Johnson, who wears khakis and jeans to the office most days, says he knew he wanted to bring in hip names like Vivienne Tam and Joe Fresh to Penney. But those brands, Johnson reasoned, wouldn’t put their wares in stores as long as Penney offered hundreds of sales each year.
‘‘Nobody is going to put their brand in a place (where) they'll devalue it or take 50 percent or 60 percent off and sell it on coupons,’’ he told investors in September.
With pricing in place, Johnson shifted his focus to Penney’s stores and merchandise. This fall, Penney began replacing nearly half of its merchandise in stores with new lines like Betsey Johnson’s Betseyville, which features trendy items such as $45 leopard print platform pumps and $24 lace rompers.
To showcase Penney’s new merchandise, Johnson also reimagined its stores into mini malls of sorts. He plans to divide stores into 100 shops that highlight different brands or types of merchandise. Each shop will be like its own small store, with different merchandise and signage.
Surrounding the shops will be extra-wide aisles that Johnson calls ‘‘streets.’’ Along those pathways will be ice cream and coffee bars and wood tables with built-in iPad tablet computers that shoppers can use to surf online. In the middle of it all, a Town Square will offer activities like Pilates.
Johnson says the stores, which will carry about 25 percent less merchandise, will be places where shoppers can hang out. The hope is that the longer they stay, the more they'll buy.
Penney already has started the remake of its stores. In recent weeks, ten shops have been launched for such brands as Liz Claiborne, Levi’s and Penney’s new JCP line of casual clothes in 700 of its 1,100 stores. Johnson aims to have 100 shops in those 700 stores by the end of 2015. The remaining 400 stores are in small towns and won’t feature the full makeover.
In September, Johnson took 300 analysts and reporters on a tour of a 30,000-square-foot prototype of the complete Penney store of the future, which Johnson calls the ‘‘art studio.’’ He says he likes to stop by the prototype, on the third floor of a Penney store in a Dallas mall minutes from Penney’s headquarters, before he goes to work each day.
Penney is starting to see some positive results from the makeover it began. The company says so far that it has converted about 11 percent of the floor space to shops-within-stores. The shops’ average sales are more than double the sales in the rest of the store.
And some customers are beginning to come back. Michael Pelaez, a 27-year-old who rarely shopped at Penney before the new shops opened, says he likes the retailer’s new Levi’s shop and its predictable pricing. ‘‘It’s forcing me to browse,’’ says the pharmaceutical supplier worker who lives in Hialeah, Fla. ‘‘What used to be an hour and a half at the mall has turned out to be an hour and a half at J.C. Penney.’’
That some customers are responding to the redo is no surprise to Johnson, who insists his plan will work. ‘‘It’s really hard to transform things,’’ he says. ‘‘But that’s what we’re going to do.’’
Not everyone believes that’s possible. Michael Exstein, an analyst at Credit Suisse, recently downgraded Penney’s stock to ‘‘underperform’’ from ‘‘neutral.’’ Exstein wrote that Penney ‘‘must find a way to significantly slow the sales decline within the next six months.’’
But Johnson still has supporters. During an interview with CNBC after the company’s last earnings report, William Ackman, an activist investor whose hedge fund Pershing Square Capital Management has a 17.8 percent stake in Penney, said that he’s giving the turnaround several more years to work. He also said, however, that there is a limit to how far the board and the CEO would let sales fall.
‘‘If it’s not working, we will make changes,’’ says Ackman, who joined Penney’s board in early 2011 and pushed other board members to choose Johnson as CEO last year. ‘‘He’s not this doctrinaire guy.’’
THE RISKS AND REWARDS OF THE ROAD LESS TRAVELED
That Johnson is taking a risky approach with Penney is no surprise. After receiving an economics degree from Stanford University and an MBA from Harvard Business School in 1984, he turned down a lucrative offer from investment bank Goldman Sachs for a manager trainee job at the now-defunct Mervyns department store chain and then worked his way up to vice president of merchandise at Target.
In 1998, when he signed a deal with architect Michael Graves to develop a line of affordable housewares for Target, it was the first time that an upscale designer’s products would be sold in a mass market discount store. Industry watchers predicted the strategy would fail. After all, people didn’t shop at a discounter for designer brands.Continued...