Penney Rings Up A Big Sale: Apple's Johnson Buys In

The verbs in the heds and ledes of the various stories about J.C. Penney's announcement that Apple's retail guru, Ron Johnson, would become its CEO this fall are a colorful lot indeed: "wooed"(Wall Street Journal); "poached" (New York Times) "nabbing" (Bloomberg). "Every industry has its rock stars, and J.C. Penney Co. just nabbed a big one," gushes Maria Halkias in the Dallas Morning News. And Financial Times goes with the news that shares of the midmarket retailer "surged" more than 17% after the anointment, reaching their highest level since 2000.

Johnson, SVP of retail at Apple for the past 11 years, will take over on Nov. 1 from Mike Ullman, who is steeping down by moving up to the office of vice chairman. But Ullman will continue to oversee daily functions including logistics, corporate communications, finance and the retailer's website, while Johnson's focus will be on the creative aspects of retailing, including marketing and merchandising, Elizabeth Holmes and Joann S. Lublin report in the WSJ.



With online shopping proliferating, driving customers to steel-and-glass stores is all about "retail theater" or "retailtainment" Stephanie Clifford and Miguel Helft write in the Times. For Apple, Johnson has managed to turn the "boring computer sales floor into a sleek playroom filled with gadgets," they write.

"If he can take a little bit of that magic and sprinkle it on to J. C. Penney, you could really create the next generation of retailing," Citigroup retail analyst Deborah Weinswig tells Clifford and Helft "We're at a very interesting kind of intersection right now where retail needs to be fun, it needs to be exciting."

Fun, shmun. It's also profitable. Financial Times blogger John Gapper points to a 2007 Sanford C. Bernstein report that revealed that Apple Stores generated average sales of $4,032 per square foot. Best Buy, the category leader for electronics, was taking in $930 in comparison. Bloomberg reports that Apple's sales per square foot were 30 times greater than Penney's last year.

"The lesson that strikes me from the Apple experiment is the value of having direct access to customers, rather than having to go through the intermediary layer of retailers or other distributors," Gapper writes. "That acts as a form of marketing and it means you can collect all kinds of valuable data about how customers behave. It enables companies to connect the physical selling of goods with after-sales services (as the Apple Genius Bar)."

In a meaty sidebar, the WSJ's Yukari Iwatani Kane and Ian Sherr serve up "Secrets From Apple's Genius Bar: Full Loyalty, No Negativity." The company tightly manages the consumer experience by controlling every aspect of its employees' interactions, from training scripts for tech support (Example: when customers get emotional, "Listen and limit your responses to simple reassurances that you are doing so. 'Uh-huh' 'I understand,' etc.") to strict rules about disclosing too much information. Every detail, down to the photos and music that play on demos, is carefully thought out.

Employees receive no sales commissions and have no sales quotas. "Your job is to understand all of your customers' needs -- some of which they may not even realize they have," instructs one training manual.

"It's our job to rethink everything," Johnson, 52, tells Bloomberg's Lauren Coleman-Lochner and Adam Satariano. "Retailing's always been about creativity, it's about creating exciting new ways for people to shop, new products for people to purchase, new ways to do things."

What's that likely to mean? First, he can improve customer service and add exclusive brands, Robin Lewis, CEO of the Robin Report, tells Bloomberg. "It's injecting rocket fuel into Mike Ullman's growth strategies of turning J.C. Penney into a more exciting brand."

What's the impact on Apple likely to be? Analysts seemed to be divided, even within themselves. "Ron is truly extraordinary at retail and has done some amazing things with the Apple Store," Van Baker, a retail marketing analyst at Gartner tells the San Jose Mercury News' Patrick May. "It's not like the wheels will come off at Apple when he leaves, but it's still a huge loss."

In a statement, Apple said it had a "great retail team" and was "actively recruiting" for a replacement, Apple Newsreports. "Ron is excited about this opportunity and we hope it goes well for him," it continued.

Johnson came to Apple from Target in 2000 after being recommended by board member Millard Drexler, who was then president of Gap Inc. and the spark behind Apple's retail operation. Johnson "helped the company shape its concepts from the outset," according to Apple News, "including their brightly lit interiors, an emphasis on being able to try systems in an ideal environment, and the Genius Bar."

Johnson has a lot of skin in the game at Penney, reports Fortune's Jennifer Reingold. "In addition to being made whole on his Apple stock with $50 million in J.C. Penney restricted stock, a $1.5 million salary, and a target incentive bonus of nearly $1.9 million, Johnson is actually investing another $50 million in stock warrants for 7.26 million shares -- a cost of $6.89 per share. He can't sell them for at least six years, and if the stock is at or below $29.92 at that point, he loses his $50 million," Reingold writes.

So what's the upside? "If the stock doubles from today to $60, he'll earn over $385 million -- in addition to the huge sums he would gain on his restricted stock and other pay." There are favorable tax advantages, too.

Bill Ackman, whose Pershing Square Capital owns 16.5% of Penney, thinks the company still got a bargain. "The market says the guy we hired is worth $1.2 billion," he says. "The market is wrong; he's worth way more than that."

1 comment about "Penney Rings Up A Big Sale: Apple's Johnson Buys In".
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  1. Michael Van ausdeln from Stealing Share, June 15, 2011 at 3:55 p.m.

    The changes looming will be more than just changing the retail environment. The stores themselves are just the manifestations of the brand, which Johnson understands better than most, coming from Apple. There will be new positioning, new brand promise and new ways to fulfill that promise. Expect everything to be on the table and massive change to result. Fascinating developments to watch.

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