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J.C. Penney's controversial former CEO is unsure if the retailer will be around in 5 years

Brian Sozzi

The ghost of Ron Johnson lives on in hundreds of J.C. Penney stores, you just have to look real closely.

Faux wood floors that once showcased fashionable Joe Fresh wares — an edgy Canadian apparel brand brought in by Johnson — now hawk run of the mill women’s dresses.

Shops that were built by Johnson in the home department to feature the pricey Jonathan Adler lifestyle brand — a move done without much regard to cost or insight into the core J.C. Penney customer — are now organized by product type. The home brands found in these physical structures are often less well known than Adler, and the price is usually 50% off.

That 50% off sign is a far cry from the norm during Johnson’s reign as CEO of J.C. Penney, where he famously did away with coupons and promoted a “fair and square” pricing scheme.

Johnson came in guns blazing as CEO of J.C. Penney in November 2011. Armed with a track record of success as the architect of Apple’s retail stores alongside Steve Jobs, Johnson loaded up J.C. Penney’s balance sheet with debt to push forward an agenda of opening hundreds of shops to cater to both higher income and younger customers.

“When I went to J.C. Penney, the goal was to create a new concept to really get at a younger customer. J.C. Penney was really good in the 1960s, but their customers aged and others went elsewhere,” Johnson recalled in an interview with Yahoo Finance. “So I had a vision to really remake the department store to be about great value everyday, about new exciting products, about an improved in-store environment.”

“We were on that journey, but it was difficult. Anytime you make a major change, your business is going to go down before it goes up,” added Johnson. “A lot of people that I worked with at J.C. Penney — employees and board members — just weren’t quite comfortable that the direction I was leading with was the right one. So they decided to bring back Mike Ullman and do a U-turn. That turned out to be a tough decision, too, because they haven’t added any sales over the last five years.”

J.C. Penney’s sales have largely been stagnant the past five years — in 2014, sales reached $12.3 billion and are seen hitting $12 billion in 2018. The struggling retailer hasn’t disclosed its full year 2018 financial results yet.

When things at JCP got real bad

Amidst the process of trying to create this futuristic retailer while working with very cautious veteran J.C. Penney executives and a cost conscious core shopper, Johnson sat back and watched sales absolutely fall off a cliff. The declines were stunning, almost never seen before at a publicly traded retailer.

In Johnson’s first full year as CEO in 2012, J.C. Penney’s same-store sales crashed 25.2%. The company lost $766 million on an adjusted operating income basis. Cash flow plunged to $930 million from $1.5 billion the year before.

Meanwhile, the online business was mostly neglected — despite the advance of digital shopping — as Johnson went all in on remodeling physical stores.

Through it all, Johnson’s earnings calls with Wall Street and interviews with media were supremely positive. Even by CEO standards Johnson’s boasts were over the top.

Some 17 months into the gig, Johnson was shown the door. Still reeling from Johnson’s initiatives, J.C. Penney lost a staggering $1.2 billion on an adjusted operating income basis in 2013.

J.C. Penney’s stock price under Johnson: a not so flattering decline of 57%.

Former J.C. Penney CEO Ron Johnson announces the new jcpenney strategy at the jcpenney launch event at Pier 57 on January 25, 2012 in New York City. (Photo by Astrid Stawiarz/Getty Images for jcpenney)

The return of discounts and coupons

There have been three CEOs at J.C. Penney since Johnson got the boot — former long-time J.C. Penney CEO Myron Ullman (brought back into stabilize J.C. Penney after Johnson), Home Depot stores executive Marvin Ellison (groomed by Ullman; left during summer 2018) and more recently, Jill Soltau.

Ullman and Ellison gave it their best shot to dig J.C. Penney out of the hole Johnson put the storied department store in.

When Ullman brought back coupons, sales turned around a bit as price sensitive consumers cheered. He also recruited Ellison from Home Depot to assume the CEO mantle. Ellison debuted appliances in the stores, hardwood flooring, Michael Strahan men’s clothing, snazzier footwear departments and a better website experience. Sales bounced back, but hit the skids in 2018 as consumers viewed J.C. Penney as too expensive, again.

Ellison also signed off on 138 store closures in 2017.

Saving the beleaguered retailer

Retail veteran Soltau started at J.C. Penney in October 2018 and will be tasked with, like those before her, fixing some of the issues created during Johnson’s reign. Unlike when Ullman and Ellison led the company, Soltau takes over with a severely weakened balance sheet and even stronger digital competitors. Consumers are still unsure if J.C. Penney offers them the best value on a sweater or piece of luggage.

Younger consumers would rather mow the lawn than spend 30 minutes walking around a two-level J.C. Penney looking for a cool outfit.

Saving J.C. Penney won’t be easy, and there could be no guarantee it can be done. And guess who couldn’t agree more: Johnson.

“It depends on how they execute,” Johnson said when asked if J.C. Penney would be around in five years. “They are obviously going to have to reduce their store footprint somewhat. They are going to have to get customers back into the store. But they have a lot of smart people. They are going to work really hard. It’s a challenge because the middle American mall is struggling. So they will work really hard at it and if they execute, they will be around in five years.

Johnson stopped short of saying yes, J.C. Penney would be in business in the year 2024. He added that it’s important that J.C. Penney changes the customer perception of the brand.

“You have to get new customers,” Johnson said. “If you can’t appeal to the young consumer, the young family, your future is going to be difficult.”

Johnson has since founded Enjoy, a Silicon-Valley based e-commerce platform that bids itself as the first mobile retail store available on demand.

All in all, Johnson seems to be a man that has come to terms with his rocky J.C. Penney tenure. Unfortunately, that peace doesn’t extend to his former employer.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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