Ron Johnson was right about JCPenney
The latest painful chapter in the JCPenney saga has now been written.
CEO Marvin Ellison resigned a couple of weeks back—with the company’s stock price down to a mere $2.43. That’s a particularly brutal number, considering that in 2007 a share of JCP went for $85.
Technically, this plummet was co-authored by three CEOs serving four terms—Marvin Ellison, Ron Johnson and two stints by Myron Ullman.
By numbers alone, it’s hard to tell who was worse. The stock plunged 65% under Ullman (Act I), 54% under Johnson, 58% under Ullman (Act II) and 66% under Ellison.
So I was surprised that Ellison received the praise of many writers reporting his resignation. “He helped turn around J.C. Penney,” said The Street. In what universe that happened may never be known.
Not only do the writers let Ellison off the hook, they seem to rally under a common theme: it’s all Ron Johnson’s fault. After all, Ron was in and out in less than two years, and the stock was decimated during his reign.
However, this narrative ignores two major facts. First, JCP had already lost more than half its value before Johnson took the reins. Second, Ullman and Ellison succeeded only in driving JCP further into the ground.
The truth is, Johnson’s vision was correct and necessary. History has now proven that JCP was (and is) doomed without a radical plan for reinvention.
The company committed the classic sin of throwing out the baby with the bathwater.
The joy of hindsight
Years later, there’s no need to theorize about this stuff. We can clearly see what happened.
Fact #1 is that that JCP became a sinking ship in 2007. The recession started the decline, but shopping habits were changing drastically in the age of technology. JCP’s base of old customers was shrinking, and could no longer be counted on to generate profitability and growth.
Faced with this existential challenge, the JCP board went shopping for a CEO qualified to lead a large-scale transformation. Ron Johnson fit the bill perfectly. JCP’s stock rose 14% on his hiring alone.
What followed was a love-fest, which quickly morphed into a hate-fest. With the company’s stock reeling, Johnson was out—but the story didn’t end there.
Next came Ullman, followed by Ellison, and the decimation of the company’s value continued.
You can look at this two ways. Either Johnson’s leadership was so disastrous that no CEO on earth could ever help JCP recover—or the two subsequent CEOs simply didn’t have the vision.
Ullman and Ellison never even talked about reinvention, lest they be accused of suffering Johnson Syndrome. Instead they talked about finding new efficiencies, tweaking product offerings and shoring up finances.
Ellison specifically focused on getting existing customers to buy more—not on attracting a new generation of customers. There was no talk of rethinking JCP to the core.
Johnson, on the other hand, actually had a brilliant plan. Yes, it had a fatal flaw (we’ll get to that in a moment), but he created a detailed blueprint for reinventing the dying retailer. It was enthusiastically approved by the JCP board. Industry experts were so impressed, JCP gained a whopping 18% the day it was unveiled.
Johnson’s plan addressed all of the challenges.
JCP stores would be beautifully redesigned as a “mall within a mall.” Younger, more affluent shoppers would be attracted by desirable quality brands and expert assistance.
The new JCP would lure new customers to the store by offering a whole new shopping experience—something they couldn’t find online. Respect for the customer would reign supreme. Instead of falling back on the pricing trickery of never-ending sales and coupons, JCP would offer everyday low prices.
Cue the fatal flaw
As Johnson himself admits, he simply went too fast. He cut the coupons and sales before the stores could be physically transformed. In doing so, he alienated the old shoppers before he could attract the new ones.
This was a serious mistake in the execution—not in the plan itself. But in its state of panic, the JCP board felt compelled to jettison the plan along with its author.
Ullman and Ellison tried every trick in the book to return to the Time Before Ron. Unfortunately, it was an outdated book, and the efforts did not stop JCP’s decline.
Why anyone would lust for the pre-Johnson days is beyond perplexing, since the JCP of that time was already suffering a five-year decline. That would be like a ghost wishing it could go back to the death bed.
Good help is hard to find
At every point in JCP’s 11-year downward spiral, the company has needed a leader in the Johnson mold—a creative and strategic thinker with retail in his/her blood, a track record of reinvention and a true connection to modern shoppers.
Instead, they brought back Ullman, the CEO who had presided over the first five years of JCP’s slide. Then they brought in Ellison, whose track record (CEO of Lowe’s) didn’t demonstrate any understanding of lifestyle retail. Neither had any “reinvention” credentials.
Following the Johnson experience, it seems that the board’s guiding principle has been “better safe than sorry.” But being safe will never create sweeping change, and it’s making shareholders sorrier than ever.
Bold brains needed
I will forever believe in the power of smart. Reinvention is the greatest challenge in business, but smart people can overcome any obstacle—even existential ones.
So I’m sorry, but I can’t accept that Ullman and Ellison were doomed from the start. The power to reinvent JCP, to make an imaginative leap, to do something that’s never been done before, was always in their hands—they were simply the wrong men for the job. They were timid in a time that demanded bold.
Creating an amazing customer experience is a vastly better way to revive a dying company than firing up the coupon machines.
Ron Johnson was right—and the five years of wrong that followed him are pretty convincing proof.