Silicon Valley star a bad fit as J.C. Penney CEO

Maybe it was the ice sculptures. Or the order to stock slim, European-style men's suits. Or the swagger of a protege of the mighty Steve Jobs.

From the moment Ronald B. Johnson arrived at the Plano, Texas, headquarters of J.C. Penney, some there believed he would not last long. Monday, the doubters were proved right. After a tumultuous 17 months as chief executive of Penney, Johnson was pushed out.

He blew into Plano a star, a man who helped build the juggernaut Apple Stores. But his Silicon Valley ways - evident from a showy party in early 2012 that he threw to celebrate himself and his plans, replete with a light show, fake snow and flowing liquor - jangled from the start.

His pedigree seemed impeccable. His B.A. from Stanford, his MBA from Harvard, his years building Target and, then, his time with Jobs. But it all ended Monday when the board voted to replace him with his predecessor, Myron E. Ullman III, a move seen as a stopgap measure that did not instill confidence in the 111-year-old retailer's future.

Shares plunged by more than 12 percent Tuesday as investors and analysts speculated whether the company could halt its sales collapse or even avoid a takeover.

Johnson wanted to transform Penney into shopping wonderland with designer boutiques and stable prices instead of coupons. But many of his ideas were not tested and soon backfired, and in recent months the board, including William A. Ackman, the activist hedge fund titan who had recruited him, grew impatient.

No sooner had Johnson been named as chief executive in 2011 than he began poking fun at Penney's way of doing business.

At a regular Monday sales meeting, "he was pretty sarcastic about our marketing and how ridiculous it was," and he asked the chief marketing officer to count up in front of the group how many mailings were sent each week, said one former employee who, like others who spoke for this article, asked to remain anonymous to protect working relationships.

Johnson dismissed most of the top executives from Ullman's reign and brought in his own team, largely from Apple and Abercrombie & Fitch. Johnson commuted from California, and employees said he was a hard worker, decisive and responsive to even late-night emails. But few of the top executives he had hired relocated to Texas, instead working there a few days a week, staying "quarantined," as a veteran put it. Penney hands used the acronym AAPLE to refer to the newcomers - Apple & Abercrombie Paid to Lose Earnings.

By early fall 2011, Johnson was tackling Penney's pricing, which he thought used too many discounts. He ignored a study Penney had just completed on customer preferences and gave merchants a one-sheet grid explaining what prices they could use.

"Ron's response at the time was, just like at Apple, customers don't always know what they want," said an executive who advocated testing. "We're not going to test it - we're going to roll it out."

Suddenly, employees were changing price tags on tens of thousands of items. When an executive warned that Johnson's sales projections for the coming quarter were too optimistic, he declined to adjust them, the executive said. When the new pricing was introduced in 2012, sales fell.

Johnson believed his taste was paramount, executives said.

In a push to make Penney into, as Johnson called it, Bloomingdale's for Middle America, he ordered merchandising executives to move away from frumpy categories like maternity wear and toward slim-fit polos and European-cut suits - despite the fact that many shoppers went to Penney for figure-forgiving basics, according to two former executives.

He got rid of about 400 existing brands. In case shoppers weren't getting the point that they weren't good enough, Penney ran an Oscars ad telling customers they "deserve to look better."

"If you're a certain customer and you've been shopping Penney's, that's kind of insulting," a former executive said. "You're going to come in and say, there's nothing for me."


Loading comments...
Hide Comments