In the fall of 2011, Ron Johnson was appointed not just as CEO of JC Penney, but as the savior responsible for breathing new life into one of the dowdiest dinosaurs in American retail. Seventeen months—and many, many mistakes—later, he’s out of a job. What happened?
Let’s just point this out upfront: By most accounts, Johnson was trying to accomplish the seemingly impossible with a radical reinvention of the JC Penney brand. Many thought that if anyone could do it, it was Johnson, the retail superstar credited for making Target hip and turning the Apple Store into a monster success story. His plans were bold—too bold, virtually everyone now agrees. Correspondingly, he was removed as CEO not because he came up a little short of the goals set for the company. He was ousted because he failed in spectacular fashion.
The superlatives used to describe Johnson’s failures surfaced long before he lost his job. Customer Growth Partners analyst Craig Johnson (no relation to Ron, we hope) told MarketWatch in February that Ron Johnson seemed bound for the “consumer hall of shame.” Last month, one retail expert weighed in with this brutal assessment of Johnson in the New Yorker:
“There is nothing good to say about what he’s done,” Mark Cohen, a former C.E.O. of Sears Canada, who is now a professor at Columbia, said. “Penney had been run into a ditch when he took it over. But, rather than getting it back on the road, he’s essentially set it on fire.”
(MORE: JC Penney Ousts CEO Ron Johnson)
Bill Ackman, the hedge-fund tycoon who recruited Johnson to take over at JC Penney in 2011, and who has defended Johnson several times in the months since, recently turned on him, using the phrase “something close to a disaster” to describe Johnson’s impact on the company.
So what did Johnson do that was so bad?
He Misread What Shoppers Want
In early 2012, Johnson announced a major overhaul of the way JC Penney does business, with a new “fair and square” everyday low pricing scheme to replace the “fake prices” used commonly in the past. The idea sounded great—in theory. Didn’t everyone hate those “fake prices,” which were inflated only so that the inevitable discounts would seem tempting?
Well, no. Johnson thought it made sense to cut to the chase by listing realistic prices from the get-go and foregoing nonstop sales. It does make logical sense, after all. But shoppers aren’t purely logical creatures. They’re often drawn to stores not by the promise of fair pricing, but by the lure of hunting for deals via coupons and price markdowns. It’s all a game, and a contrived one at that. But it’s a game that shoppers are accustomed to playing, and that many — consciously or not — like playing, with the “How Much You Saved” line at the bottom of the receipt serving as a score.
It didn’t take long for people to note that Johnson’s no-coupons, no-sales experiment was failing to attract shoppers. Sales collapsed through early 2012, and by the summer, even Johnson acknowledged the stores had made a big mistake.
“I thought people were just tired of coupons and all this stuff,” Johnson told Businessweek. “The reality is all of the couponing we did, there were a certain part of the customers that loved that. They gravitated to stores that competed that way. So our core customer, I think, was much more dependent and enjoyed coupons more than I understood.”
He Didn’t Test Ideas in Advance
And why didn’t Johnson understand what JC Penney’s core customers enjoyed? Well, one reason is that he didn’t really ask them. When Johnson floated plans for the chain’s radical makeover, he was asked about the possibility of trying the new pricing strategies on a limited test basis. Johnson reportedly shot down the idea, responding, “We didn’t test at Apple.”
The fact that JC Penney’s longest-standing customers loved coupons and the prospect of finding “steals” via rounds of markdowns should have never come as a surprise to the company’s CEO. Ideally, the retail chain would have also known in advance that customers found Johnson’s new three-tiered “simple pricing” scheme—which didn’t include common shopping terms like “Clearance” and “Sale”—to be enormously confusing.
A continued sales slump forced Johnson to realize the error of his ways. JC Penney rolled out some half-hearted discounts on Black Friday 2012, which were deemed to be mostly underwhelming compared to 80% off deals in other stores. He flip-flopped on use of the word “sale” as well; in the company’s brochure for President’s Day weekend, the word “sale” was used 37 times over 24 pages of merchandise. Even that proved to be confusing, because in stores JC Penney was listing phony “manufacturer’s suggested retail prices” that no store ever charged.
He Alienated Core Customers
As Johnson removed their beloved coupons and sales and increasingly focused on making JC Penney a hip “destination” shopping experience complete with boutique stores within the larger store, many of the chain’s oldest and most loyal customers understandably felt like they were no longer JC Penney’s target market. The return of “sales” hasn’t proved to bring about a return of these shoppers.
“There’s no reason to try and alienate customers who want to try and shop at J.C. Penney,” Myron “Mike” Ullman told the Wall Street Journal after news broke that Johnson was out as CEO. Ullman is taking over as CEO, a post he held before Johnson was brought in to save the company. Yes, JC Penney has reinserted the executive who was in charge at the time the chain was struggling mightily, and seen to be in need of a radical overhaul. Ullman doesn’t envision a complete return to pre-Johnson policies, however. “I wouldn’t recommend that we go back to the way J.C. Penney was when I left. Things change.”
He Totally Misread the JC Penney Brand
Johnson pictured coffee bars and rows of boutiques inside JC Penney stores. He wanted a bazaar-like feel to the shopping experience, and for JC Penney to be “America’s favorite place to shop.” He thought that people would show up in stores because they were fun places to hang out, and that they would buy things listed at full-but-fair price.
But early and often during the Johnson era, critics pointed out that JC Penney was not the Apple Store. The latter features cutting edge consumer tech that shoppers have grown accustomed to purchasing at full price. JC Penney, on the other hand, is stuck with a “reputation as the place your mom dragged you to buy clothes you hated in 1984,” as a Consumerist post put it. The idea that people would show up at JC Penney just to hang out, and that its old-fashioned shoppers would be comfortable with Johnson’s radical plans like the removal of checkout counters almost seems delusional.
Overall, He Didn’t Seem to Like or Respect JC Penney
In retrospect, Johnson and JC Penney seem like a horrible match. All along, Johnson insisted that he absolutely adored the venerable JC Penney brand. But if he loved it so much, why was he so hell bent on dramatically changing it, rather than tweaking and gently reshaping as needed?
In late February, the Wall Street Journal quoted JC Penney COO Michael Kramer voicing his distaste for the company as it was before Johnson took over. “I hated the J.C. Penney culture. It was pathetic,” Kramer said.
Like Johnson, Kramer is also a veteran of the Apple Store. And while Johnson was never quoted saying anything like that about the company’s culture, his actions demonstrate that he didn’t have much respect for the way things used to be done.
What’s more, Johnson seemed to have a disdain for JC Penney’s traditional customer base. When shoppers weren’t reacting positively to the disappearance of coupons and sales, Johnson didn’t blame the new policies. Instead, he offered the arrogant assessment that customers needed to be “educated” as to how the new pricing strategy worked. He also likened the coupons beloved by so many core shoppers as drugs that customers needed to be weaned off.
Essentially, Johnson wanted JC Penney and its shoppers to be something that they’re not. He wanted them to be more like the scene at Apple Stores, or even Target, when in reality, there was probably more overlap with Macy’s, or even Walmart. The overall impression is that Johnson would probably never shop in JC Penney, and that he certainly didn’t understand or have much respect for the store’s shoppers. If that’s the case, no wonder Johnson’s stint as CEO was such a disaster.