Bloomberg News

Johnson Exit Leaves Apple Without Retail Head Amid Expansion

June 15, 2011

(Updates with closing share prices in sixth paragraph.)

June 15 (Bloomberg) -- Ron Johnson’s departure from Apple Inc. leaves the company searching for a top retail executive as it focuses on expanding internationally to fuel growth and hold on to its edge in consumer electronics.

Johnson, who helped design the first Apple stores that opened in 2001, leaves after more than a decade to take over at department store J.C. Penney Co. on Nov. 1. His exit comes at a time when Chief Executive Officer Steve Jobs, on medical leave since January, also isn’t involved full-time.

Jobs and Johnson set up a model store in a warehouse in Cupertino, California, before opening the division that helped fuel Apple’s consumer sales of the iPod, iPhone and iPad tablet. Johnson leaves as the company embarks on an expansion in China, where it plans to open as many as 25 new stores through 2012. His departure also may raise concerns about future defections from Apple, said Gene Munster, an analyst at Piper Jaffray Cos.

“The bad news is this raises the sensitivity investors will have toward another high-priority executive departure,” Munster said in a note to clients.

Executive departures are especially sensitive for Apple, whose shareholders have raised questions about the company’s succession plan if Jobs were to step aside. In February, shareholders tried unsuccessfully to get a measure passed that would have asked Apple to disclose more about who would replace Jobs. Johnson wasn’t a likely successor, Munster said.

Genius Bar

Apple fell $5.69 to $326.75 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have gained 1.3 percent this year, their worst performance for the same period since 2008. Still, that tops the less than 1 percent gain in the Standard & Poor’s 500 Index and a decline of less than 1 percent for the Nasdaq Composite Index.

During the past decade, Johnson led Apple’s expansion to more than 300 stores that generated more than $7 billion in sales from September through March. Among his contributions was the Genius Bar, where Apple customers can get assistance fixing their iPod, iPhone, iPad or Mac computer. The service is among the reasons Apple is consistently among the top-rated in consumer-satisfaction surveys, said Bill Kreher, an analyst with Edward Jones & Co.

Using salespeople to demonstrate how various products work together has helped make Apple the third-largest retailer of consumer electronics, said Gregory Melich, an analyst at International Strategy and Investment. Companies such as Home Depot Inc. are copying that hands-on approach, Melich said in an interview with Bloomberg Television.

According to Sanford C. Bernstein & Co., Apple’s sales per square foot of retail space were $4,355 in 2010. That’s almost 30 times those of J.C. Penney, and two-thirds higher than luxury jeweler Tiffany & Co.

‘China Is Key’

The next head of retail will lead a large international expansion. The company, based in Cupertino, plans to open 40 new stores this fiscal year, with almost three-quarters of them outside the U.S., Apple said in April.

Apple is using its stores to focus on growth in Asia. From September of last year through March, Apple generated almost $5 billion in sales in China, four times more than the same period a year earlier.

“China is key,” Edward Jones’s Kreher said.

Now that the retail operation is established and the company focuses on opening more stores around the world, it may be less necessary to have a visionary like Johnson at the helm, said Andy Hargreaves, an analyst at Pacific Crest Securities.

Strategy in Place

“It’s never good to lose talent, especially at the highest level of your executive ranks,” said Hargreaves, who is based in Portland, Oregon. “But it’s better than had it happened a couple of years ago. At this point, the retail strategy is defined and it’s more about execution, which is easier to replace.”

Johnson’s exit follows that of Mac software chief Bertrand Serlet, who left Apple in March to focus on other research.

“What would concern me is if this led to an exodus of talent, if this was the beginning of a trend,” Kreher said.

Apple wouldn’t say who will succeed Johnson at the head of the retail division.

“We’ve got a great retail team in place and are actively recruiting for his replacement,” said Amy Bessette, a company spokeswoman.

In addition to its existing team, Apple has connections to the retail industry. Mickey Drexler, the chairman and chief executive officer of J. Crew Group Inc., is on Apple’s board.

“While it’s very difficult to leave Apple, perhaps the greatest company in the world, I just wanted a chance to lead a company in an industry that’s kind of tied to my roots in retailing,” Johnson said in an interview yesterday.

Direct to Consumers

Jobs, who is still involved in Apple decision-making while on leave, said earlier this year that the company’s success wouldn’t be possible without its ability to sell directly to consumers at its stores, making it less dependent on other channels such as Best Buy Co.

Part of Apple’s strategy as it expands outside the U.S. will be to keep putting stores in heavily trafficked areas, even if they are also the most expensive real estate. Stores on Fifth Avenue in New York, near the Louvre in Paris or Regent Street in London attract hundreds of people who line up for introductions of new iPads or iPhones.

“If we located stores in high-traffic locations, locations where people buy books and eat dinner, they’d say, ‘Let me check that out,’” Johnson said in a 2003 interview with Businessweek. “When it came time to buy, they’d give us a chance to prove ourselves.”

--With assistance from Lauren Coleman-Lochner in New York and Peter Burrows in San Francisco. Editors: Jillian Ward, Nick Turner

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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