The man who went too far at JC Penney

Ron Johnson took Apple's über-cool retail concept to the world. So how did things go so wrong at his next job?

What a difference a CEO makes. When Ron Johnson was brought in to run JC Penney in late 2011, the department store chain was still referred to in the media as "venerable". Now, it's more often called "troubled".

On paper, Mr Johnson's appointment was a coup for JC Penney. He had been the head of Apple's successful retail business, carefully engineering the expansion of the company's distinctive stores across the US and beyond. His formula of hand-picking prestigious locations – Fifth Avenue in New York, Regent Street in London – and building large, minimalist showrooms for Apple's line-up of small, minimalist products had helped the Californian business to pioneer new ground in the way tech companies sell their products. Before Apple, he had earned his spurs at Target, the big-box retailer.

JC Penney, though very different and much smaller than Apple in terms of revenues or global reach, seemed like the perfect springboard for this retail guru to emerge from the shadows.

More than a century old, the company has 1,000-plus department stores which are the mainstays of shopping malls across the United States. For decades it has served the great American middle class, luring them in with discounts and coupons. When Mr Johnson arrived, only a small fraction of products sold in JC Penney stores were pushed to customers at full price. More often than not, items were marked down to drive footfall.

But by 2011, the middle class wasn't in such great shape. And investors wanted someone to revive what had become a tired, if reliable, old brand compared with rivals such as Macy's.

A key mover behind Mr Johnson's appointment was William Ackman of Pershing Square Capital, an activist investor who had negotiated a place on the JC Penney board by buying up the company's stock, and is now its biggest shareholder with 18 per cent of the business. Mr Johnson was initially engaged in talks over a directorship – but those negotiations soon turned to the chief executive's job.

The markets backed the move. JC Penney's stock surged when Mr Johnson's name was first announced in June 2011. Here was the man who was going to bring some Apple-style magic to JC Penney (never mind that the two companies are fundamentally different).

Among Mr Johnson's early ploys was getting rid of what he called "fake prices" – the business of constantly marking down price tags. This, he said, was a problem, because not only did it dilute the JC Penney brand, it caused confusion because the company was sending out all kinds of flyers and coupons that customers had to make sense of. He came up with a plan to get rid of the myriad promotions in favour of a regime that promised "fair and square pricing". One widely cited example was that of a $14 (£9) T-shirt. Ordinarily, JC Penney would mark it down to, say, $6. But Mr Johnson decided that instead of discounting, it should just be priced at $7. What could be simpler?

Along with the streamlined pricing model came a plan to revamp the stores, with numerous mini-stores inside the big department store-sized space. Speciality brands would thus lure in customers looking for a pair of jeans from a well-known jeans manufacturer, or a pair of shoes from a renowned shoe maker.

Mr Johnson also debuted a new logo. But, crucially, he didn't road-test his pricing ideas. The late Steve Jobs famously disliked market research when coming up with new Apple products, and Mr Johnson seemed to be applying the same ethos to JC Penney.

It didn't work. Customers deserted the company in droves, with sales slumping by 25 per cent in 2012. He had evidently gone too far, too fast, and alienated thousands of loyal customers in the process.

The announcement this week that Mr Johnson is leaving, and that his position will be filled by Myron Ullman, the man he had replaced in 2011, isn't just a blow for the Apple star – it also marks a sharp reversal for Pershing's Mr Ackman, who had stood by Mr Johnson as he embarked on his quest to remake the business.

Last week, after the company's stock slumped by nearly 28 per cent over the first quarter, Mr Ackman betrayed his disappointment when he told an investment conference that "one of the big mistakes was perhaps too much change too quickly without adequate testing on what the impact would be". The turnaround plan, he added, had been "very close to a disaster".

Now the road ahead is uncertain. Many have already highlighted how curious a choice Mr Ullman is, given how dissatisfied Mr Ackman clearly was with his previous leadership. But perhaps that's the point. What JC Penney needs now is a return to form, not a revamp. The returning boss is thus expected to begin scaling back some of the pricey store renovations that Mr Johnson had planned.

He arrives just as some of those changes start to take effect, including the introduction of merchandise from Joe Fresh, the Canadian affordable fashion brand which has begun settling in to hundreds of JC Penney stores.

Any turnaround is likely to take time, however, given the scope of the changes initiated by Mr Johnson. Analysts at Piper Jaffray, for example, expect that despite the leadership change, the company will still burn through up to $1bn in cash this year.

Brand battle: Rivals in court

It has been a busy few days for JC Penney – and not just because of the changes in the boardroom. The company was back in court in New York this week as it fights with retail rival Macy's over the right to sell goods under the brand of Martha Stewart after a month-long mediation effort failed.

Macy's says Stewart's Martha Stewart Living Omnimedia had given it the exclusive right to make and sell the branded homewares under a deal in 2006. After a renewal last year, it says the contract runs until 2018. It sued Stewart's business last year when it struck a deal with JC Penney, and also filed suit against JC Penney.

Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Waitrose will be bringing in more manned tills
newsOverheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
News
The energy drink MosKa was banned for containing a heavy dose of the popular erectile dysfunction Levitra
news
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
VIDEO
Sport
Australia's Dylan Tombides competes for the ball with Adal Matar of Kuwait during the AFC U-22 Championship Group C match in January
sportDylan Tombides was diagnosed with testicular cancer in 2011
News
Ida Beate Loken has been living at the foot of a mountain since May
newsNorwegian gives up home comforts for a cave
Extras
indybest10 best gardening gloves
News
Russia's President Vladimir Putin gives his annual televised question-and-answer session
peopleBizarre TV claim
Arts & Entertainment
tvIt might all be getting a bit much, but this is still the some of the finest TV ever made, says Grace Dent
Arts & Entertainment
Comedian Lenny Henry is calling for more regulation to support ethnic actors on TV
tvActor and comedian leads campaign against 'lack of diversity' in British television
News
Posted at the end of March, this tweeted photo was a week off the end of their Broadway shows
people
News
peopleStar to remain in hospital for up to 27 days to get over allergic reaction
Arts & Entertainment
The Honesty Policy is a group of anonymous Muslims who believe that the community needs a space to express itself without shame or judgement
music
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Life & Style
life
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit