http://www.businessweek.com/articles/2012-08-09/ron-johnson-on-the-progress-of-his-j-dot-c-dot-penney-remake

The Interview Issue

Ron Johnson on the Progress of His J.C. Penney Remake


"I thought people were just tired of coupons"

Photograph by Thomas Prior for Bloomberg Businessweek

"I thought people were just tired of coupons"

Johnson, who previously ran Apple’s (AAPL) stores, is sticking with his retail pricing revolution after a widespread backlash. He shows Diane Brady a mock store in Dallas.

When you were approached about the job, did you visit some JCPenneys (JCP)?
Well, I have been in JCPenney quite a bit. When I go into Apple stores, you’re walking through malls. You’re always looking at the competition.

What was your take on it?
My read was: It was ready to be updated. The JCPenney stores I walked into looked very similar to the stores I looked at when I was at Mervyns and Target (TGT) from the late ’80s to the early ’90s. The only difference is that the promotion had become extreme. When I started I was at Mervyns—I was a dress-shirt buyer competing with Penney’s—we both used to put something on sale about once every three weeks, and it would be 25 percent off. When I started to look at Penney’s and I was thinking about the job, they were at 50 percent to 60 percent off, plus coupons. I started to think through what caused that, because about half of what we buy in everyday life, we buy at an everyday price—Starbucks (SBUX) coffee, an Apple product. Then in the department-store segment, it became very promotional, and customers have grown to enjoy that. So the short-run part is we teach them there is another way to get value. That’s going to take time.

It’s about rebuilding trust?
I think there is a fundamental issue in our country with trust. It’s trust with government, trust with big business, and I think the department store is part of that. I would like to build trust, and it starts with the price tag. I want truth in the price tag. I thought people were just tired of coupons. The reality is, there were a certain part of the customers that loved it. I didn’t understand that.

What would you have done differently, in retrospect?
We should have let customers understand, No. 1, that the price you are getting is about the same as you got before with the coupon: “Whenever you want, it’s always the low price.” And we should have just let people know more directly, “We think we’ve got a better way, and it’s going to really change the way you shop so you can shop on your terms.” We’ve made some mistakes, but we’ve done a lot of good things, too. You’ll see that here as you walk through the store.

Is it important for you to be in control of the marketing?
I think it’s going to really help. I just spent 30 years primarily in marketing and merchandising functions. I was a buyer my whole time, a merchandise leader until I went to Apple. When I came here to do my first CEO job, I said, “I’ve got to hire a team.” Well, we built an amazing team. As I started getting into the spring, I realized that I want to spend more time in marketing and merchandising.

Take me through your merchandising.
One of the things I learned from Steve [Jobs]—Steve said three times in his life he had the chance to be part of the change of an interface. If you change the interface, you can dramatically change the entire experience of the product. For Steve, that was the mouse, the scroll wheel on the iPod, and then the [touch]screen. What we’re trying to do here is change the interface of retail. What we call that is the street, and you’re standing in the middle of it.

When you walk into a store today, you’re overwhelmed by merchandise. There is a narrow aisle. Typically, it’s filled with product on tables and you’re overwhelmed with the noise of signs and promotions. Especially in the age of the Internet, the idea of going to a very large store and having so much abundance is actually not very appealing. The first thing you find here is you’re inspired. I have used the mannequins. The street is actually this new navigation path for a retail store. So if you come in here—you’ll notice that these aisles are 14 feet wide. These are wider than Nordstrom’s (JWN).

It’s like the Champs-Elysées of retail aisles …
This is the Champs-Elysées in the middle of a Penney’s store. That’s funny. But it’s ultimately a really wide aisle. We can put activity in it. We can create a place where people feel they belong. Normally in a store you don’t belong. You’re there to buy stuff.

When you shop today with a friend and they’re in the fitting room, you can sit down comfortably. I can check a sports score, go online.

But that means less space for merchandise. Do you get much push-back from vendors?
This store has about the same amount of merchandise as our current store has, but we’re using walls and things that have capacity. Our dream is that people will say, “I will meet you at the street at JCPenney. Let’s just walk the street.” As they walk the street, they’ll be invited into a variety of shops. It could be an Izod shop. It could be a Levi’s shop. And if they get a little tired, they can have a cup of coffee—these are cafe tables.

What makes people want to buy more in this setting?
It’s the merchandise and the people. The merchandise is the star, and it’s creating an environment that is completely true to the brand being offered. One of the big trends this year is color denim, color bottoms, color chinos. These are only $17 with our everyday price. Last year, we would have marked this at $40 and put it on sale for $25 with a coupon. It’s a key essential of the season at a great value.

How do you reorient the staff to all this?
The key is we want all of them to be spending every minute of their day helping the customer look and live better. With our new technology next year, every employee will be checking people out on an iPad. We don’t need cashiers. Those employees become specialists in the area they have passion about. For some, they’ll work in Martha Stewart (MSO) shops because they have a passion for food. Some will be beauty experts at Sephora. If you go to the Apple store, you see a lot of employees helping out, right? The one beauty about retail is there is a lot of turnover. Every year, about half the employees will change. That gives us a chance to hire people who are specialists in our new model.

Do you have a part that you are particularly proud of?
I love the heavy use of mannequins, the focus on display. I like that every environment is pure. That’s an Izod fixture that’s designed by them. The signage is 100 percent what Izod wants. Levi’s has designed these tables after doing a lot of research.

This is the one with 88 iterations of Levis?
Eighty-eight different finishes. This denim bar changes the way you buy a pair of jeans. It’s got technology with the iPads, but the simplest thing is every fit and every finish is on display at the bar.

I’m curious about the interaction with vendors.
Last November, my second week on the job, someone said, “Can you go meet the Levi’s team?” We show up in San Francisco. At the start of the meeting there are these huge decks in front of us, and I said, “Let’s not look at the paper. Where is the best place to buy a pair of jeans?” Chip [Bergh, Levi’s CEO] said, “Well, we just opened this new concept store in Tustin, California.” I said, “Let’s get on the plane and go there right now.”

And did you?
We literally stopped the meeting. Our team got on a plane with the Levi’s team. We walked through their concept store where they had the denim bar, and we said, “How do we do that for back to school?”

Does the mentality change when you’re part of a JCPenney, vs. when you’ve got a stand-alone store?
I think most of the vendors, when they come here, go, “I get it.” Like I said—we are repositioning JCPenney from being a promotional department store to being a new category called a specialty department store. It lets the product be the star.

I see you’ve changed the mannequins.
I think we bought 55,000 mannequins. All new mannequins, more energy, better style. We’ve got teams that are dressing mannequins in a whole new way. Historically the merchant picked the mannequin. We now let the design teams do that, because they tend to mix things in a way that is really artful. We rarely wear a brand head to toe. We go in the closet and we go, “Let’s mix it up.”

I don’t want to carry the analogy too far, but at Apple stores, I think of events. Do you plan to do anything like that?
Our average store will have almost a third of a mile of streets when it’s done. There’ll be different activities along the street throughout the store. The things you’ll do in kids will be very different from the things you do in home and very different than you do in men’s or women’s.

Can you give me a sense of the activity?
We have this dream in Martha Stewart that we’re going to put in Martha’s kitchen. Martha has always been committed to helping people cook better, organize better. She really wants to help people with their lives. We want to bring that to life in a store.

And will that also roll out at the same time?
Yes. Next spring. We’re going to redo our whole home area. The centerpiece of that is our relationship with Martha Stewart.

What else do you think will keep shoppers here?
We’ve got a magic fitting room coming that’s really cool—it’s meant to create a seamless experience between the online and in-store that hasn’t been imagined yet. That will roll out next year. There are lots of ideas percolating.

So how do you get people in the store?
We used to drive traffic through the illusion of savings. We’ve got to earn traffic through merchandise and content and experiences. At Apple we never once advertised a store. The Apple store never used a coupon.

You built that from scratch, though.
We view this as a startup. Like any startup, the question is how big will you be when you get your idea fully played out? At the end of this year, we’ll kind of find out how big our startup is. It will be less than it was the year before because we’re going through this process of retraining our customer. We knew we would go backwards, but once we get to next year, we think we start to propel forward. We’ve just got to get to the other side.

Do you anticipate a different customer?
Yes, we’ll get a new customer, but the most important thing is to keep our core customer. You know, we’re here to put a bear hug around the middle class, treat that customer with respect. And that’s why we’ve got to have the ability to get new merchandise partners. Joe Fresh will bring a lot of new customers. It’s really popular. It’s fun. At Apple our stores were busy when we only had Macs. Then we added the iPod; they got busier. We added the iPhone; they got busier yet. We added the iPad, and they got busier. The same thing will happen here. Next spring it’s Joe Fresh, Martha Stewart, all our new partners. It will be just like Apple: boom, boom, boom.

Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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