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Monday, February 13, 2012 - Page updated at 07:31 p.m.

In Person: J.C. Penney CEO Johnson says turnaround will take time

By ANNE D'INNOCENZIO
The Associated Press

NEW YORK — Everyone wants to see what Ron Johnson will do next.

For 15 years, Johnson worked at Target, where he pioneered the retailer's cheap-chic image. Then, he spent about a decade changing the way Americans shop for electronic gadgets at Apple. Now, the question is whether Johnson will strike creative genius a third time as CEO of J.C. Penney.

The 30-year retail-industry veteran already is borrowing from Apple's playbook by innovating Penney's stores, cutting out heavy discounting and providing services, not just products.

As part of a strategy it announced last month, Penney is getting rid of the hundreds of sales it has each year to focus on everyday pricing. The retailer will offer discounts on groups of different items each month and clearance sales on the first and third Fridays of the month when many of its customers are paid.

Additionally, Penney in the next few years is planning to open areas in the middle of its stores called Town Square. Like the popular Apple Genius Bars that Johnson created so customers can get hands-on technical support, Town Square areas will offer services, although the company has been tight-lipped about which ones. The rest of the store will be divided into 100 specialty shops.

(In Seattle, one apparent result of the changing strategy is a decision not to open a Penney store at Third Avenue and Pike Street after having signed a lease for the space in May.)

Despite Johnson's impressive retail résumé, overhauling Penney won't be easy. Department stores, as a whole, have lost market share to specialty retailers like H&M and Zara whose stores have "wow" factor. The group's market share in clothing and other areas fell to 31 percent last year from 57 percent in 1992.

Penney, in particular, has struggled. The retailer's sales have slipped as its core middle-class customers have been among the hardest hit by the economic downturn, it has failed to attract younger customers with its stodgy image and its stores increasingly look uninviting compared to competitors.

For the 11 months through December, Penney's revenue at stores opened at least a year — an indicator of a retailer's health — rose 0.7 percent, while competitors like Macy's rose 5.4 percent, and Kohl's was up 1.1 percent. Penney posted a loss in the third quarter and cut its fourth-quarter earnings outlook after a disappointing holiday season when it had to do some deep discounting to lure in customers.

During an hourlong interview at Penney's Plano, Texas, headquarters, Johnson, 52, talked about everything from the challenges Penney faces to where he likes to shop. Johnson, who started his job at Penney in November, mentioned Apple 19 times.

Here are some excerpts from the interview:

Q. Why Penney?

A. I chose J.C. Penney because I think it's the single biggest opportunity in American retailing. Inherently, department stores have significant advantages compared to all other retailers. Yet our productivity is at the low end, and that just doesn't make sense.

Q. What was your first impression of Penney?

A. I would describe J.C. Penney as one of a handful of great American brands that seemed like it was dormant, that had been a great part of the fabric of America for almost a century but it just wasn't modern. It wasn't top of mind.

Everybody can tell a story about their mom or their grandma or the old catalog days. But they don't have modern stories. Because we haven't been creative enough, so we have to rethink everything.

Q. Who are the chain's competitors?

A. Our No. 1 competitor is ourselves and our way of thinking, which is informed by decades of experience. It's not another store; it's not another format like the Internet. Our competition is ourselves, and our best friend is our imagination.

Q. How did you come up with the new pricing strategy?

A. Pricing is actually a pretty simple and straightforward thing. Customers will not pay literally a penny more than the true value of the product. And as I have been watching the department stores for the past decade, I have been struck by the extraordinary amount of promotional activity, which to me, didn't feel like it was appropriate for a department store. My instinct was that it wasn't a good thing.

Q. Won't shoppers be turned off because they won't see the big markdowns?

A. I wouldn't assume they like the pricing strategy. I think they're insulted by it.

Q. Who are you targeting?

A. We are going after all Americans. We would like to be the store for everyone.

Q. What are your plans to make the shopping experience more exciting?

A. We are going to make the store a place people love to come — just to come. Because they can get support before they're ready to buy. They can get great support when they want to buy and they can come in after they buy. We'll transform the buying experience not unlike what we did at Apple.

Q. When will we start to see improvements?

A. You'll start to see the experience change month by month. Everyone thinks it's an overnight success, but it never is. I was at Apple from 2000 to 2011, but it wasn't until 2004 that the iPod became an important part of people's lives. It wasn't until 2007 that Apple reinvented the phone. It wasn't until 2009 that Apple launched the iPad. But we look at it today and we feel Apple had always been beloved. It took time, and this will take time as well.

Q. What ideals have you embraced from Steve Jobs?

A. The importance of doing everything you do to your very best. And that the journey is the reward. If you do things well one at a time, you end up in a really good place. Don't get ahead of yourself. Control the things you can.

Q. Other than Apple, which stores do you admire?

A. I admire lots of stores. Whole Foods is a great store. I just like their passion for food. It shows up in everything they do. It shows up in their packaging, their presentation and their employees. Starbucks. It truly has created a community. As I travel around the world, I just know that if I go to Starbucks I will have a great experience.

Q. You're dressed casually. Where do you shop?

A. I just dress to be comfortable. I shop at lots of stores. These are Levi 514s. I bought them at a Levi's store. I have a T-shirt. That's from Lacoste. I have a cashmere sweater. It came from Zegna. My socks are from Target. My shoes are from Tod's. We shop multiple places. But we do have a favorite store. That's what we're going to become.

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