NEW YORK (AP) — J.C. Penney CEO Ron Johnson seems unfazed that the department store chain’s mounting losses and sales declines have led to growing criticism of his plan to change the way we shop. Perhaps that’s because this isn’t the first time during Johnson’s 30-year career that he’s attempted what seemed impossible.
People predicted he'd fail at selling high-end housewares and designer dresses at discounter Target, but shoppers still flock there years later for cheap chic goods. Likewise, almost no one believed that the Apple stores he designed to sell the consumer electronics giant’s gadgets would make money. Yet Apple’s retail operations have become the most profitable in the industry.
At the time, both decisions seemed radical. Now, they each are viewed as strokes of genius.
But Johnson’s latest gamble is shaping up to be his biggest. He’s not only aiming to reverse the fortunes of Penney, a 110-year-old chain that has had sales declines in four of the past five years as it’s struggled to adapt to changing consumer tastes and shopping habits. He’s also attempting to do something no other retailer has before: reinvent the department store from the ground up.
Since leaving Apple to become Penney’s CEO in November, Johnson has been overhauling everything from the retailer’s pricing to its merchandise to its stores. He got rid of most sales. He’s brought in hip brands. And he’s replacing rows of clothing racks with small shops that make the stores feel like outdoor mini malls.
But since Penney started the changes, the chain has reported three consecutive quarters of big losses on steep sales declines. Its stock has lost more than half its value. Its credit rating is in junk status. And critics are beginning to doubt that Johnson has what it takes to make the chain cool.
‘‘He’s trying to start a retail revolution without an army of consumers behind him,’’ says Burt Flickinger, III, president of a retail consultancy. ‘‘Penney will suffer dire financial and competitive circumstances as a result.’’
But Johnson, 53, a Midwest native who speaks about his vision for J.C. Penney Co. with boyish enthusiasm, is undeterred: ‘‘Lots of people think we’re crazy. But that’s what it takes to get ahead.’’
THE BEGINNINGS: ‘NO MORE JUMPING THROUGH HOOPS’
Virtually no one questioned Johnson’s savvy when it was announced in June 2011 that he was leaving his role as Apple Inc.’s senior vice president of retail to take over the top job at Penney, a chain that had gained a reputation in recent years of having un-hip, boring stores and merchandise. To the contrary there were lofty expectations for the man who had made Apple’s stores hip places to shop and before that, pioneered Target Corp.’s successful ‘‘cheap chic’’ strategy.
Johnson, who says that his biggest inspirations in life are ‘‘sunrises’’ and ‘‘smiles,’’ spent several months before becoming Penney’s CEO traipsing across the globe to find ideas on how to transform the company. On the itinerary: meetings with executives at trendy retailers and designers such as Gap, J. Crew, Diane Von Furstenberg and Ralph Lauren.
During these trips, Johnson hatched an idea to make Penney stores appealing not only to its core of middle-income shoppers, but also to new groups of younger and higher-income customers. Johnson decided to focus on three areas: price, merchandise and the stores.
Johnson started as Penney’s CEO in November 2011. In his first couple of months in the role, Johnson hired big-name executives that he trusted. Among them, Michael Francis, a top Target executive that he'd met while he worked there, was brought in as president to help redefine Penney’s brand.
Johnson’s boldest move came on Feb. 1 of this year when he rolled out new pricing in Penney’s 1,100 stores. That’s virtually unheard of in retail, where significant changes are typically tested in a few locations for several months before being rolled out nationally.
Johnson says that Penney didn’t have several months to waste. Testing would've been ‘‘impossible,’’ he says, because Penney needed quick results.
Johnson’s plan was designed to wean customers off the markdowns they'd become accustomed to, but that eat into profits. He ditched the nearly 600 sales Penney offered throughout the year for a three-tiered strategy that permanently lowered prices on all items in the store by 40 percent, and offered monthlong sales on select items and periodic clearance events throughout the year.
Penney, based in Plano, Texas, also stopped giving out coupons and banished the words ‘‘sale’’ and ‘‘clearance’’ in its new ‘‘fair and square’’ advertising campaign. The ads were colorful and whimsical: In one spot, a dog jumped through a hula hoop that a little girl held. The text read: ‘‘No more jumping through hoops. No coupon clipping. No door busting. Just great prices from the start.’’Continued...