J.C. Penney Nabbing Johnson From Apple Sets ‘Huge Expectation’

Wednesday, 15 Jun 2011 11:15 AM

 

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Ron Johnson, who helped turn Apple Inc. into a retail star with flashy big-city stores, now faces the challenge of conjuring up similar buzz around 109-year-old retailer J.C. Penney Co.

Johnson will take over as chief executive officer on Nov. 1, replacing Myron Ullman in the midst of a sales turnaround. The third-biggest U.S. department-store chain aims to hold onto growth amid the slowing economic recovery and surging costs for materials such as cotton.

“It’s our job to rethink everything,” Johnson, 52, said in a telephone interview yesterday after the announcement. “Retailing’s always been about creativity, it’s about creating exciting new ways for people to shop, new products for people to purchase, new ways to do things.”

Johnson can make Plano, Texas-based J.C. Penney stand out, especially in an industry where many consumers can’t tell the difference between competitors, by improving customer service and adding exclusive brands, said New York retail consultant Robin Lewis.

"It’s injecting rocket fuel into Mike Ullman’s growth strategies of turning J.C. Penney into a more exciting brand," said Lewis, also chief executive officer of the Robin Report. "It’s placing a huge expectation on him."

Investors put their faith in Johnson yesterday by pushing the stock up the most since 2000. While he may not open Genius Bars next to dressing rooms to move merchandise, his track record may foreshadow success: Apple’s sales per square foot last year were almost 30 times those of J.C. Penney and two- thirds higher than luxury jeweler Tiffany & Co.

Central Casting

“He’s kind of the CEO from central casting,” said Howard Gross, head of the retail and fashion practice at executive search firm Boyden. “He really does understand how to differentiate one business from another.”

Johnson led Target Corp.’s foray into home design before joining Jobs at Cupertino, California-based Apple in 2000. At Target, Johnson added cachet to the Midwestern discount chain by focusing on originality -- bringing in architect Michael Graves to create a home collection and adding brands such as Calphalon. Designers like Isaac Mizrahi followed, luring fashion- and budget-conscious shoppers and helping the merchant stand apart from Wal-Mart Stores Inc.

At Apple, he and Jobs placed stores in heavily trafficked, premium-rent areas like New York’s Fifth Avenue or Regent Street in London. They loaded the stores with employees to help demonstrate the products to customers and organized splashy product launches that had hundreds lining up for a taste of Apple.

Apple’s Success

At J.C. Penney, which sells thousands of items, Johnson says he plans to help the chain stay on the right path, just run faster. In taking over the retailer, he’ll oversee more than 1,100 stores, more than triple the amount Apple has.

Among his supporters is J.C. Penney’s largest investor, William Ackman, who called Johnson’s hire “a credit to the company.” He joined J.C. Penney’s board this year after his firm, Pershing Square Capital Management LP, disclosed a 16.5 percent stake in October and pushed the chain to improve performance.

J.C. Penney’s shares rose $5.26, or 17 percent, to $35.37 yesterday in New York Stock Exchange composite trading. They had declined 6.8 percent this year through June 13.

Sales Performance

Sales had dropped for three straight years before gaining 1.2 percent to $17.8 billion in 2010. Under Ullman, the chain had sped up cost-cutting to improve profitability, looking to shield itself from the faltering U.S. economy.

Ullman, 64, took over at J.C. Penney in 2004, in the midst of a sales revival. He opened stores outside of malls, added Sephora make-up boutiques to stores and introduced designer brands by Liz Claiborne, Mango and Jones New York. He and J.C. Penney approached Johnson several years ago about a succession plan, said Ullman, who will become executive chairman.

“I felt from the beginning that he was one of the one or two people who could really transform this company from the level we envisioned, and he just wasn’t ready at that time,” Ullman said.

Now that he is, he’s receiving a grant of 1.66 million restricted shares valued at $50 million, based on J.C. Penney’s closing price June 13. The award is intended to help compensate for intended equity awards from Apple. He also invested $50 million of his own money to buy warrants that can’t be sold for six years.

Different Tasks

Still, Johnson faces a different environment. Increasing unemployment and gas prices have forced some customers to curb shopping trips. That means J.C. Penney has to offer something extra to distinguish itself from competitors, said Boyden’s Gross.

“This is no slam dunk,” Gross said. “You can take the best and the brightest, and it’s not going to be an easy job.”

© Copyright 2014 Bloomberg News. All rights reserved.

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