Published April 17, 2013
Right about now Ron Johnson has got to be asking himself: "How did I get talked into leaving a steady gig at Apple for a long-shot turnaround job as CEO of J.C. Penney?"
Mr. Johnson was ousted from the struggling retailer last week after 17 months on the job, capping a failure so monumental, the world is left to wonder whether the 111-year-old retailer can survive.
Now that Mr. Johnson has time on his hands, I'd like to recommend a book for him to read. It hits bookstores on May 7. It's called "What you're really meant to do: A road map for reaching your unique potential."
Yes, I know. It's another book on "success." Leaders have to read them when they lose their way. This one is written by Rob Kaplan, who used to be vice chairman of Goldman Sachs and now teaches at Harvard, where Mr. Johnson's big bungle is bound to become a case study.
If nothing else, the book offers a litany of questions that CEOs should constantly ask themselves, such as "Do you understand why you behave the way you do?" "Do you have a small group of people who care enough about you to tell you things you may not want to hear?" And, "Should you consider changing jobs?"
Mr. Kaplan, I should note, left Goldman in 2006 when his firm and the U.S. economy were on top. Mr. Johnson, by contrast, goes out as Penney nears bottom and the U.S. economy remains entrenched in a prolonged struggle to recover.
I called the Harvard professor for his analysis of Mr. Johnson's tenure. "He tried to do something that you just can't do in 17 months," Mr. Kaplan said. "When you try to overhaul a company that fast, it is an enormous gamble. And J.C. Penney simply did not have the cash to take on the risk."
Penney's board felt emboldened because one of its biggest investors, hedge fund magnate Bill Ackman, championed the plan, Mr. Kaplan said. But the board should also have done the math.
"It was like a tech company that wanted to develop a new product and ran out of cash in months when they should have known it was going to take years."
Along the way, Mr. Johnson alienated Penney's stable base of middle-brow customers--by eliminating sales and coupons--in a bid to attract a more upscale clientele. He rolled out designer boutiques--stores within stores--and talked down brands that were selling well, such as St. John's Bay, in favor of the hipper brands like Joe Fresh. He also got into an embarrassing public spat with Macy's over Martha Stewart-branded wares. In the end, he not only lost a courtroom battle, but highlighted Penney's basic inferiority to Macy's.
Analysts challenged Mr. Johnson along the way. But Mr. Johnson kept promising a "year of transformation," after which we'd compare Penney's to Apple, Starbucks and Whole Foods.
"We believe there will be one year of sales going down that sets the stage for a year of takeoff," Mr. Johnson boldly insisted in an investor call last June.
During Mr. Johnson's roughshod run, sales plunged 25% and Penney stock lost half its value. Mr. Johnson laid off more than 20,000 people, demolishing the morale of the sales force as he claimed to be trying to build it. In March, he expressed frustration about near constant fears of even more layoffs.
"There is a rumor a day about J.C. Penney and some incredible layoff that's coming," he complained in an investor call. "It's hard on our transformation to have to live in this fishbowl of rumors...This idea that we've got massive headcount reductions on the way is just really rumored."
A week later, he announced plans to cut 2,200 people.
For too long, Mr. Johnson had the chops to say just about anything he wanted no matter how untrue it would turn out to be later. He'd developed the retail strategy behind Apple's iPhone. He'd had an amazing career at Target. But like many business leaders, he appears to have made the fatal mistake of becoming too isolated. He did not move to the company's headquarters in Plano, Texas, working from California, instead. But more to the point, he did not listen to what his critics were saying.
"You've got to be careful when you're CEO," Mr. Kaplan explained. "If you're the genius who came in from somewhere else, are people willing to talk to you? Are you willing to listen?...You'd like to think that as a CEO you've got your antennae up and you're open to adapting to the situation."
As Mr. Johnson carried on with his follies, Penney's cash position fell 38% to $930 million. On Monday, the company said it drew down $850 million from its $1.85 billion revolving credit line. Blame it on poor execution. Blame it on Mr. Johnson's lack of financial experience. The company is now back in the hands of Mike Ullman, the CEO Mr. Johnson had displaced. And from here, all it can do is buy time and work with its bankers on future fundraising options.
In another economy, with more time and more money to burn, maybe Mr. Johnson's plan would have worked.
"The shame of it is, we'll never know," said Mr. Kaplan. "They had to pull the plug because they're going to run out of money. Hopefully, they can raise capital and stem the bleeding so they have a chance to survive. I don't know if they will."
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. Contact Al at firstname.lastname@example.org or tellittoal.com)