Penney Picks Boss From Apple
byELIZABETH HOLMES And JOANN S. LUBLIN • June 15, 2011
Ron Johnson talks to employees and media about a new Apple store in Chicago last year.
J.C. Penney Co. wooed the man who helped create the mystique surrounding Apple Inc.'s successful retail operation to be the next chief executive of the venerable department-store chain.
Tuesday's move—sparked by activist investors who took a big stake in Penney last year—will put to the test the retail acumen of Ron Johnson, who is the head of Apple's stores. The spare shelves and clean lines that made an effective retail backdrop for Apple's iPhones and iPads won't transfer to Penney's acres of product-stuffed floor space, where he faces the more complicated task of getting the right mix of style and price.
The departure is a surprising loss to Apple, which has put heavy emphasis on its stores and has been expanding aggressively internationally. Moreover, Apple has been leaning heavily on all of its top managers with Chief Executive Steve Jobs on a medical leave.
Mr. Johnson, 52 years old, will take over at Penney Nov. 1, succeeding Myron "Mike" Ullman, 64, who has been chief executive for more than six years and will stay on as executive chairman.
Mr. Ullman will continue to oversee a host of day to day functions, including logistics, corporate communications, finance and jcp.com, emphasizing that Mr. Johnson's focus will be on the creative aspects of retailing, including marketing and merchandising. Those are areas where the new CEO "can make an early and important contribution," a person familiar with the situation said.
Investors bid up Penney's shares by 17.5%, on Tuesday to $35.37, up $5.26 each, adding more than $1.2 billion to the retailer's market value.
Mr. Johnson's resume included a stretch at Target Corp., where he brought in a line of household items designed by renowned architect Michael Graves, winning the discount retailer a reputation for style that set it apart from its rivals.
J.C. Penney's stock soared Tuesday on news that the retailer had nabbed an Apple retail executive to act as president and eventual CEO at J.C. Penney. Drew Dowell has details.
His return to the mass market was prompted by William Ackman of Pershing Square Capital Management and Steven Roth of Vornado Realty Trust, investors who bought 26% of Penney's stock last year and negotiated spots on the board.
Given input on a third director, the investors suggested Mr. Johnson. Mr. Ullman had reached out to the Apple executive three or four years earlier, but he was too involved with rolling out Apple's retail vision.
The offer of a board seat got Mr. Johnson interested, and eventually the conversation turned to discussions about bringing him in as Penney's next CEO, Messrs. Ullman and Johnson said in an interview.
In explaining his decision to leave the U.S.'s second-most-valuable company for one with just a fifth of its sales, Mr. Johnson said he wanted a new challenge and was leaving Apple at a high point. "The department store is kind of king of the hill in most countries I go to," Mr. Johnson said. "They should be the leader, and that's what we want to achieve at J.C. Penney."
Department stores have gone through years of turbulence, hurt by specialty retailers, big-box stores and, more recently, the Web. While they have made a bit of a comeback in the choppy economic recovery, they are no longer the go-to spot for all kinds of merchandise. The industry has suffered from sprawl, with huge stores filled with hit-or-miss fashions and spotty customer service.
Penney saw sales tick up by 1.2% to $17.8 billion last year. But that is still well below the nearly $20 billion the company reported in 2006.
Penney's board hopes Mr. Johnson "will change how people shop" and attract younger buyers into its stores, Thomas J. Engibous, the board's independent lead director, said in an interview. While he acknowledged the Apple model won't translate to Penney's stores, Mr. Engibous said, "The fact that he has a lot of creative ideas was very appealing to the board."
Penney has made strides to attract younger customers, adding Sephora makeup mini-boutiques and MNG by Mango, a collection from the European fashion label, notes Walter Loeb, head of retail consultancy Loeb Associates Inc. "It's trying to talk to that customer but it's next to stuff that doesn't appeal to that customer," Mr. Loeb said
Mr. Johnson is putting his own money on the line at Penney. The company is issuing him $50 million in stock to compensate for soon-to-vest equity awards he will leave behind at Apple. But Mr. Johnson will then turn around and pay just under $50 million—or $6.89 a share—for warrants to buy 7.26 million shares of Penney stock. Those warrants can be exercised six years from now at $29.92 a share, which could mean a big payday for Mr. Johnson if he can get the stock up. But if he can't, his $50 million is at risk.
Mr. Johnson, who will get a salary of $1.5 million and a shot at an annual bonus, still holds 232,875 shares in Apple, according to an Oct. 28 securities filing—currently worth more than $77 million. Mr. Johnson has pocketed nearly $300 million from selling Apple stock and exercising options in the past four years, according to SEC filings.
—Yukari Iwatani Kane contributed to this article.
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