Saturday, June 1, 2013

[Mobile Cellphone Info] Ron Johnson: From Apple Genius to JCPenney Outcast

Mobile Cellphone Info has posted a new item, 'Ron Johnson: From Apple Genius to
JCPenney Outcast'

When Apple retail chief Ron Johnson announced he was leaving to become CEO at
JCPenney, everyone had high expectations that he would work that old Apple magic
on the Midwestern department store stalwart. As the mastermind behind the Apple
Store layout and the Genius Bar, he was part of the Apple's executive dream
team, headed by legendary CEO and visionary Steve Jobs, and flanked by designer
wunderkind Jonathan Ive and iOS chief Scott Forstall.
JCPenney, having trouble finding its footing amid the growth of e-commerce,
offering him a role as an advisor, but he countered and said he'd prefer to be
CEO. JCPenney's board thought, "Who better to lead us back than the man
responsible for those sleek stores?" He joined JCP, as it's been rebranded, in
2011, and unveiled his blueprint for a turnaround a few months later.
Over last year, he's slowly "Johnsonized" the brand -- stores took on a cleaner,
brighter look, and the racks of outdated designs were gradually replaced by a
cheerfully modern mix of merchandise. New logos featuring the JPC brand hit the
airwaves, ads featuring sunlit, airy imagery and crisp messages re-enforced its
optimistic and cheap-chic lifestyle. The move was signature Johnson, featuring
elements of his past work at Apple and Target.
But there was one major problem: no one came into the stores. Underneath the
makeover, business was a mess. He disregarded long-time retail strategies and
alienated core customers, failing to replace them with a new base. JCP went into
a freefall, becoming one of the most dramatic retail failures in history.

Earlier this month, the board ousted him, leaving analysts to now question
whether JCP can actually survive. His disastrous moves caused the epic fall, and
no doubt, business schools will dissect his tenure as a textbook example of what
not to do in a turnaround. But more dramatic, and disappointing, is the blemish
on the record of a former member of an Apple dream team.
Making His Mark
Compared to his former Apple compatriots, Johnson is a reticent, private man.
Unlike Jobs, who has whole biographies devoted to him, or even Apple's design
head Jonathan Ive, Johnson rarely gave interviews. But here's what we do know:
he was born in 1958 in Minnesota, and attended Stanford and later Harvard
Business School. His public resume is small but significant: he put in time at
Mervyn's, a California-based department chain, but made his mark at Target, the
Minneapolis-based discount retailer. Target is known as a cheap-chic discount
department store -- a snazzier, more fashionable competitor to Wal-Mart -- but
when Johnson started out, it was just another K-Mart.
Under Johnson, as vice president of merchandising, the chain began to
distinguish itself. There was the quirky spotted dog mascot, the cleaner,
cheerful look of the ads, the wider aisles of the stores. Even the lighting was
warmer, making for a more pleasant experience.
Retailing and merchandising is essentially crafting store experiences to create
a distinctive, unified brand identity, and he made the shopping fun. More
importantly, he brought renowned interior designer Michael Graves to design an
in-house line of housewares, including an iconic teapot that found its way to
MOMA's permanent collection.
Judging from Target's upscale transformation, he understood the potent ability
of stores to create a brand and customer loyalty -- and how to translate these
into sales. He brought genuine sensibility to an industry where identity is
often the result of marketing firms and focus groups. His style was optimistic
and modern -- a friendly and accessible take on often severe minimalism, made
understandable and appealing to mainstream America.
Johnson in Appleland
Johnson's sensibility would reach its apotheosis at Apple, where he harnessed
his mainstream take on minimalism to superb product lines and a
highly-disciplined company culture. When he joined Apple in 2000, the company
was known primarily for its computers. But through his 11-year stay, Apple
experienced one of its most explosive periods of growth. Under his guidance, in
2001, he spearheaded the launch of its first standalone stores in Virginia and
California. In October of the same year, Apple announced the iPod -- a
game-changer of a device that pioneered its own market, giving rise to the
iTunes retail store and serving as a warm-up to the blockbuster iPhone.
That trajectory of product releases propelled Apple into one of the biggest
companies in the world -- and Johnson's stores would prove a valuable conduit in
helping cement its growing status as an industry giant and tech titan. He
pioneered the idea of Genius Bars and transformed boring, dull electronics
showrooms into sleek playrooms where you could hang out for hours, check your
e-mail and play with gadgets.

Beyond the stores' look and feel, he also helped shaped less tangible aspects of
the Apple retail experience: employees were known for their near-evangelical
loyalty to the product and brand, as well as for generally excellent customer
service. From the inside and out, Apple stores were an important part of the
company's success. The company could have, of course, simply sold its products
at other retailers and online, but those stores communicated Apple's vision to
an increasingly adoring public. A decade ago, walking into an Apple store was a
visceral experience, at the edge of the present and the future -- and customers
bought an iPod or an iPhone as a souvenir.
What did all that translate into? Profits. Johnson's success was astonishing: In
2011, Apple stores generated, on average, $473,000 in revenue per employee. In
terms of sales per unit area, in 2011, the stores sold $3,085 worth of goods per
square foot, nearly double the next-highest retailer on the list, Tiffany & Co.
Apple, of course, rewarded him handsomely -- reportedly over $400 million during
his time at the company -- for his retail magic.
Stodgy and Staid
If there was any one company that was almost the polar opposite of Apple in
2011, it was JCPenney. The department store is an especially storied company,
with roots in the American West -- it began as the Golden Rule store in Wyoming
in 1902, became JCPenney in 1913 and by 1917, began expanding across the U.S.
Throughout the decades since, the company adapted to changes in retail and
consumer behavior: it opened up in shopping malls, created a catalog and then an
online business, added and sold off divisions, weathered depressions and
recessions. It adapted to the times and remained on the retail landscape by
carving out a niche for itself catering to older, bargain hunters.
By 2011, though, that base was proving to be a problem. They waited for deep
discounts and bargains to buy, making for low profits. Dated-looking stores
didn't help either, nor did the racks of equally dowdy merchandise. With three
straight years of declining sales, JCPenney was falling behind.

The company knew it needed to change quickly. It needed a new pricing strategy
and a way to reach a younger, fresher demographic of 18- to 35-year-olds. In an
earnings call in 2011, the company said it would be entering "a transition year
and it'll be a painful process." But it had an ace up its sleeve -- it had
managed to lure Johnson from Apple. But that game-changing year JCPenney hoped
for never materialized.
Johnson, for his part, was up for the challenge, despite naysayers who
questioned whether he could duplicate his success with a stodgier company bogged
down by decades of bad decisions. Many questioned if he could it without a
superb and unique product line Apple built its success on. Johnson said he would
lean on his strengths -- his ability to create memorable retail experiences.
"If Apple products were the key to the stores' success, how do you explain the
fact that people flock to the stores to buy Apple products at full price." he
said. "Wal-Mart, Best-Buy and Target carry most of them, often discounted in
various ways, and Amazon carries them all -- and doesn't charge sales tax."
It was clear: Johnson would try to bring the old Apple magic to JCPenney and
reinvent the middlebrow stalwart for a new age. "People come to the Apple Store
for the experience," he added. "They're willing to pay a premium for that." Or
will they?
Taking a Page from the Jobs Playbook
In 2012, two months after taking helm, he made a splashy presentation of his new
vision, taking a page from Jobs' playbook. On the surface, he applied the same
template for Apple and Target: clean and modern graphics, mini-shops that
spotlighted merchandise and an updated brand, complete with a logo redesign and
ad campaign. To fund the makeover, he made tough cuts to whittle down costs:
massive layoffs and store closures.
He also changed hallmarks of the brand, cutting the coupon and discount strategy
that had been its cornerstone. His reasoning? Customers were tired of
deceptively marked-up prices. Instead of adding huge markups on items only to
make deep discounts, he offered "fair and square" pricing without artificial
sales or promotions. Apple used a similar strategy -- but that would be a
decision that would come back to haunt him.

Johnson knew he had to act boldly, and he did. He eschewed testing his
strategies, choosing to rollout changes quickly. In a sense, he had to -- JCP
was hemorrhaging, falling behind competitors. Other changes came fast and
furious: he collaborated with designers like red carpet favorite Marchesa,
trendy fast-fashion retailer Joe Fresh and Italian luxury lingerie giant
Cosabella, among others. He beefed up the home department, bringing in interior
design giants like Michael Graves, Nate Berkus and even Martha Stewart -- a
decision that would lead to a costly legal wrangle with rival Macy's over their
exclusive Stewart line. In short, he added hip, more modern merchandise to sales
floors, even installing Wi-Fi for shoppers.
"All it takes is courage," he said at the time. "We can change a brand
The Reality Distortion Field
Johnson's fatal flaw was his pricing strategy, which confused customers long
accustomed to coupons, deals and aggressive promotions. His emphasis on fixed
prices worked at Apple, whose products are rarely, if ever, discounted, but he
failed to understand that JCP's established shoppers like the challenge and fun
of finding a bargain. A weakened sales force also irritated customers, who often
wandered the floor looking in vain to be rung up. As the updated product mix
trickled in, it failed to boost sales fast enough. The result: no one came to
JCP to shop anymore. Sales dropped at a rapid clip -- over a 25 percent in one
quarter alone.
Still, he brushed off criticism, saying the rockiness was a consequence of a
gutsy renovation. "You know, I watched this movie before. When I joined Apple in
2000, Apple was a company dwindling. Everyone said to me, 'What are you doing
there?'" he told investors in September. "Apple wept through 2002 and I think
sales were down 38 percent as we dreamed about becoming a digital device
company. But Apple invested during that downturn. That's when Apple built,
started to build its chain of stores. That's when Apple transitioned to Intel.
That's when Apple started its app division. That's when Apple imagined and built
the first iPod."

But this was not Apple. Through 2012, JCP's stock price dropped nearly 50
percent, and the discussions of Johnson's tenure changed from optimism to
criticism -- tabloid-like stories chronicled his use of a corporate jet to
commute to headquarters in Plano, Texas to his home in California. Reports
surfaced about the company culture, as well. Perhaps replicating the style at
Apple, he kept many ideas and policies under wraps, and executives, even at the
higher levels, were often left in the dark.
Apple's former golden boy of retail found his reputation quickly tarnishing.
By November, the Johnsonized stores showed improvement, making $269 in sales per
square foot, versus $134 in the older stores. But there was a problem. He still
needed three years and $1 billion to convert the remaining stores. In addition,
in 2012, JCP's end-of-year holiday sales were three times lower than the
previous year's -- a death knell in an industry where the Christmas season made
up the bulk of revenues. With sales declining fast, the company was simply
running out of money.
In the end, Johnson's misread of the JCP customer proved fatal, and sales never
recovered. He had a great vision, but he also created his own biggest obstacle
by driving away the core customers. In April, JCP announced what many saw as
inevitable: amid plunging sales, Johnson was fired. He had lasted just 17
What Went Wrong?
Few doubted Johnson's vision. At its core, it was necessary -- JCP stores were
outdated. They needed to regain relevance if the company wanted to survive.
Johnson needed more time, time he didn't have, to see his plan to fruition. He
didn't entirely fail: JCP sales improved at the remodeled stores. But he made
mistakes on execution, learning perhaps that you just can't simply transpose an
Apple experience to another store and expect the same results.
He misread his core customer -- older women in their 40s, 50s and 60s -- even
likening their love of coupons as drugs they needed to be weaned off.
Bargain-loving middle-aged women are the polar opposite of the typical Apple
customer, and he failed to understand the essential differences. When you run an
ad campaign that says, you "deserved to look better," that implies you don't
look so great now.
While Johnson was right in trying to broaden JCP's audience, he drove away
existing ones through a perceived arrogance and disdain -- traits often leveled
against Apple. He realized that mistake and re-instituted sales and couponing by
early 2013, but by then, it was too late. The old-school JCP customer found
other places to spend their money, at rivals like Macy's and Kohl's that never
pooh-poohed their value.

On a deeper level, Johnson transformed the look and feel of the stores, but
failed to transform the company culture needed to support his vision. He tried
to replicate Apple's culture and practices, replacing executives with Apple
veterans, for example, but those alums reportedly sequestered themselves away,
working in an Apple-like bubble and failing to communicate with the rest of the
company. Morale also dropped with each layoff, and not even sales floor staff --
the front lines to the customer -- could keep up with the changes in
philosophies and policies. Johnson failed at the points he particularly excelled
in at Apple: customer service and a total, coherent brand experience.
As a leader, he was often said to be personable and responsive to a point. He
operated on gut and intuition, trusting his own taste. But he failed to listen
to feedback when it came to what customers liked and wanted. When advised to
meet with other retail visionaries, like J. Crew's legendary Mickey Drexel or
Topshop's Philip Greene, Johnson chose to ignore the advice. His own preference
to simply roll out changes without testing them -- perhaps a necessity, given
the timetable he had to work with -- backfired.
"Ron's response at the time was, just like at Apple, customers don't always know
what they want," a JCP executive told CNBC. "We're not going to test it -- we're
going to roll it out."
In many ways, Johnson brought with him not only the look and feel of the lauded
Apple retail experience, but also the weaknesses and criticisms leveled against
it over the years -- and the result showed that Apple's magic is, perhaps,
unique and remarkable to Apple itself.
What's Next?
Johnson often told his JCP employees that there were two kinds of people:
believers and skeptics -- and he wanted only believers. It sounded very
Jobs-like, of course, and perhaps he was channeling his former boss -- and why
wouldn't he? Jobs is one of the most successful CEOs of all time.

The problem, though, was that there was nothing to believe in yet -- after all,
JCP isn't like Apple, a company that makes a tightly curated line of products
with a fan base willing to wait in line for hours. At Apple, he had products
like the iPod, iPhone and iPad to lean on. He also had a genius group of Apple
collaborators, starting up top with Jobs himself. He also had historical
momentum on his side: his tenure at Apple from 2000 to 2011 spanned a general
period of prosperity to the beginnings of the Great Recession. While there's no
doubt Johnson is a talented retailer, as CEO, he had his own learning curve to
navigate: transforming a company from the inside out is harder than simply
changing the merchandise mix and the appearance of the sales floor.
The position of Apple's retail chief is still empty after John Browett --
Johnson's own successor at Apple -- was shown the door in October. The Apple
faithful would love for him to rejoin the fold, but he's yet to comment, or give
an indication of his next move. For a man of few public statements, his next act
will decide how much Apple and his own legacy continues to intertwine.

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