Why Ron Johnson Couldn’t Save JCPenney

He engineered the runaway success of Apple’s retail empire, but crashed and burned at the lowbrow department store. Daniel Gross on the fall of Ron Johnson.

04.08.13 10:44 PM ET

Was Apple a smashing retail success because Ron Johnson, the executive who built Apple’s retail operations, was a retail genius? Or was Johnson deemed to be a smashing success in retail because of Apple’s genius for devising expensive, must-have products?

It sure seems like the latter: Johnson’s tumultuous 18-month tenure as chief executive officer of troubled department store chain JCPenney came to a unceremonious end Monday.

Johnson was hired as CEO in July 2011 and formally took the reins in November 2011. Johnson, who had spent the early part of his career at Target Corp., had risen to fame at Apple. He spent 11 years at the continually self-reinventing company, presiding over the aggressive rollout of a network of 300 stores. With their clean design, excellent customer service, and limited inventory of fast-moving, high-priced products—the iPod, the iMac, the iPhone, the iPad—Apple’s stores had become the envy of the retail world. In a world in which electronics were evolving into ever-cheaper, low-margin products, the Apple stores were cash machines. In 2012, they boasted sales-per-square-foot of $6,050—almost twice the total that jeweler-to-the-1-percent Tiffany’s sported.

Shoppers walk in a J.C. Penney story in Plano, Texas, June 19, 2012.

LM Otero/AP

Shoppers walk in a JCPenney story in Plano, Texas, June 19, 2012.

That got the attention of hedge-fund manager Bill Ackman, who had amassed a significant stake in JCPenney and was looking for an executive to lead a turnaround. And so he hired Johnson in 2011 with great fanfare. But Johnson’s much-debated strategy of eliminating heavy discounts, sales, and coupons, alienated the stores’ core middle-class consumers. Instead of running ads emphasizing value pricing, as had been the practice at JCPenney, Johnson shifted to running ads that emphasized the lifestyle benefits of the company’s merchandise, as Apple did. He tried to go upscale by recruiting fashion designers and Martha Stewart to have an enhanced presence in the stores. The latter move embroiled JCPenney in highly public and distracting litigation with Macy’s, which had a longstanding contract with Stewart.

But instead of biting the bullet and paying full price, as customers do at Apple stores, JCPenney’s shoppers simply stayed away. And the bright lights and Apple aura didn’t succeed in bringing in the wealthy suburbanites and creative-class types who keep the registers ringing at Apple stores. JCPenney’s same-store sales fell a stunning 31 percent in the most recently concluded quarter from the prior year. With the losses mounting, the company began to lay off employees. The stock price has fallen by about half since January 2012. The only premium thing about Johnson turned out to be his compensation: tens of millions of dollar to replace the value of Apple stock he walked away from.

It’s a surprising turn of events. But it points out a larger issue in America’s commercial culture. When a phenomenon has an incredible run and swells in size and power—the dotcom boom in the 1990s, the real estate market in the 2000s, the 2008 Obama campaign, and Apple and social media today—it tends to acquire and exude a sense of infallibility. Everyone associated with it seems smarter, richer, better-looking, and more visionary than the rest of us. And everybody else wants a piece of the magic.

But markets aren’t always rational. They frequently overshoot on the upside, inflating values, reputations, and egos far above their underlying value. Take Apple’s stock. It has enjoyed an epic run, and increased sevenfold between October 2009 and last summer. But the stock has since fallen by about 40 percent. The net worths, and the reputations, of many of those associated with Apple have also been reduced since Apple’s stock peaked.

Sometimes people prosper and thrive because they happened to be at the right place at the right time. That’s not to say Johnson wasn’t a smart retail mind, or that anybody could have done what he did with Apple. Rather, a big chunk of his success may have lain in having the good fortune to run Apple’s retail chain in a period when the company’s designers and engineers were cranking out a series of world-beating, irresistible products. And that wasn’t a skill Johnson could easily transfer to a listing middle-market department store chain.