J.C. Penney CEO Ron Johnson is out, according to a press release sent out by the company. The store's former CEO, Mike Ullman, will replace him. This news should not come as a surprise to anyone who's been watching the Penney saga unfold. Johnson, a former Apple and Target exec who joined J.C. Penney in November 2011, tried to bring the long-struggling store into the 21st Century with an updated design, tons of designer collaborations, lower prices, and the elimination of discounts. (Each of these tactics, particularly the last one, alienated what's left of Penney's loyal customers. People are creatures of habit. They're used to markdowns. Even if a product is cheaper in the first place, they can't help but want to see it discounted.)
Anyway, Johnson also brought in some great brands to Penney, including Martha Stewart (whoops, that resulted in a lawsuit), Michelle Obama favorite Duro Olowu, MNG by Mango and Joe Fresh. These were all great prospects. But no matter how hard Johnson tried, no matter how good his strategy was, it was never going work. Here's why.
J.C. Penney is a public company. As a public company, it has shareholders to think about. Shareholders do not like experimentation. They don't like dips. They don't like struggle. And retail is all about the ups and downs, the trend cycle. That's why so few retailers go public, even though an initial public offering is great if you want to increase the size of your business from big to ginormous. It's why Mickey Drexler took J.Crew private in 2011. Apparel retailers are not great public companies. Especially retailers that fell out of the public's favor years ago.
It's obvious why Ron Johnson took this job. He's got an ego. He's seen incredible turn-arounds happen in the past. He wanted to sweep in and save Penney because he believes he is special and capable of doing so. If given more time, he very well may have been. But public companies live and die by quarterly results.
And dying is very well what might happen to J.C. Penney. Not right away, but sooner than later. It's seen its day. People don't shop at department stores like Penney anymore.
And what will become of Ron Johnson? (Assuming he doesn't go right back to Apple.) Well, he obviously has vision, and I believe he's talented enough to do create a retail environment today's consumer will want to visit. What's working right now in mass retail are new brands or the revival of long-buried labels: C.Wonder, Uniqlo, Joe Fresh, and Madewell are just a few examples. A few savvy investors should throw Johnson some money and let him create a new store identity. Something that's not weighed down by its unfortunate past.