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J.C. Penney ousts CEO Ron Johnson, brings back his predecessor

The former Apple executive stumbled badly in his 17 months as chief of the department-store chain. His upscale strategy alienated J.C. Penney's budget-minded customer base.

April 09, 2013|By Tiffany Hsu and Walter Hamilton, Los Angeles Times
  • As CEO, Ron Johnson’s most controversial move was abandoning J.C. Penney’s long-standing discount sales in pursuit of a more discerning, less price-focused clientele. Above, Johnson in 2012.
As CEO, Ron Johnson’s most controversial move was abandoning J.C.… (Astrid Stawiarz, Getty…)

Ron Johnson was ousted as chief executive of J.C. Penney Co. after a remarkably short and gaffe-filled tenure that succeeded mainly in driving away customers.

Johnson was lured 17 months ago from a top job at Apple Inc., where he was celebrated for pioneering the technology giant's cutting-edge retail stores. But he stumbled badly at J.C. Penney, pursuing an unorthodox upscale strategy that alienated the company's budget-minded base.

His time at the helm of the 110-year-old department-store chain was marked by unusually sour statistics: Revenue tanked 25% in a single quarter. The stock has plunged nearly 53% in a year. And 19,000 J.C. Penney workers have lost their jobs.

Johnson "is an impressive guy ahead of his time, someone with big ideas," said Anthony Dukes, an associate professor of marketing at USC Marshall School of Business. "But it seems the board wasn't ready for his ideas or didn't agree with them, and decided there was no point in dragging it out."

The tumult continued after Johnson's departure Monday. As is common on Wall Street, the company's stock shot up after the announcement — nearly 13% in after-hours trading.

But investors' initial elation yielded to renewed anxiety when J.C. Penney revealed that Johnson is being succeeded by Myron E. Ullman III, his immediate predecessor. The shares then dropped to about 6% below their closing price.

Ullman headed the Plano, Texas, retailer from 2004 until giving way to Johnson in 2011. The company was known at the time for its drab image and uninspiring stock performance, but sales were stable and the company was not viewed as particularly troubled.

Johnson was a sharp departure for the staid chain.

He was a high-minded impresario who had overseen the introduction of features such as Apple's Genius Bar. Johnson was personally chosen by William Ackman, the controversial hedge-fund manager who owned a roughly 18% stake in J.C. Penney as of year's end.

But Johnson ran into trouble almost immediately.

He butted heads with investors and consumers over his drastic turnaround strategy, which involved glamorous partnerships with high-end designers, boutique shops within J.C. Penney stores, stylish ads and streamlined operations.

His most controversial move was abandoning J.C. Penney's long-standing discount sales in pursuit of a more discerning, less price-focused clientele.

But customers, used to the bargains, revolted. Johnson had to return to markdowns, an embarrassing about-face at a company that had emerged as a prominent test case for the future of the retail sector.

"In the grand scheme of things, the Ron Johnson era at J.C. Penney has been a failure," said Michael Stone, CEO of brand licensing firm Beanstalk.

Ackman initially championed Johnson's vision of a full-scale makeover for J.C. Penney, believing that the brand peaked decades ago and had been "dying slowly" since, Ackman said at an investor conference Friday.

But even Ackman admitted that Johnson has made "some very big mistakes" and that his changes have been "something very close to a disaster."

Johnson's downfall is one of the more dramatic in modern corporate history, especially given the high-profile job he vacated at Apple and the speed of his demise at J.C. Penney.

A handful of other prominent chieftains have flamed out in spectacular fashion, including Carly Fiorina at Hewlett-Packard Co. and John Sculley at Apple. But they lasted far longer and left only after their strategies failed over a period of years.

Company boards are hesitant to oust CEOs quickly, saying executives should be given time to produce results. Directors also are reluctant to acknowledge the failure of leaders they have hand-picked and wooed away — at expensive salaries — from other companies.

One of the few CEOs to suffer a shorter tenure than Johnson was Leo Apotheker, whom Hewlett-Packard fired after less than a year after financial misfires, scathing criticism of his strategy and a tumbling stock price.

Johnson's downfall, analysts said, stemmed partially from his ambitious tactics.

Instead of using broad strokes, Johnson should have started with pilot projects in small clusters of stores or with incremental promotions, said Raechel Jackson, director of the consumer and retail practice at marketing consulting firm Simon-Kucher & Partners.

"It's a common pitfall for many retailers, that they try to hit a very small bull's-eye with a rocket launcher," she said. "When you try to make a huge change in your business strategy overnight, customers are confused about who you are as a brand, and that's an opportunity for them to leave you."

Johnson also was undone by his high-profile courtship of Martha Stewart Living Omnimedia Inc. J.C. Penney signed a deal with the domestic diva to feature her wares as the centerpiece of the chain's redesigned home department.

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