it opened up in shopping malls, created a catalog and then an online business, added and sold off divisions, weathered depressions and recessions. It adapted to the times and remained on the retail landscape by carving out a niche for itself catering to older, bargain hunters.

By 2011, though, that base was proving to be a problem. They waited for deep discounts and bargains to buy, making for low profits. Dated-looking stores didn’t help either, nor did the racks of equally dowdy merchandise. With three straight years of declining sales, the company was falling behind.

The company knew it needed to change quickly. It needed a new pricing strategy and a way to reach a younger, fresher demographic of 18- to 35-year-olds. In an earnings call in 2011, the company said it would be entering “a transition year and it’ll be a painful process.” But it had an ace up its sleeve — it had managed to lure him from Apple. But that game-changing year the company had hoped for never materialized.

Johnson, for his part, was up for the challenge, despite naysayers who questioned whether he could duplicate his success with a stodgier company bogged down by decades of bad decisions. Many questioned if he could it without a superb and unique product line Apple built its success on. He said he would lean on his strengths — his ability to create memorable retail experiences.

“If Apple products were the key to the stores’ success, how do you explain the fact that people flock to the stores to buy Apple products at full price.” he told Harvard Business Review. “Wal-Mart, Best-Buy and Target carry most of them, often discounted in various ways, and Amazon carries them all — and doesn’t charge sales tax.”

It was clear: he would try to bring the old Apple magic to JCPenney and reinvent the middlebrow stalwart for a new age. “People come to the Apple Store for the experience,” he said. “They’re willing to pay a premium for that.” Or will they?

Taking a Page from the Jobs Playbook

In 2012, two months after taking helm, he made a splashy presentation of his new vision, taking a page from Jobs’ playbook. On the surface, he applied the same template for Apple and Target: clean and modern graphics, mini-shops that spotlighted merchandise and an updated brand, complete with a logo redesign and ad campaign. To fund the makeover, he made tough cuts to whittle down costs: massive layoffs and store closures.

He also changed hallmarks of the brand, cutting the coupon and discount strategy that had been its cornerstone. His reasoning? Customers were tired of deceptively marked-up prices. According to the New York Times, instead of adding huge markups on items only to make deep discounts, he offered “fair and square” pricing without artificial sales or promotions. Apple used a similar strategy — but that would be a decision that would come back to haunt him.

Johnson knew he had to act boldly, and he did. He eschewed testing his strategies, choosing to rollout changes quickly. In a sense, he had to — JCP was hemorrhaging, falling behind competitors. Other changes came fast and furious: he collaborated with designers like red carpet favorite Marchesa, trendy fast-fashion retailer Joe Fresh and Italian luxury lingerie giant Cosabella, among others. He beefed up the home department, bringing in interior design giants like Michael Graves, Nate Berkus and even Martha Stewart — a decision that would lead to a costly legal wrangle with rival Macy’s over the exclusive line. In short, he added hip, more modern merchandise to sales floors, even installing Wi-Fi for shoppers.

“All it takes is courage,” he told a packed audience, according to Business Insider. “We can change a brand overnight.”

His fatal flaw was his pricing strategy, which confused customers long accustomed to coupons, deals and aggressive promotions. His emphasis on fixed prices worked at Apple, whose products are rarely, if ever, discounted, but he failed to understand that JCP’s established shoppers like the challenge and fun of finding a bargain. A weakened sales force also irritated customers, who often wandered the floor looking in vain to be rung up. As the updated product mix trickled in, it failed to boost sales fast enough. The result: no one came to JCP to shop anymore. Sales dropped at a rapid clip — over a 25 percent in one quarter alone.

Still, he brushed off criticism, saying the rockiness was a consequence of a gutsy renovation. “You know, I watched this movie before. When I joined Apple in 2000, Apple was a company dwindling. Everyone said to me, ‘What are you doing there?'” he told investors, according to the New York Times. “Apple wept through 2002 and I think sales were down 38 percent as we dreamed about becoming a digital device company. But Apple invested during that downturn. That’s when Apple built, started to build its chain of stores. That’s when Apple transitioned to Intel. That’s when Apple started its app division. That’s when Apple imagined and built the first iPod.”

But this was not Apple. Through 2012, the stock price dropped nearly 50 percent, and the discussions of his tenure changed from optimism to criticism — tabloid-like stories chronicled his use of a corporate jet to commute to headquarters in Plano, Texas to his home in California. Reports surfaced about the company culture, as well. Perhaps replicating the style at Apple, he kept many ideas and policies under wraps, and executives, even at the higher levels, were often left in the dark.

Apple’s former golden boy of retail found his reputation quickly tarnishing.

By November, the Johnsonized stores showed improvement, making $269 in sales per square foot, versus $134 in the older stores, according to the New York Times. But there was a problem. He still needed three years and $1 billion to convert the remaining stores. In addition, in 2012, the company’s end-of-year holiday sales were three times lower than the previous year’s — a death knell in an industry where the Christmas season made up the bulk of revenues. With sales declining fast, the company was simply running out of money.

In the end, he misread customers and sales never recovered. He had a great vision, but he also created his own biggest obstacle by driving away the core customers. In April, the company announced what many saw as inevitable: amid plunging sales, he was fired. He had lasted just 17 months.

What Went Wrong?

Few doubted his vision. At its core, it was necessary — JCP stores were outdated. They needed to regain relevance if the company wanted to survive. He needed more time, time he didn’t have, to see his plan to fruition. He didn’t entirely fail: sales improved at the remodeled stores. But he made mistakes on execution, learning perhaps that you just can’t simply transpose an Apple experience to another store and expect the same results.

He misread his core customer — older women in their 40s, 50s and 60s — even likening their love of coupons as drugs they needed to be weaned off. Bargain-loving middle-aged women are the polar opposite of the typical Apple customer, and he failed to understand the essential differences. When you run an ad campaign that says, you “deserved to look better,” that implies you don’t look so great now.

While he was right in trying to broaden its audience, he drove away existing ones through a perceived arrogance and disdain — traits often leveled against Apple. He realized that mistake and re-instituted sales and couponing by early 2013, but by then, it was too late. The old-school customer found other places to spend their money, at rivals like Macy’s and Kohl’s that never pooh-poohed their value.

On a deeper level, he transformed the look and feel of the stores, but failed to transform the company culture needed to support his vision. He tried to replicate Apple’s culture and practices, replacing executives with Apple veterans, for example, but those alums reportedly sequestered themselves away, working in an Apple-like bubble and failing to communicate with the rest of the company.

Morale also dropped with each layoff, and not even sales floor staff — the front lines to the customer — could keep up with the changes in philosophies and policies. He failed at the points he particularly excelled in at Apple: customer service and a total, coherent brand experience.

As a leader, he was often said to be personable and responsive to a point. He operated on gut and intuition, trusting his own taste. But he failed to listen to feedback when it came to what customers liked and wanted. When advised to meet with other retail visionaries, like J. Crew’s legendary Mickey Drexel or Topshop’s Philip Greene, Johnson chose to ignore the advice. His own preference to simply roll out changes without testing them — perhaps a necessity, given the timetable he had to work with — backfired.

“Ron’s response at the time was, just like at Apple, customers don’t always know what they want,” a JCP executive told the New York Times. “We’re not going to test it — we’re going to roll it out.”

In many ways, he brought with him not only the look and feel of the lauded Apple retail experience, but also the weaknesses and criticisms leveled against it over the years — and the result showed that Apple’s magic is, perhaps, unique and remarkable to Apple itself.

Johnson often told his employees that there were two kinds of people: believers and skeptics — and he wanted only believers. It sounded very Jobs-like, of course, and perhaps he was channeling his former boss — and why wouldn’t he? Jobs is one of the most successful CEOs of all time.

The problem, though, was that there was nothing to believe in yet — after all, JCP isn’t like Apple, a company that makes a tightly curated line of products with a fan base willing to wait in line for hours.

At Apple, he had products like the iPod, iPhone and iPad to lean on. He also had a genius group of Apple collaborators, starting up top with Jobs himself. He also had historical momentum on his side: his tenure at Apple from 2000 to 2011 spanned a general period of prosperity to the beginnings of the Great Recession.

While there’s no doubt he is a talented retailer, as CEO, he had his own learning curve to navigate: transforming a company from the inside out is harder than simply changing the merchandise mix and the appearance of the sales floor.

The position of Apple’s retail chief is still empty after John Browett — Johnson’s own successor at Apple — was shown the door in October. The Apple faithful would love for him to rejoin the fold, but he’s yet to comment, or give an indication of his next move. For a man of few public statements, his next act will decide how much Apple and his own legacy continues to intertwine.

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