Ron Johnson was brought into JC Penney(JCP) by Bill Ackman to be CEO. He was a rockstar on his entrance in 2011, coming off the success of the Apple(AAPL) Store and, previously, success at Target(TGT). Ackman thought he was getting Steve Jobs but he got Gil Amelio. Seventeen months later, Johnson was out, his reputation more like Vanilla Ice than Mick Jagger.
Johnson may have been right about the future of retail, but his decision to plunge headfirst and pursue wholesale change without testing was a disaster. JC Penney’s annual sales plummeted, almost overnight from $17 billion to $11 billion. Inventory built up. The company hemorrhaged money and teetered on the brink of bankruptcy. Johnson was dismissed by Ackman, his former patron, who brought back his predecessor, Mike Ullman. Ackman promptly left, selling his stake, and Ullman steadied the ship, undoing most of Johnson’s changes. Ullman and his successor, Marvin Ellison, have restored sales growth and profitability.
Still, Johnson maintained at the Shoptalk conference this Monday that JC Penney should have stuck with his strategy.
Speaking at the Shoptalk conference in Las Vegas on Monday in his most expansive public comments to date about the Penney debacle , Johnson largely blamed the company’s stagnant culture for the failure, saying people there were entrenched and resisting him.
“When I got to Penney’s, I had no choice because I was told people wanted change, but the truth is nobody wanted change,” he said, though he did concede that he proceeded far too quickly. “The team there was very comfortable with their place in the market.”
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While Johnson said on Monday that he went way too fast, he maintains Penney should have stuck with his strategy. (Arguably, it has to some degree: The store recently introduced boutiques within a store for plus-sized clothes, introduced areas for home appliances, and expanded its in-store Sephora beauty shops.)
“I still think if we had continued on, the company would have been a lot better than this painful u-turn where they’re trying to find growth from a new baseline,” Johnson said.
Johnson bet big and lost. Like a prototypical gambler, he still wants to double down, one more time.
Disclosure: The author owns shares of JCP and AAPL
One of the fundamental things you learn in business school is that price discounting can become a habit which leads to long-term problems because you’ve trained your customers never to buy from you unless there’s a coupon and sale. So in that sense he was sort of right in trying to break JCP of that — though not really. (One of the things you learn in the real world of business is that the stuff you learn in MBA school doesn’t always work. Imagine that.)
The reality is, if you go to the JC Penney where I live, Jacksonville, it’s ghetto and scrapes the bottom of the market. I don’t mean to say that in a pejorative way, because it’s a definite niche that needs filling. However, JC Penney has developed a reputation over the years. They were firing their lower socioeconomic class customers under Johnson, but new, higher-end customers weren’t coming in. Unfortunately for JCP, Target already exists, and its customers aren’t going to go to a dingy mall store.
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