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Ron Johnson's 5 Key Mistakes At JC Penney, In His Own Words

Fast Company spoke to former JC Penney CEO Ron Johnson three months into his new job. What he said then helps explain why things didn't work out.

On Monday, after less than a year and a half on the job, a $4 billion revenue loss, a plummeting stock price, and a soap opera court case, Ron Johnson, the whiz behind Apple's $50 million-per-store retail business, was finally ousted by JC Penney.

In November 2011 the business world began to digest news of one of the most unexpected, if not intriguing of talent transplants. Not only did the Plano, Texas-based retailer appear to be everything Apple was not—dowdy, dusty, irrelevant, and a dying business model—as the company’s new CEO, this would also be Johnson’s first attempt at running an entire company. There would be no bigger stage for Johnson to succeed or fail than this.

We all know how that plotline ended. But back in January 2012, only three months into the honeymoon phase of his new gig, I flew down to Plano to talk to Johnson about what led him to make the move, and what his plans were for turning around the atrophying department store. It was there sitting in a room surrounded by images of his dramatic vision to transform consumer behavior—new pricing structures, no more discounts, lifestyle marketing material over coupons—I learned that it was no accident Johnson had found himself in his newly minted chief executive perch.

It turns out that in the early '80s, after Harvard Business School and brief stints at an accounting firm and investment banking, Johnson was faced with a fork in the road: work for Goldman Sachs’ M&A group or in the stock room at Mervyn’s. "I picked Mervyn’s. But I picked it because ultimately I felt retail is generally a young person’s business compared to most industries. At that time people like Mickey Drexler [now CEO and Chairman of J Crew] were taking over the Gap, and he was in his early 30s. So versus any other career, if you were good, you’d have a chance to move to a leadership position faster than probably other industries," Johnson told me. (It also happens that Drexler, who later became an Apple board member, was the one who many years later whispered in Steve Jobs’ ear to hire Johnson—then a merchandising head at Target—to build Apple’s retail business.)

Johnson’s hunger to become a CEO came to a head in 2011, after 12 years at Apple and a global 300-plus store retail business that had become a well-oiled machine. (And, yes, let’s not ignore that a chapter at Apple was about to end with Steve Jobs on his deathbed). Johnson told me of his mindset at the time, then Apple’s Senior Vice President of Retail, "Quite honestly leading the Apple retail stores had become a hobby. It was fun, but I felt like I wasn’t being stretched. It was just too easy." Plus, he wasn’t getting any younger. "I had just turned 50 and I realized if I really wanted to lead a company, that’s something you need to commit to doing for a long time. I felt like I was now at an age and skill level that if I wanted to do that, perhaps I could do a good job."

At the time Johnson—then seen as a sort of Steve Jobs of retail—could have arguably gotten any retail job in corporate America. According to him, JC Penney had been knocking at his door for some four years, and ultimately he decided it would be his ideal next move. "I’ve always believed that the department store was the single biggest opportunity in retail, and as every year went by that I worked in Apple, the opportunity was getting bigger and bigger and bigger," Johnson told me. "So when I thought about what I could do I wanted to do something that had scale. I don’t just want to run a business, I want to do what I did at Apple—I want the chance to transform something. So I picked JC Penney. I didn’t come here to improve Penney, I’m here to transform Penney. I think the industry is ready for it, customers are ready for it, and we’re going to do it."

Which obviously over a tumultuous 17 months, isn’t how it played out.

Here's a deeper look at Johnson’s miscalculations—in his own words.

1. JC Penney Is Not A Startup, And Therefore Can't Behave Like One

"My favorite three words in the English language are 'In the beginning' and that’s how I view this. This is like we’re a big $18 billion startup. And we’re going to act like a startup in how we make decisions.

"We can move as fast as we’re willing to and we’re going to win shop by shop, month by month. So every month there will be something new at Penny’s and there will be new shops coming in every month. And eventually we’ll have 100 shops and we’ll just keep moving."

2. Not All Business Decisions Can Rely Solely On Gut

"All my ideas just sort of come. I don’t know to explain it. It’s all intuitive I think. [Did you spend time visiting all types of retailers?] No. I have been immersed in the retail industry for nearly 30 years, loving it, living it every day. Whether I’m doing Apple or Target, you’re immersed in the industry—you're reading, you're thinking, you’re doing. Through that you’re forming your intuition. It’s not like you go out and go study something and go, What am I going to do? You just kind of have an instinct for this stuff.

"So we want to use our imagination, so that’s what we do, and that’s what we’ve always done. I don’t look around and go, 'That’s a good idea.' I just kind of imagine what I’d like. That’s what [JCP’s] Town Square will be, it’s the kind of things I’d like and the teams would like."

3. JC Penney Isn't Apple

"Why am I here? It’s because I love the challenge of taking a great brand with a great opportunity and making it come alive. It’s what I did at Apple, working with the team there and I view JC Penney and Apple surprisingly similar. They’re like identical. Go back to 2000. When I joined Apple, what was Apple? It made personal computers only, it had 3% market share and most people believed its best days were in the rearview mirror. So why would you go to a money losing computer maker? And at that time I worked at Target and Target was just becoming Tar-Shay. Target was on fire in the 1990s and I was part of that, so why are you leaving Tar-Shay to go work at Apple? All my friends from Stanford in the bay Area going, 'Are you kidding?! You’re going Apple?!' But I knew Apple in its DNA had a great brand. But no one could connect with it because there was no physical way you could buy their products.

"When Steve said ‘Let’s do stores,’ it worked when nobody believed it would work. If you really go back not a single analyst thought it was a good idea, but it was.

"I thought Penny’s would be the best department store to go to because it’s the best positioned because it’s got a heritage that’s grounded in what a department store needs, which is integrity. People want to have relationships with brands that are real, and that’s what Apple is. You trust Apple to do the right thing. To make a product that’s easy to use, to have a store that will really serve you. That’s what you want in a relationship with a brand, you want trust. Penney was founded on the Golden Rule, which is treat people fair and square, treat people as you’d like to be treated yourself. That is the DNA of this brand.

"Our vision is to become 'America’s Favorite Store' because it’s a store for all Americans. Because we don’t have to only sell to moderate income people or rich people, we can sell to everybody. And we’re big enough, we’re located where they live, so why limit our reach? That seems kind of silly. I mean I learned this at Apple. When I started with Steve at Apple as I asked him, 'Steve, who’s your customer?' He said, ‘A creative professional.’ I said, I don’t want to do that. I said: ‘Why would you want to limit the brand to creative professionals? Everybody needs a better computer.’ He agreed with that and that’s why we put stores in malls and why we put in little kids’ tables. So we made the Apple stores for young people, for seniors with personal training, for business people, and for men and women. The ultimate niche brand back then was Apple. You look today and Apple’s the store for everyone. So when I come to JC Penney and it should be the same thing—we should be the store for everybody—why limit your reach? We’re going to be the store for all Americans. We have to reach out to appeal to everybody, and that’s what we’ll do. Because why limit your reach? Doesn’t seem kind of silly? To me it does."

4. Managing A Team Within A Company Requires Different Leadership Skills Than Being The CEO Of A Company

"I’ve been leading groups for a long time. I’ve been in retail for a long time. So this is sort of second nature. This is recreational. Working at JC Penney is recreational. It’s a hobby. It’s kind of like people who love golf love to play golf. I love to do retail.

"A company needs a CEO, someone to talk to Wall Street and stuff like that. Internally I think of myself more of a captain. I’m one of the teammates, and if we need to toss a coin I might make that choice, heads or tails, but ultimately I just want to lead the team. So as a captain I get to play. I want to be involved when they do work, I don’t want to review work when its done. I’m just kind of on the team, I hope it feels that way.

"I don’t think I’ve ever said that before, but the other day I was thinking about what my role is. I just believe everyone has skills and someone’s got to be the leader, which I get to do, but leadership, I always tell people, is a situational thing. So when we’re creating a book [catalog] I get to have an opinion and throw out ideas, but ultimately whoever is doing this product, that’s their deal. We all have roles to play, but leadership is very situational."

"[This is your first time being CEO. How does it feel?] It doesn’t feel that different. I’ve always just kind of worked with people. I like hanging out with people and creating things, it doesn’t feel any different. [Does the level of responsibility feel any different?] No, because you can only do as much as you can. I think we’re all limited as to what we can do on our own. If you feel differently it’s kind of an arrogant thing."

5. Behemoth Businesses Can't Be Reinvented Overnight

"My intuition as a student of the industry was every time I’d walk into a [department] store I’d go, 'Why do they do this? Why do they lie to the customer about the regular price? Why do they make up a regular price to sell it on sale?' I don’t understand being dishonest about pricing. Why are the fixtures the same that were used in 1985 when I folded my first pants at a Mervyns store and organized the racks? Why has nobody innovated presentation in 30 years? Why do you spend tons of money on what you call marketing that’s really promotion, that’s brand withdrawal with every dollar you spend? Why are you investing in marketing that hurts your brand? Why do you have private labels that you think are really brands that customers see as clothing by the pound? I just don’t understand that. That made me think—that would be interesting to learn why it’s happened—but wow, if you could change that, that could be a pretty big deal.

"The number one competitor is ourselves. It’s our ability to change. The number two competitor is everyone else. It’s not Macy’s, it’s not Kohl’s, because if you look at it, every one of our customers shops Amazon, Target, Macy’s, Kohl’s, specialty stores, The Gap—they all shop around! Everyone shops everywhere. So if you look at your competitor as a competitor, you’ll make a mistake. Your competitor is yourself and they way you unlock potential is to unlock a new way to compete. And ideally in a way that’s never been done before, so it’s seen as new."

[Ed note: An earlier version of this story misstated the size of Apple's retail business—it's $50 million per store; Apple reported $6.44 billion in retail sales in Q1 2013.]

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  • icarusart

    Ron Johnson gives business a bad name. Just because has "Harvard" on his resume doesn't mean he's good at anything. How can you justify getting paid millions from these companies. Target was and still is a glorified K-mart. At Apple you just rode the success of a product. You nearly ruined JCP. The only long lasting impact you have had was to ruin everything you touched. Ron Johnson you are a vagabond. I wouldn't hire him to sell candy in the parking lot.

  • icarusart

    Ron Johnson gives business a bad name. Just because has "Harvard" on his resume doesn't mean he's good at anything. How can you justify getting paid millions from these companies. Target was and still is a glorified K-mart. At Apple you just rode the success of a product. You nearly ruined JCP. The only long lasting impact you have had was to ruin everything you touched. Ron Johnson you are a vagabond.

  • sherry

    why is it hard for anyone the get credit because the ssn that you get for your kids when they are first born well its for tax reason and welfare food stamps well if you don't sign for it then it not your i would like for everyone to be able to sign for there own ssn and be able to apply for the own new ssn if you mom or dad has bad credit then you stand a better chance to get bad credit as well

  • I am sad

    I was wondering what happened to Target, now I know. I stopped shopping there a long time ago because they left their roots. I used to tell my husband I would live anywhere as long as there was a target store. I used to shop at Mervyns but they closed up I am sure that had something to do with what happened to Target. Then the BOMB RON hit JC Penny. I am sad. I miss the old Target,the old Mervyns, the old JC Penny ( my husband loved the quality of the Statford shirts, the quality went down and the colors were like an Easter basket, not good for work) Maybe before you change your stores you should talk to your customers! Not everyone loves the Apple Stores.

  • Wgreen97

    This man deserved everything he had coming to him. He clearly was attempting to be the hero which nobody needed hime to be. Not once in this article does he mention the customer and their needs and desires. In the end he pull the carpet out from underneath  their core user based which set off a chain reaction to a potential destruction of the future vision the company had put forth for itself. Everyone commenting below clearly needs to meet some really Americans outside the design community before ever commenting on an article ever agan. 

  • Erin

    I wouldn't invest a dime in a company like Penney's.  It doesn't take much business sense to know that you have to keep your main customer base as well as attracting new business.  Johnson just said to hell with the older unchic customers, we're going for the young hip city crowd.  They should have looked at Kohl's--they seem to manage to please everyone. 

  • Z_Lauren_Z

    Yes, Kohl's manages to please (mostly) everyone by essentially LYING to them and that was Johnson's point.

    Pretty much every item of clothing in Kohl's is merchandise they themselves have manufactured under their own label (Simply Vera, Jennifer Lopez, etc.) or a label licensed to them and everything is ALWAYS 30-40% OFF.  Now look at the stuff that they do not manufacture like Coffee Makers, etc. they jack up the retail price and offer only 10-15% OFF.

    My other once bought me a Sonicare product at Kohl's because I had mentioned wanting one and it was 15%.  Well it was 15% OFF $109 - the real retail price?  $85

    I applaud Johnson for trying to be honest with consumers - the problem is consumers are too damn stupid.

  • Matt Chappel

    Lauren, I agree with you that the customer is too damn stupid to grasp what Johnson was trying to do...

    And you know what? A great CEO actually bothers to recognize that fact through research of his/her own customers. If Ron had actually researched the typical JCPenney customer, he would have immediately realized that his "transformation" was not viable.

    It takes time to change the habits of customers. And if that's your goal as a CEO (to change habits) you have to do it incrementally and keep the bills paid while you're doing it by not alienating the base customer.

  • Misterajs

    There are a lot of reasons why Ron Johnson failed. The biggest being that he had no idea who is customers were!

  • Erik Leklem

    Danielle, are you assuming that Ron Johnson's firing was the right decision?  You seem to imply that, but as many other commentators indicate, it may have been the wrong decision...

  • Paulswalters

    I think this is an interesting article. It's so easy to join the chorus of "rear view mirror experts" that knew all along that Ron Johnson's hubris and ego would lead to the reckless destruction of American Icon Brand....brilliant commentary! The real travesty is a Board that sat in the back of the bus....approved a highly ambitious transformation plan for an increasingly irrelevant retailer....and didn't have the stomach for the inevitable "rocky road" they were travelling. I feel sorry for Johnson. He partnered with a group of cowardly stewards (and invested 50M of his own money) only to discover that when the seas got choppy they would be the first to clamour for the life boats. That's hard to live with.

  • Kevin Horne

    rudimentary and obvious. you left out the consumer. so did Ron Johnson...

  • ChefJzy

    The unfortunate demise of Ron Johnson wasn't just caused by errors in judgement or moving too fast.  His demise was also predicated by the mindset of the people who work for Penney's.  That is, "We don't like outsiders, son, especially from California."  It was bad enough to deal with an entrenched organization.  He had to deal with the overwhelming hatred of change of the people who live there.  On top of that, Mr. Johnson and his top folks commuted from CA.  They didn't even live in Plano (HQ).  How can we trust you if you don't even like to live where we do.  If he thinks back, he will find a cohort that worked for his failure at Penney's.  Penney's loses, they win.   

  • Lala

    I think they just needed to wait a bit. I hadn't gone to JC Penney in a century, and I went there it felt fresh and young. It just needed time, they quit on him before it picked up.

  • Chris Reich

    Reading Johnson's comments show that the BOD was dazzled by the Apple Effect. They wanted a Mini-Me version of Steve Jobs. They got Ron Johnson.

    I ordered some casual pants from Penny's that I like to wear when working from home. They sell for for $22. I often catch a sale and can get them for $19. I was stunned at the new price of $6. Yes, $6.

    Sure, those made in Bangladesh pants probably cost $3 to make. That's not the point. Dragging Penny's into the alternate universe of Wal-Mart pricing was a huge mistake.

    That price move told the polyester-loving, no-fashion-sense, I-always-get-the-kid's-school-clothes-here crowd to make room for the we-shop-in-sweatpants-and-eat-while-we-shop gang.

    Building a strategy on price always leads to failure. Price manipulation is a tactic, not a strategy. Penny's didn't draw Wal-Mart's customers away from being able to buy underwear in the same store where they buy their cases of soda and big cheap bags of chips---dinner wear and dinner from the same store! Penny's failed to beat that model.

    What Penney's did do is alienate their already diminishing customer base. You know, the women who wear dresses while they do house work. Penny's customer base is a sort of worldly version of the Amish.

    They could have completely pushed out their base by getting really upfront with gay rights. Oh wait...

    Well,  with Johnson out of work, I might be able to get him to CEO my line of really sexy bare-tummy burkas. We're looking at $8 retail!

    Chris Reich, TeachU 

  • Guest

    Nice observation of the pricing strategy not being enough.  Do you think JC Penney's would be more successful if they would have opened a coffee shop/ high-end food stand in the store?  When I get hungry or need a burst of caffeine at Macy's or Target healthy options are readily available. If I get hungry at Penney's, I leave and don't return.  Penney's failed to access the reasons why they were loosing money in the first place.  They needed to adapt to competitors and offer more than a re-brand. 

  • Chris Reich

     Adding food to their stores would have been another opportunity for failure. I can see them wanting to be different and cheap so they open an "All Instant Coffee" bar.

    In this economy, Penny had an opportunity and missed---I believe the message should have been "better quality than Walmart at value you can afford"  And they should have flown in face of Walmart by giving MADE IN USA a preference----Can you imagine a store in this day that was stocked with mostly MADE IN USA goods? The marketing opportunities with that message are HUGE. THAT would have appealed to their base.

  • Z_Lauren_Z

    People who shop at Pennys CANNOT AFFORD Made in the USA.  I want all of the people who want stuff made in the US to try and actually get something made here.

    I am manufacturing tops in the US - you know how much it costs to sew each one?  $25 - just to be sewn, not including the fabric, not including the notations . . .

  • Cameron

    Shoppers today are drawn to coupons and getting the best deal possible - think of the popularity of groupon, living social and daily deals on social media sites, "share" to win merchandise, etc. While I applaud the effort of JCP to not be "dishonest" with pricing, they still have to keep up with buyer trends.

  • John McHugh

    Ron Johnson "failed" because stakeholders (ownership) were not aligned with his vision for the organization. Plain and simple. Ron stated from the outset he saw this as a 48-month process. When shareholders saw things going south, instead of staying the course, realizing that downward trending (a j-curve) is common in organizations undergoing change, they decided they wanted their return faster and pulled the plug after 17 months. When there's misalignment on vision between leadership and ownership, there's zero chance of success.