Jumping from Apple to JCPenney

Ron Johnson joined Apple in 2000 and developed the Apple Store concept from scratch, creating one of the most successful retail operations in history.

Johnson pioneered the store design that became iconic: open floor plans, minimal decor, and products displayed on simple wooden tables where customers could freely interact with them. This was revolutionary at the time, as most electronics retailers kept products behind counters or locked up in cages.

He created the Genius Bar concept, which transformed tech support from a frustrating experience into a premium service. We were so friendly with one of the genius bar engineers that he came to our holiday cookie party.

The Genius Bar became a cornerstone of Apple's customer service strategy. The Apple Stores became a place to hang out and talk tech with the knowledgeable and energetic Apple Store staff.

Johnson also introduced the concept of high-traffic locations in premium malls and shopping districts, contrary to conventional wisdom about avoiding high rent costs. He believed the exposure and brand presence would justify the expense, which proved correct.

These strategies proved enormously successful. By the time Johnson left Apple in 2011, Apple Stores had annual sales of $5,000+ per square foot, the highest of any retailer in the world. The stores became a crucial part of Apple's brand experience and helped drive the company's massive growth during the iPhone era.

He abruptly eliminated Penney's popular coupon and sales promotion strategy in favor of an "everyday low price" approach. While this strategy had worked at Apple, it failed dramatically at Penney because its core customers were deeply accustomed to and motivated by coupons and sales events. The sudden shift left loyal customers feeling disconnected from the brand they knew.

He invested heavily in store renovations and new shop concepts before proving their viability. While the shop concept showed promise in some test locations, rolling it out widely before validation was a costly mistake. The massive capital expenditure strained the company's finances while disrupting existing store operations.

Hey, CEOs need big egos, but gimme a break!

The results were devastating: In Johnson's first year as CEO, Penney's revenue dropped 25%, the company lost $985 million, and its stock price fell by more than 50%. Customer traffic declined dramatically as loyal shoppers felt abandoned and new customers failed to materialize in sufficient numbers.

The extent of these mistakes forced Johnson's departure after just 17 months, but the damage to Penney was lasting. Sales never recovered and the retail downturn caused by the COVID-19 pandemic pushed the company into bankruptcy in 2020.

Key Takeaways

• Success and financial rewards in one instance do not guarantee the same on your next gig. Johnson did not need the money, but went from one of the best and most-admired companies in the world to a struggling retailer. Nothing Apple sells is a bargain. All of its products cost more than competitive alternatives. Everything Penny sells is presented as a bargain. The companies cater to two totally different markets. No amount of re-imagining or re-engineering can change that.

• The grass is not always greener. Try to avoid learning this the hard way. If you are a top executive at Apple and are making a move for a CEO job elsewhere, think Rolex, Mercedes-Benz, Louis Vuitton, etc. Go to a customer market you understand. You can always reconfigure your product or service, which is easier than convincing customers to change behavior.

• At some point Johnson stopped listening for market signals. His boasts about not needing market tests because he knew what people wanted were absurd. We need to always be listening to our customers all the time because competitors certainly are.

Things I think about

Apple iPhone has a 63% share of the smartphone market in the US, but only an 18% share globally.

Recommended Reading

Steve Jobs
Complete biography by Walter Isaacson.

Wizard of Lies: Bernie Madoff and the Death of Trust
The story of Bernie Madoff and the biggest financial fraud ever.

When Genius Failed
The collapse of Long-Term Capital Management, and the brilliant financiers that ran it.

The Secret Race
Lance Armstrong’s teammate, Tyler Hamilton, blows open the cycling doping scandal from the inside.

Launch Key
Weekly newsletter full of wisdom on how to launch a business.