Ron Johnson, J.C. Penney, and An Appetite for Risk

Ron Johnson, the former Apple SVP of Retail who worked with Steve Jobs to build the Apple Store experience from the ground up, is now also a former CEO of J.C. Penney, the venerable (read: old) retailer that's fallen on hard times over the last several years. I'm not going to defend the company's financial performance with Johnson at the helm (the firm lost more than a billion dollars during his seventeen-month tenure at the helm), but I do think that letting him go at this point is a mistake, as is the decision to replace him with already-failed Penney CEO Mike Ullman. Ultimately, Ron Johnson wasn't fired because of the company's P&L. He was fired because his vision of what Penney could be was in stark opposition to the current board's vision of what Penney is and must be. This is a classic example of a cultural clash at a company's highest level, and a perfect demonstration of the fate that befalls a firm when what it has been comes to overshadow what it needs to become.

Let's not beat around the bush: I don't think Ron Johnson wanted to be the CEO of J.C. Penney. I think he wanted to be the CEO of a company called J.C. Penney that did something fundamentally different than what J.C. Penney is known for doing. Johnson wanted to take a coupon-happy company with core customers that were plainly undesirable - the poor, the tired, the huddle masses yearning for daily discounts - and turn it into the world's first twenty-first century brick-and-morter retailer. To do that, he needed to do something businesses talk about but rarely do: fire his core customers.

In that respect, he succeeded. Ron Johnson successfully drove away the people that had been filling J.C. Penney's coffers for the last several decades. I do not believe for a second that this was an accident. This was his plan. This was his strategy in action. Unfortunately, the second part of the plan - replace them with younger, wealthier customers with better taste and a higher willingness to pay - didn't happen, at least not in the timeframe he needed to keep his job.

This of course raises the question of why would you fire your core customers? In this case, the answer is simple: because your core customers suck.

Let me be more specific. In Penney's case, the core customers were A) economically disadvantaged, B) not fashionable, and C) old. There is really not a worse person to build your business around than someone who is poor, tasteless, and dying, because they can't pay, they buy junk, and they won't be around much longer. This is J.C. Penney's core customer.

What's worse, this core customer has become wrapped up in the Penney brand, giving the entire chain a run down, dillapidated vibe that drives away potential new customers. "Come and join our dying family!" is not a message that inspires new buyers. It's heartbreaking, but you don't build your company around that kind of customer.

And that's why Ron Johnson got fired. Johnson recognized that, and he sacrified a lot of short-term money on what he figured was a long-term play. He decided to get rid of these customers and try to replace them with someone else. And that was the last straw for the board. Simply put, J.C. Penney's board didn't want to endure the pain of losing so many customers while only hoping to replace them. The risk was too great for the board, which preferred to return the responsibility of running the company to a man who already worked its way and failed, to stomach.

What does this mean for Penney? It means that taking risks is something that the board won't do going forward. It means that the time for radical solutions has passed. It means that the company is content, if not exactly satisfied, with where it is and who its customers are. And it means that everyone involved has, whether they admit it or not, resigned themselves to a long, slow decline into nothingness.

Did Ron Johnson deserve to get fired? Maybe. He made a bet that may or may not have paid off in the long term, but certainly didn't in the short term. But regardless, I don't like what the decision says about the future of J.C. Penney, and I wouldn't place any bets on the company making a comeback anytime soon. A business in crisis - and that's what Penney was before Johnson was hired and what it is now - isn't going to survive by making easy decisions and avoiding risks. That's not how a great business lives. That's how a great business dies.