Apple Retail Employee #1 Moving On

June 14, 2011

The man who created the unique culture and iconic architecture for Apple Inc.’s chain of retail stores, and who guided the initiative to record-breaking financial success is leaving the company. Ron Bruce Johnson, 52, who used his middle name as an alias for secrecy when he arrived at Apple in 2000, will become CEO of department store chain J.C. Penney Company Inc. (JCP) this November. “I’ve always dreamed of leading a major retail company as CEO,” Johnson said in a JCP press release. “I am thrilled to have the opportunity to help J. C. Penney re-imagine what I believe to be the single greatest opportunity in American retailing today, the Department Store.” JCP will be an enormous step up for Johnson from his Senior Vice-President Retail position at Apple—the company has 1,108 stores in all 50 states and Puerto Rico, and 150,000 employees. Even more challenging will be transforming the JCP brand, which despite several initiatives, is still rooted in its 1902-era, department store origins and a generally lackluster reputation.

Besides becoming CEO as of November 1st, Johnson will join JCP’s board of directors on August 1st. His departure will come at about the time that all of Apple’s retail stores for fiscal 2011 have opened in the pre-Thanksgiving time period.

Johnson will replace Myron E. Ullman, III, who had held the CEO position since 2004. He was formerly Directeur General, Group Managing Director, LVMH Moët Hennessy Louis Vuitton and CEO of R. H. Macy & Company, Inc. Ullman, 64, will remain as executive chairman of the board of directors.

Beyond committing his time, Johnson is also committing his personal fortune—he’ll personally invest $50 million in J.C. Penney by purchasing 7½-year warrants on 7.257 million shares of JCP stock, with a price of $29.92 (the June 10th closing price). Johnson would profit if the stock price exceeds the strike price, presumably when he retires. [stock agreement, pdf]

It’s not clear who will succeed Johnson as Senior Vice-President Retail at Apple. There are several top retail executives who have been with Apple since the initiative was started in 2000 and who have the credentials to succeed him.

True Excitement

Johnson came to Apple after an economics degree at Stanford, an MBA at Harvard Business School, and 15 years at retailer Target as a senior merchandising executive. He lives with his family within three miles of the Palo Alto (N. Calif.) retail store and is a frequent visitor there. In the early days, his two children would sometimes show up at grand openings to help hand out commemorative T-shirts to visitors.

By the numbers, he’s guided the stores through two major milestones: the fastest retail chain on the planet to have reached $1 billion in sales (three years, beating out former record-holder Old Navy), and one billion visitors (reached in April 2011). But Johnson is about more than numbers.

Johnson shares the excitement of the 2004 Shinsaibashi (Osaka, Japan) grand opening with a caller, next to Sr. Director International Retail Steve Cano.

Johnson’s boyish look, smile and twinkle-in-the-eye was a fixture at scores of grand openings over the past 10 years. He attended many openings in the San Francisco bay area during the early years, and major store grand openings more recently. He would frequently greet overnighters, shake hands and make sure the waiting line was comfortable. For about the past two years he’s presided over pre-opening press conferences, and meetings with employees and local business leaders, but has skipped the grand opening events themselves.

What is remarkable about Johnson is his genuine excitement about new stores, his pride for the buildings and spaces that the company has created, and his belief that the chain’s employees are changing people’s lives. He hired the best interior design and architectural firms to create the stores, decided to locate them at high-traffic, high-cost locations, and instilled in employees their value within the company and their impact on the lives of customers.

Johnson’s impact extends way beyond Apple and its retail chain, shaking up the retail world in general. His creative and design talents, philosophy of customer service and and attention to detail has raised the bar among retailers, forcing them to consider his techniques and how they might be used to improve their own stores.

Although news of Johnson’s departure was a surprise, the move makes sense when placed along the timeline of his career and aligned with his personal goals—and comes one month after the chain’s 10th anniversary. He developed his business and creative talents at Target, then created and raised a new retail chain to be the most successful in history (It’s the fastest chain to have reached $1 billion in sales—4 years). Now, at 52 years-old, a commitment of at least 7½-years with JCP would lead him to a pre-60 retirement.

Johnson has been paid about $600,000 in annual salary, and has received stock options over his 11 years at the company. According to financial filings, he has exercised 1,790,000 shares in four different transactions over the years, resulting in a net gain of about $190 million. As of last October, he still holds 232,875 shares of Apple stock, now worth about $77.3 million, some exerciseable in May 2012.

JCP’s announcement today did not mention how much Johnson will be compensated beyond his stock investment. It’s implied that he will move to Plano (Tex.) as part of his appointment.

UpdateThe New York Times confirmed that JCP will pay Johnson $1.5 million a year and will receive restricted Penney stock. He’ll be eligible for a 125 percent salary bonus, the company said. In another agreement, JCP will compensate Johnson for 250,000 shares of Apple stock he would have received had he stayed with that company until 2014 (agreements, pdf). An Associated Press story says J.C. Penney first approached Johnson three years ago, but Johnson said it wasn’t the right time. A JCP investor approached Johnson earlier this year and completed the hiring agreement.

Old-Time Department Store

J.C. Penney investors were encouraged by the news of Johnson’s move. The company’s’ stock shot up 14 percent in the hour after the announcement, and it closed up 17 percent for the day to $35.30. Since early 2007 the stock has been on a downward slid from $84 a share, and as recently as August 2010 it traded at $20 a share.

Comparable sales at the company declined during fiscal 2008 and 2009, but increased by 2.5 percent during 2010. Sales were nearly flat from 2009 to 2010, but net income was up by 52 percent.

James Cash Penney founded the company in Wyoming in1902, and later moved to Salt Lake City. It expanded nationally over the decades, but has been a rather schizophrenic company, with acquisitions and sell-offs of various divisions, including drug stores, electronics, auto repair and tire centers, portrait studios, cosmetics, beauty salons and even restaurants.

Last year the company began a transition from, “a traditional department store to a retail industry leader,” and focused on making its merchandise “more exciting and appealing to new and younger customers,” the annual report states. The next step, the company said, is to, “build on what we have accomplished by continuing to assert our style authority, delivering memorable customer interactions and impactful digital experiences, as well as focusing on driving profitable growth through operational effectiveness.”

JCP is completing the wind-down of its catalog business and is exiting the outlet business, closing certain underperforming store locations and streamlining its customer call centers and custom decorating businesses. The company expects to save $25 million to $30 million in 2012 from these actions.

While Apple is among the top three most-recognized brands in the world, with a single logo and a handful of key trademarks, JCP is more scattered. Its logo is forgettable and the company holds an entire stable of trademarks: jcpenney, Every Day Matters, Okie Dokie, Worthington, east5th, a.n.a, St. John’s Bay, she said, The Original Arizona Jean Company, Ambrielle, Decree, Linden Street, Article 365, Stafford, J. Ferrar, jcpenney Home Collection and Studio by jcpenney Home Collection. The company even has a Web site devoted to its many brands, categorizing them as “power,” “destination or “concepts.”

Even more confusingly, J.C. Penney has also acquired and disposed of various outside brands over the years, further obscuring its own brand and identity. Last year the company added 76 Sephora in-store beauty boutiques to its chain and launched the Liz Claiborne line in the stores. It introduced One Kiss brand of jewelry by Cindy Crawford, launched MNG by Mango fashion wear and became the exclusive department store retailer for Call It Spring brand by The ALDO Group.

Read the J.C. Penney press release about Johnson’s appointment.

Johnson poses with Steve Jobs and principle store architect Peter Bohlin in front of the Fifth Avenue glass cube before the grand opening in 2006.

Johnson enthusiastically greets a youthful grand opening visitor at the Upper West Side store in 2009.

This one-month chart of J.C. Penney's stock price show that the moment Johnson's appointment was announced on Tuesday, the company's stock price went up 14% within one hour.


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