J.C. Penney Marks Two Years Since Johnson Nearly Ruined ItMatt Townsend
It’s been exactly two years since Ron Johnson’s tenure at J.C. Penney Co. came to a screeching halt, and the company is still recovering.
On April 8, 2013, with its sales in free fall and the company burning cash, the board ousted Johnson as chief executive officer. The department-store chain replaced him with his predecessor Mike Ullman, who returned to the CEO job after just 18 months, and set about undoing almost all of Johnson’s changes. The company didn’t restore sales growth again until last year, and its stock remains down more than 71 percent from when Johnson took the helm in 2011.
It wasn’t supposed to be this way. Johnson came to J.C. Penney in 2011 from Apple Inc., where he built one of the most lucrative and prestigious retail chains of all time. But his attempt to turn J.C. Penney into a chic, boutique-style retailer didn’t resonate with shoppers. And many of Johnson’s proclamations from that era sound even more outrageous after two years of perspective. The executive didn’t immediately respond to attempts to reach him, while J.C. Penney declined to comment.
Here’s a look back at some of Johnson’s misadventures at J.C. Penney:
The conventional wisdom was that retailers catering to the middle class like J.C. Penney needed to use coupons and promotional events to get people in the door (“President’s Day Sale!”). Johnson looked at this and saw a huge waste of money and resources on a never-ending schedule of discounting. His solution was switching to everyday low prices (selling a T-shirt for $7, rather than starting at $15 and marking it down). So the coupons stopped, and the company poured money into advertising to build its brand.
“If we can succeed in that, we would triple our business,” Johnson said at the time.
The effect was dramatic, but not in the way he expected. Without as many discounts, sales fell 20 percent that next quarter. In 2012, Johnson’s one and only full year at the Plano, Texas-based company, about $4 billion of revenue vanished.
In Johnson’s eyes, people wanted to shop by brand, not department. His proof? Specialty chains had been taking market share from stodgy department stores for years. He also noted that the Sephora-branded makeup counters were often the best-performing part of J.C. Penney stores. So he began describing J.C. Penney as a “specialty department store.”
“We have to radically rethink presentation because the retail industry is very tired on how we present merchandise,” Johnson said.
His big idea here was to chop the chain’s stores into 100 shops (yes, 100). He envisioned adding a few of these every month, with the massive overhaul being completed in three years.
“This is like turning retail on its head,” Johnson said.
The construction ran over budget and was delayed. And in stores where the strategy was adopted, the result wasn’t as radical as promised. The individual “shops” were often just areas of the store with more pronounced branding for companies like Levi Strauss. About a dozen of them were added to stores before Johnson’s departure.
Most department stores embrace open space, but Johnson felt that J.C. Penney needed more walls.
“Retailers like us don’t like walls because they consume so much inventory and they’re hard to maintain,” Johnson said. “But we’re looking at walls as our friends because they’re the backdrop to shops. By putting in walls, we can tell stories and we don’t have to be so dense on the floor.”
Shoppers never got to see the potential for walls, and the layout of most J.C. Penney stores today don’t look much different than they did a decade ago.
MARTHA, MARTHA, MARTHA
Johnson inked a deal with design guru Martha Stewart to make exclusive household products for J.C. Penney. “Imagine the Apple Store for technology married with Martha Stewart, and it’s going to be unbelievable,” he said.
Unfortunately, Stewart was still under a similar contract with rival Macy’s Inc. The situation blew up into a full-scale legal battle. After Macy’s sued and the case went to trial, the standoff was widely covered by the media, including tabloids. J.C. Penney eventually severed ties with Stewart and had to liquidate millions in Stewart-branded merchandise.
Johnson envisioned coffee bars and food stands dotted throughout J.C. Penney stores. He also wanted a “street” -- a wide aisle of flooring -- that was to lead shoppers to a “town square,” home to such activities as yoga and pilates. None of that ever happened.
After Johnson was shown the door, the company apologized to customers in a television commercial in May 2013.
“We learned a very simple thing -- to listen to you,” the company said in the ad. “Come back to J.C. Penney. We heard you.”
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.