Ron Johnson's 5 Key Mistakes At JC Penney, In His Own Words
Fast Company spoke to former JC Penney CEO Ron Johnson three months into his new job. What he said then helps explain why things didn't work out.
On Monday, after less than a year and a half on the job, a $4
billion revenue loss, a plummeting stock price, and a soap opera court
case, Ron Johnson, the whiz behind Apple's $50 million-per-store retail business, was finally ousted by JC Penney.
In November 2011 the business world began to digest news of one of the most unexpected, if not intriguing of talent transplants. Not only did the Plano, Texas-based retailer appear to be everything Apple was not--dowdy, dusty, irrelevant, and a dying business model--as the company’s new CEO, this would also be Johnson’s first attempt at running an entire company. There would be no bigger stage for Johnson to succeed or fail than this.
We all know how that plotline ended. But back in January 2012, only three months into the honeymoon phase of his new gig, I flew down to Plano to talk to Johnson about what led him to make the move, and what his plans were for turning around the atrophying department store. It was there sitting in a room surrounded by images of his dramatic vision to transform consumer behavior--new pricing structures, no more discounts, lifestyle marketing material over coupons--I learned that it was no accident Johnson had found himself in his newly minted chief executive perch.
It turns out that in the early '80s, after Harvard Business School and brief stints at an accounting firm and investment banking, Johnson was faced with a fork in the road: work for Goldman Sachs’ M&A group or in the stock room at Mervyn’s. “I picked Mervyn’s. But I picked it because ultimately I felt retail is generally a young person’s business compared to most industries. At that time people like Mickey Drexler [now CEO and Chairman of J Crew] were taking over the Gap, and he was in his early 30s. So versus any other career, if you were good, you’d have a chance to move to a leadership position faster than probably other industries,” Johnson told me. (It also happens that Drexler, who later became an Apple board member, was the one who many years later whispered in Steve Jobs’ ear to hire Johnson--then a merchandising head at Target--to build Apple’s retail business.)
Johnson’s hunger to become a CEO came to a head in 2011, after 12 years at Apple and a global 300-plus store retail business that had become a well-oiled machine. (And, yes, let’s not ignore that a chapter at Apple was about to end with Steve Jobs on his deathbed). Johnson told me of his mindset at the time, then Apple’s Senior Vice President of Retail, “Quite honestly leading the Apple retail stores had become a hobby. It was fun, but I felt like I wasn’t being stretched. It was just too easy.” Plus, he wasn’t getting any younger. “I had just turned 50 and I realized if I really wanted to lead a company, that’s something you need to commit to doing for a long time. I felt like I was now at an age and skill level that if I wanted to do that, perhaps I could do a good job.”
At the time Johnson--then seen as a sort of Steve Jobs of retail--could have arguably gotten any retail job in corporate America. According to him, JC Penney had been knocking at his door for some four years, and ultimately he decided it would be his ideal next move. “I’ve always believed that the department store was the single biggest opportunity in retail, and as every year went by that I worked in Apple, the opportunity was getting bigger and bigger and bigger,” Johnson told me. “So when I thought about what I could do I wanted to do something that had scale. I don’t just want to run a business, I want to do what I did at Apple--I want the chance to transform something. So I picked JC Penney. I didn’t come here to improve Penney, I’m here to transform Penney. I think the industry is ready for it, customers are ready for it, and we’re going to do it.”
Which obviously over a tumultuous 17 months, isn’t how it played out.
Here's a deeper look at Johnson’s miscalculations--in his own words.
“We can move as fast as we’re willing to and we’re going to win shop by shop, month by month. So every month there will be something new at Penny’s and there will be new shops coming in every month. And eventually we’ll have 100 shops and we’ll just keep moving.”
“So we want to use our imagination, so that’s what we do, and that’s what we’ve always done. I don’t look around and go, 'That’s a good idea.' I just kind of imagine what I’d like. That’s what [JCP’s] Town Square will be, it’s the kind of things I’d like and the teams would like.”
“When Steve said ‘Let’s do stores,’ it worked when nobody believed it would work. If you really go back not a single analyst thought it was a good idea, but it was.
“I thought Penny’s would be the best department store to go to because it’s the best positioned because it’s got a heritage that’s grounded in what a department store needs, which is integrity. People want to have relationships with brands that are real, and that’s what Apple is. You trust Apple to do the right thing. To make a product that’s easy to use, to have a store that will really serve you. That’s what you want in a relationship with a brand, you want trust. Penney was founded on the Golden Rule, which is treat people fair and square, treat people as you’d like to be treated yourself. That is the DNA of this brand.
“Our vision is to become 'America’s Favorite Store' because it’s a store for all Americans. Because we don’t have to only sell to moderate income people or rich people, we can sell to everybody. And we’re big enough, we’re located where they live, so why limit our reach? That seems kind of silly. I mean I learned this at Apple. When I started with Steve at Apple as I asked him, 'Steve, who’s your customer?' He said, ‘A creative professional.’ I said, I don’t want to do that. I said: ‘Why would you want to limit the brand to creative professionals? Everybody needs a better computer.’ He agreed with that and that’s why we put stores in malls and why we put in little kids’ tables. So we made the Apple stores for young people, for seniors with personal training, for business people, and for men and women. The ultimate niche brand back then was Apple. You look today and Apple’s the store for everyone. So when I come to JC Penney and it should be the same thing--we should be the store for everybody--why limit your reach? We’re going to be the store for all Americans. We have to reach out to appeal to everybody, and that’s what we’ll do. Because why limit your reach? Doesn’t seem kind of silly? To me it does.”
“A company needs a CEO, someone to talk to Wall Street and stuff like that. Internally I think of myself more of a captain. I’m one of the teammates, and if we need to toss a coin I might make that choice, heads or tails, but ultimately I just want to lead the team. So as a captain I get to play. I want to be involved when they do work, I don’t want to review work when its done. I’m just kind of on the team, I hope it feels that way.
“I don’t think I’ve ever said that before, but the other day I was thinking about what my role is. I just believe everyone has skills and someone’s got to be the leader, which I get to do, but leadership, I always tell people, is a situational thing. So when we’re creating a book [catalog] I get to have an opinion and throw out ideas, but ultimately whoever is doing this product, that’s their deal. We all have roles to play, but leadership is very situational.”
“[This is your first time being CEO. How does it feel?] It doesn’t feel that different. I’ve always just kind of worked with people. I like hanging out with people and creating things, it doesn’t feel any different. [Does the level of responsibility feel any different?] No, because you can only do as much as you can. I think we’re all limited as to what we can do on our own. If you feel differently it’s kind of an arrogant thing.”
“The number one competitor is ourselves. It’s our ability to change. The number two competitor is everyone else. It’s not Macy’s, it’s not Kohl’s, because if you look at it, every one of our customers shops Amazon, Target, Macy’s, Kohl’s, specialty stores, The Gap--they all shop around! Everyone shops everywhere. So if you look at your competitor as a competitor, you’ll make a mistake. Your competitor is yourself and they way you unlock potential is to unlock a new way to compete. And ideally in a way that’s never been done before, so it’s seen as new.”
In November 2011 the business world began to digest news of one of the most unexpected, if not intriguing of talent transplants. Not only did the Plano, Texas-based retailer appear to be everything Apple was not--dowdy, dusty, irrelevant, and a dying business model--as the company’s new CEO, this would also be Johnson’s first attempt at running an entire company. There would be no bigger stage for Johnson to succeed or fail than this.
We all know how that plotline ended. But back in January 2012, only three months into the honeymoon phase of his new gig, I flew down to Plano to talk to Johnson about what led him to make the move, and what his plans were for turning around the atrophying department store. It was there sitting in a room surrounded by images of his dramatic vision to transform consumer behavior--new pricing structures, no more discounts, lifestyle marketing material over coupons--I learned that it was no accident Johnson had found himself in his newly minted chief executive perch.
It turns out that in the early '80s, after Harvard Business School and brief stints at an accounting firm and investment banking, Johnson was faced with a fork in the road: work for Goldman Sachs’ M&A group or in the stock room at Mervyn’s. “I picked Mervyn’s. But I picked it because ultimately I felt retail is generally a young person’s business compared to most industries. At that time people like Mickey Drexler [now CEO and Chairman of J Crew] were taking over the Gap, and he was in his early 30s. So versus any other career, if you were good, you’d have a chance to move to a leadership position faster than probably other industries,” Johnson told me. (It also happens that Drexler, who later became an Apple board member, was the one who many years later whispered in Steve Jobs’ ear to hire Johnson--then a merchandising head at Target--to build Apple’s retail business.)
Johnson’s hunger to become a CEO came to a head in 2011, after 12 years at Apple and a global 300-plus store retail business that had become a well-oiled machine. (And, yes, let’s not ignore that a chapter at Apple was about to end with Steve Jobs on his deathbed). Johnson told me of his mindset at the time, then Apple’s Senior Vice President of Retail, “Quite honestly leading the Apple retail stores had become a hobby. It was fun, but I felt like I wasn’t being stretched. It was just too easy.” Plus, he wasn’t getting any younger. “I had just turned 50 and I realized if I really wanted to lead a company, that’s something you need to commit to doing for a long time. I felt like I was now at an age and skill level that if I wanted to do that, perhaps I could do a good job.”
At the time Johnson--then seen as a sort of Steve Jobs of retail--could have arguably gotten any retail job in corporate America. According to him, JC Penney had been knocking at his door for some four years, and ultimately he decided it would be his ideal next move. “I’ve always believed that the department store was the single biggest opportunity in retail, and as every year went by that I worked in Apple, the opportunity was getting bigger and bigger and bigger,” Johnson told me. “So when I thought about what I could do I wanted to do something that had scale. I don’t just want to run a business, I want to do what I did at Apple--I want the chance to transform something. So I picked JC Penney. I didn’t come here to improve Penney, I’m here to transform Penney. I think the industry is ready for it, customers are ready for it, and we’re going to do it.”
Which obviously over a tumultuous 17 months, isn’t how it played out.
Here's a deeper look at Johnson’s miscalculations--in his own words.
1. JC Penney Is Not A Startup, And Therefore Can't Behave Like One
“My favorite three words in the English language are 'In the beginning' and that’s how I view this. This is like we’re a big $18 billion startup. And we’re going to act like a startup in how we make decisions.“We can move as fast as we’re willing to and we’re going to win shop by shop, month by month. So every month there will be something new at Penny’s and there will be new shops coming in every month. And eventually we’ll have 100 shops and we’ll just keep moving.”
2. Not All Business Decisions Can Rely Solely On Gut
“All my ideas just sort of come. I don’t know to explain it. It’s all intuitive I think. [Did you spend time visiting all types of retailers?] No. I have been immersed in the retail industry for nearly 30 years, loving it, living it every day. Whether I’m doing Apple or Target, you’re immersed in the industry--you're reading, you're thinking, you’re doing. Through that you’re forming your intuition. It’s not like you go out and go study something and go, What am I going to do? You just kind of have an instinct for this stuff.“So we want to use our imagination, so that’s what we do, and that’s what we’ve always done. I don’t look around and go, 'That’s a good idea.' I just kind of imagine what I’d like. That’s what [JCP’s] Town Square will be, it’s the kind of things I’d like and the teams would like.”
3. JC Penney Isn't Apple
“Why am I here? It’s because I love the challenge of taking a great brand with a great opportunity and making it come alive. It’s what I did at Apple, working with the team there and I view JC Penney and Apple surprisingly similar. They’re like identical. Go back to 2000. When I joined Apple, what was Apple? It made personal computers only, it had 3% market share and most people believed its best days were in the rearview mirror. So why would you go to a money losing computer maker? And at that time I worked at Target and Target was just becoming Tar-Shay. Target was on fire in the 1990s and I was part of that, so why are you leaving Tar-Shay to go work at Apple? All my friends from Stanford in the bay Area going, 'Are you kidding?! You’re going Apple?!' But I knew Apple in its DNA had a great brand. But no one could connect with it because there was no physical way you could buy their products.“When Steve said ‘Let’s do stores,’ it worked when nobody believed it would work. If you really go back not a single analyst thought it was a good idea, but it was.
“I thought Penny’s would be the best department store to go to because it’s the best positioned because it’s got a heritage that’s grounded in what a department store needs, which is integrity. People want to have relationships with brands that are real, and that’s what Apple is. You trust Apple to do the right thing. To make a product that’s easy to use, to have a store that will really serve you. That’s what you want in a relationship with a brand, you want trust. Penney was founded on the Golden Rule, which is treat people fair and square, treat people as you’d like to be treated yourself. That is the DNA of this brand.
“Our vision is to become 'America’s Favorite Store' because it’s a store for all Americans. Because we don’t have to only sell to moderate income people or rich people, we can sell to everybody. And we’re big enough, we’re located where they live, so why limit our reach? That seems kind of silly. I mean I learned this at Apple. When I started with Steve at Apple as I asked him, 'Steve, who’s your customer?' He said, ‘A creative professional.’ I said, I don’t want to do that. I said: ‘Why would you want to limit the brand to creative professionals? Everybody needs a better computer.’ He agreed with that and that’s why we put stores in malls and why we put in little kids’ tables. So we made the Apple stores for young people, for seniors with personal training, for business people, and for men and women. The ultimate niche brand back then was Apple. You look today and Apple’s the store for everyone. So when I come to JC Penney and it should be the same thing--we should be the store for everybody--why limit your reach? We’re going to be the store for all Americans. We have to reach out to appeal to everybody, and that’s what we’ll do. Because why limit your reach? Doesn’t seem kind of silly? To me it does.”
4. Managing A Team Within A Company Requires Different Leadership Skills Than Being The CEO Of A Company
“I’ve been leading groups for a long time. I’ve been in retail for a long time. So this is sort of second nature. This is recreational. Working at JC Penney is recreational. It’s a hobby. It’s kind of like people who love golf love to play golf. I love to do retail.“A company needs a CEO, someone to talk to Wall Street and stuff like that. Internally I think of myself more of a captain. I’m one of the teammates, and if we need to toss a coin I might make that choice, heads or tails, but ultimately I just want to lead the team. So as a captain I get to play. I want to be involved when they do work, I don’t want to review work when its done. I’m just kind of on the team, I hope it feels that way.
“I don’t think I’ve ever said that before, but the other day I was thinking about what my role is. I just believe everyone has skills and someone’s got to be the leader, which I get to do, but leadership, I always tell people, is a situational thing. So when we’re creating a book [catalog] I get to have an opinion and throw out ideas, but ultimately whoever is doing this product, that’s their deal. We all have roles to play, but leadership is very situational.”
“[This is your first time being CEO. How does it feel?] It doesn’t feel that different. I’ve always just kind of worked with people. I like hanging out with people and creating things, it doesn’t feel any different. [Does the level of responsibility feel any different?] No, because you can only do as much as you can. I think we’re all limited as to what we can do on our own. If you feel differently it’s kind of an arrogant thing.”
5. Behemoth Businesses Can't Be Reinvented Overnight
“My intuition as a student of the industry was every time I’d walk into a [department] store I’d go, 'Why do they do this? Why do they lie to the customer about the regular price? Why do they make up a regular price to sell it on sale?' I don’t understand being dishonest about pricing. Why are the fixtures the same that were used in 1985 when I folded my first pants at a Mervyns store and organized the racks? Why has nobody innovated presentation in 30 years? Why do you spend tons of money on what you call marketing that’s really promotion, that’s brand withdrawal with every dollar you spend? Why are you investing in marketing that hurts your brand? Why do you have private labels that you think are really brands that customers see as clothing by the pound? I just don’t understand that. That made me think--that would be interesting to learn why it’s happened--but wow, if you could change that, that could be a pretty big deal.“The number one competitor is ourselves. It’s our ability to change. The number two competitor is everyone else. It’s not Macy’s, it’s not Kohl’s, because if you look at it, every one of our customers shops Amazon, Target, Macy’s, Kohl’s, specialty stores, The Gap--they all shop around! Everyone shops everywhere. So if you look at your competitor as a competitor, you’ll make a mistake. Your competitor is yourself and they way you unlock potential is to unlock a new way to compete. And ideally in a way that’s never been done before, so it’s seen as new.”
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