JCP's CEO: Falling Sales and Rising Cynics Won't Stop the Transformation

Ron Johnson
Ron Johnson

Nearly a year after being named as the next CEO of J.C. Penney (JCP), Ron Johnson seems all too aware that his public image has been transformed. The man once widely thought of as the merchant genius behind the Apple Stores, poised to revive a dowdy department store, is now often characterized as a retailing mad scientist whose wild experiments could do irrevocable harm to the 110-year-old chain.

Media coverage of his makeover of the retailer has been unrelentingly negative.

"I feel like I'm in the middle of a reality show," he told a packed room in New York on Tuesday at an event hosted by Fashion Group International and The Robin Report.

But although the CEO's radical strategy to eliminate nearly all of Penney's sales and coupon events has resulted in sharply declining sales, a 10% loss in store traffic, and shopper defections, Johnson is not only still defending his blueprint for change -- which also calls for transforming Penney into a specialty department store with 100 mini-shops -- but called the naysayers "backward thinking."

Many people didn't believe Apple (AAPL) Stores would succeed when PCs dominated the computer market, for example, he noted.

And when discounter Target (TGT) introduced a trendy line of housewares from architect Michael Graves back in 1998 -- back when Johnson was vice president of merchandising at the chain -- "nobody thought good design would be valued at a discount store," he said.

But both Apple and Target proved the skeptics wrong, and so will J.C. Penney, he said. "Will [Penney's makeover] work? I believe it will," he told the audience.

Making the Case for Mini-Shops

"What we're doing is repositioning our company into a specialty department store," he said, noting his plan to turn Penney into a mall of 100 mini-shops, featuring brands from Martha Stewart to Disney to Canadian fast-fashion retailer Joe Fresh.

Johnson invoked his oft-repeated claim that shoppers have favored specialty stores -- be they H&M or Williams-Sonoma (WSM) -- over department stores in recent years.

Despite Penney's sales dives -- comp-store sales sank 21.7% during the quarter that ended July 28 -- "We've made a lot of progress in the last 10 months," he said.

Ron Johnson
Ron Johnson

For one, a focus group of 25 shoppers, analysts and retailers alike gave high praise to Penney's prototype store in the Valley View mall in Dallas, Johnson noted.

More importantly, performance at the 12 mini-shops that have already been rolled out to nearly 700 stores is "off the charts."

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Defending the 'No Sale' Strategy ... Again

Johnson also restated the case for his much-maligned "fair and square" pricing strategy, which replaced most sales and coupons, and set the base prices for merchandise 40% lower every day.

Although the strategy has so far alienated shoppers and hurt sales, it's the right way to go, Johnson said. "Honesty begins on the price ticket."

But he also knows not everyone will be a convert. "A lot of people said, 'This isn't for me,' and they've left."


In his defense of the new pricing strategy, Johnson has been speaking aloud retail's dirty little open secret: Many "big sales" aren't really sales at all, because stores have been increasingly inflating the so-called "full" retail prices on their goods in recent years.

Johnson conceded that Penney's goofed by eliminating the word "sale" from its vocabulary in favor of "best price," a phrase that proved meaningless to shoppers. But he said that bring the word "sale" back is only a minor course correction, not a strategic shift.

"We will tweak the tactics but won't change the vision," he said. "The fact that sales are down is a temporary thing," he said.

Johnson said it was never his goal to alienate Penney's core shoppers, and that he'd like to "win them back," but the retailer must attract new shoppers if it's going to thrive.

"We're going to reinvent retail all over again," he said.

Stay tuned.

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