Ron Johnson Updates Plan for J.C. Penney’s ‘Start-up’

He acknowledged that the road has been rocky, but said looking at comps is “irrelevant if you’re looking forward” instead of back.

NEW YORK — Feb. 1 — that’s Day One for the new J.C. Penney Co. Inc.

This story first appeared in the October 3, 2012 issue of WWD.  Subscribe Today.

“We look at JCP as a start-up,” Ron Johnson, chief executive officer of the Plano, Tex.-based retailer, told an overflow crowd at a luncheon at the New York Hilton on Tuesday sponsored by Fashion Group International and The Robin Report. That date will mark one year to the day that Johnson went public with his dramatic reinvention plan for the company.

That plan has met with little success thus far, as the company’s profits dove and comparable-store sales went into steep decline. In the second quarter ended July 28, Penney’s posted a net loss of $147 million and comps dropped 21.7 percent. Total sales fell 22.6 percent, and Internet sales were down even more, dropping 32.6 percent from last year.

Johnson acknowledged that the road has been rocky, but said looking at comps is “irrelevant if you’re looking forward” instead of back. He said that by February — “after a year of de-promoting” and this precipitous drop in sales — he expects customers to begin to embrace his vision to transform Penney’s into a true “specialty department store.”

RELATED STORY: Penney’s Puts Focus on Positives After New Store Walk-through >>

Since taking the reins of the 110-year-old retailer, Johnson, a veteran of Apple and Target, is working on revamping the chain by creating a collection of 100 shops centered around brands such as Joe Fresh, Disney, Claiborne, Levi’s, Haggar and Izod.

“Over the last 20 years,” he told the group, “the customer has chosen specialty stores [as their preferred place to shop.] That’s where the productivity has come from.” He said the average mall offers about 100 stores, not counting the anchors, and by the time his plan is fully implemented, “you can walk into a J.C. Penney store and have as many choices as you have in the mall.” The key difference, he said, is that the customer doesn’t have to deal with checking out at a variety of different locations, but can “meander” through the offerings at Penney’s and make one purchase.

He said the “new interface” for this shopping experience is “The Street,” a half-mile-long open area where customers can relax, check their e-mails, sip a coffee or play games.

He likened the experience to Apple’s iPhone, which allows users to customize their experience through the use of apps. At J.C. Penney, he said, the apps are the shops.

“We’re designing a store for the future,” he said. “And if we do our job well, J.C. Penney will disappear and customers will connect with the creators. We’re just creating a place for them to engage.”

In response to a question from Robin Lewis of the Robin Report, who moderated Johnson’s presentation, he stressed that each of the shops would be “pure,” and created by the individual brands to best illustrate their image. He singled out Joe Fresh, the Canadian brand that recently entered the U.S. market with its own stores and which has signed on to open shops in about 700 Penney’s stores. Those shops will be designed and merchandised by Joe Fresh, and Johnson said that by teaming up with Penney’s, the brand can gain a fast foothold in America.

Johnson also cleared up what he called a misconception that the 100 shops would all be brand-specific. He said that several will be dedicated to classifications merchandise, including men’s suits, underwear and towels.

Addressing a private label versus brands question, Johnson said Penney’s will reduce its private-label penetration from more than 50 percent to around 25 percent. He said that “peak performance for moderate department stores,” such as Mervyns, came when the percentage was around 25 percent private brands and 75 percent national brands. When Mervyns went out of business, he said the private-brand percentage had moved up to 60 percent.

Johnson also took the issue of Penney’s pricing head-on, admitting that the company’s dramatic shift away from promotions and coupons to a three-tiered pricing strategy was confusing to the customer. But this summer, the pricing structure was simplified to offer everyday low prices and clearance, and the marketing was changed to deliver that message.

He said if he had to do it over again, he would have implemented “fair-and-square pricing right from the blocks. We got too tricky, and we could have been six months further ahead on the learning curve.”

Although he’s sure there will be other stumbles along the way, Johnson remains committed to his plan. “We will tweak the practice, but we won’t change the vision,” he said.

However, he added: “The challenge is to get from here to there.” The performance of the first 12 shops that have been installed has been “off the chart,” he said, and because Penney’s has a “rock-solid balance sheet,” it can financially withstand the overall drop in sales. “Will it work? I believe it will. We’re changing the model, but that’s what it takes to get ahead.”

In response to several questions from the audience, Johnson said he looks at the U.K.’s Selfridges as the retailer most similar to what he is proposing for Penney’s. And he pointed to J. Crew’s ceo Mickey Drexler and Whole Foods’ co-ceo Walter Robb as merchants he most admires, because they both stay true to their brands and are visionary leaders.

He also proudly pointed to his “80s, two-ply” blue-and-white striped JCP dress shirt — retail price: $25 — and dress slacks, which he opted to wear to address the fashion crowd.