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How to Fail in Business While Really, Really Trying: The True Story of J.C. Penney

Jennifer Reingold | Fortune | March 2014 | 29 minutes (7,108 words)

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When you find a savior, you don’t quibble over details. So it was that J.C. Penney, the long-stagnating mid-tier department store chain, announced in June 2011 that it was hiring Ron Johnson, the man in charge of Apple’s wildly profitable retail stores and a Steve Jobs acolyte whose golden halo also included past triumphs as an executive at Target. The news sparked euphoria, but conspicuously absent from the media coverage was any mention of how Johnson planned to save this faltering retailer in a fading industry. That’s because there were no plans. His mandate could be reduced to a single word: change. What that entailed could be figured out later.

That fall Johnson began unveiling his planned strategy to Penney’s board, culminating in a big presentation on Dec. 7. By then CEO for just a month, Johnson laid out his vision of a more upscale, more youth-oriented Penney, weaned of its addiction to price promotions.

Johnson demonstrated that he’d learned a thing or two about stagecraft from his legendary former boss at Apple. He had commandeered a large basement studio at Penney’s Plano, Texas, headquarters and had workers construct two rooms. (Johnson wanted to go further and install floating stages in the company cafeteria, but the fire marshal nixed the plan.) After he had made his presentation, the new CEO brought the directors downstairs to deliver the coup de grâce in the form of a sound and light show. In the first room was the taped commotion of shouting voices and visual noise: a profusion of signage, coupons, offers, and clutter. This was the off-putting cacophony of J.C. Penney at that moment. Johnson then ushered the directors into the next room, which was white, tastefully austere, and had a celestial serenity: the new JCP.

Finally Johnson led the board members into the cafeteria, where 5,000 employees, who had been waiting on their feet for hours, greeted the group with a raucous ovation. Then it was party time. Officially the fete was intended to bid farewell to Johnson’s predecessor, Myron “Mike” Ullman III, but it felt more like an ecstatic celebration of the company’s rebirth. With nary a whisper of opposition, the 109-year-old retailer had decided to abandon not only its strategy of many decades but arguably its fundamental way of doing business.

Just 16 months later Johnson was out. Penney was hemorrhaging cash; it lost $1 billion during his one full year as CEO. Its shares were hurtling downward. The press had turned against him. One of the two investors who installed him had fled. As fast as they had once anointed Johnson a messiah, Penney’s directors turned their backs on him.

Since his departure the company has behaved as if Johnson’s entire tenure was a coup rather than a strategy blessed by the board. The retailer has renounced his philosophy, restored Johnson’s predecessor, Ullman, as CEO, and reverted to its old ways. If we’re heading for oblivion, the board seems to be saying, let’s at least try to get there slowly. Some observers think bankruptcy is a possibility, despite improved results of late (at least compared with the previous bloodletting).

This era has seen some truly epic corporate conflagrations. There was the precipitous collapse of Lehman Brothers, which came to symbolize the greed and corruption of Wall Street, and the multidecade decline and, finally, bankruptcy of General Motors, which seemed to embody the slow death of American manufacturing. But for its stomach-churning mix of earnest ambition, arrogance, hope, and delusion — along with a series of comic and tragic miscues — it’s hard to top J.C. Penney.

“I came in because they wanted to transform,” the former CEO told me before his fall. “It wasn’t just to compete or improve.” (Johnson was interviewed for this article but declined to be quoted beyond saying, “I do not want to interfere with Penney’s attempts to succeed.”) He and his team did indeed transform Penney — from a sleepy behemoth known for serving the needs of Middle America into something quite different: an ambitious wannabe startup that fancied itself cool, with a radical pricing and merchandising model that had never been pulled off before. The outcome was doubly disastrous: Penney alienated its traditional customers without attracting new ones.

Everyone understands that the Johnson revolution ended in catastrophe. But the full story has never been told. The reality, it turns out, is even worse than many people imagine — and in a few respects, very different. What follows is the story of what actually happened at J.C. Penney, based on months of interviews with 32 current and former executives and vendors and more than 20 investors, analysts, and competitors.

It’s a saga with a swirl of overlapping forces. It stars a charismatic leader bent on radical change and features a failed attempt to Apple-ize Penney, a mission that ended up being every bit as crazy as it sounds. There’s a board of directors who sometimes seemed more concerned with what they’d be served for dessert than with the fate of the company. Then there’s the mistake that cost the company $500 million — and the fact that Penney actually began retreating from its controversial pricing strategy even before Johnson left, raising the question of whether the company can even truly be said to have tried his approach. Throw in a hedge fund titan who always knew better — except when he didn’t. The result: Billions in revenue were vaporized, and more than 20,000 people — many of whom embraced the new Penney — lost their jobs, seeming to hasten the decline of American brick-and-mortar retailing. This is a tale with very few heroes.

Into the cube

They called it a “cleanse.” On Feb. 6, 2012, a clear, acrylic 10-by-10-foot cube was installed in the area between the two cafeterias in Penney’s headquarters. It was a three-dimensional version of the retailer’s new square logo. Johnson told staffers that he didn’t want to see the old logo anywhere in the building. He thought it would be a useful ritual to have employees discard symbols of the stodgy old Penney. In theory, the cube was a giant time capsule, and the old Penney would be buried (exactly where, nobody said). In reality, it was a stylized, transparent dumpster.

For the next week people lined up to shed the evidence of Penney’s century-old history. Into the cube went T-shirts, mugs, stationery, pens, and tote bags. A few people even dumped the Chairman’s Award, the highest honor in the company, a glass plaque bestowed by former chairman and CEO Ullman on his most valued employees. As staffers pitched their corporate junk, they were invited to select a few replacement items with the new logo in exchange. By the time the purge was complete, 9,000 pounds of detritus had filled the cube.

The transformation had started with a single phone call a bit more than a year before. At 4 p.m. on Oct. 7, 2010, the phone rang in the office of then-CEO Ullman. The screen flashed “Vornado,” the name of the $2.8 billion (revenues) REIT run by investor Steven Roth. Ullman, a veteran of takeover attempts at Macy’s, had noticed that Penney’s stock had jumped 10% in the 10 minutes before the call, to $32. He had a pretty good idea of what was going on. “Do you come in peace?” he asked Roth, with whom he had worked on a past deal. Responded Roth: “I’m your new best friend.” And there was a second best friend: Roth had teamed with Bill Ackman, the head of hedge fund Pershing Square Capital, to buy more than 26% of the company’s stock. They believed Penney could easily be a $60 stock — if, of course, some changes were made. Could they meet to talk?

Ullman had run Penney since 2004. He had had a fantastic start, driving the stock to an all-time high of $86 in 2007 on innovative ideas such as bringing cosmetics seller Sephora inside Penney in a “store within a store” and opening some outlets outside traditional, and declining, malls. But when the Great Recession hit, Penney’s core customer — the middle-class mom — suffered more than most. Even when competitors began to pull out of the decline, Penney lagged. One reason: Ullman’s massive deal with Ralph Lauren to launch American Living in 2008, a Polo-lite brand sold only at Penney. It failed, in part because Penney was not allowed to use Ralph Lauren’s name or the Polo logo.

Penney was clearly in need of rejuvenation. Revenues had dropped from $19.9 billion in 2006 to $17.2 billion in 2011, taking the stock price along with it. Rather than resist Ackman, a brash, aggressively charming billionaire who likes to make huge bets on big companies and doesn’t hesitate to wage proxy battles against those that rebuff him, Penney invited Ackman and Roth to join the board. “I said, ‘These are two of the smartest people in their industries in America,'” Ullman recalls. “Why wouldn’t we want them in the boardroom?”

In February 2011, Ackman and Roth attended their first board meeting. At dinner afterward, Ackman gave an emotional speech, hailing the company’s potential. Almost instantly, fate intervened. As Ullman’s driver pulled out of the parking lot after the meal, his car was sideswiped. Ullman, then 64, was knocked unconscious. He had multiple fractures where his skull attaches to his spine and spent 12 weeks in a neck brace. Even before that he had battled health issues. For years Ullman had suffered from nerve damage that makes it hard for him to walk (he moves around the offices by Segway). He had endured two major surgeries during his Penney’s tenure.

The accident intensified the board’s concern over Ullman’s health — as well as the undercurrent of dissatisfaction that the new directors felt with his leadership. As director Geraldine Laybourne told me in 2012, “You know you’ve done something wrong when you wake up and someone has bought 26.8% of your stock.”

There were no obvious successors at Penney. Ullman says he thought instantly of Ron Johnson, the Minneapolis native who had helped bring great design to Target before he was recruited by Apple to create its retail stores. Under Johnson they became the most profitable stores in the country, making him a star at what was then the hottest company on the planet. Ullman had called Johnson about a director position a few years back, but Johnson had rebuffed him. Now, however, with Steve Jobs ailing, a recruiter told Ullman that Johnson might be more amenable.

Beginning in March 2011, Johnson met with Ackman and Roth and separately with Ullman. Soon the conversation moved from a role as a director to the possibility of becoming the next CEO. Johnson, who started his career at Mervyn’s and had always loved the retail business, had been pondering the lack of innovation in department stores. He had a vision of a new type of store — a destination rather than simply a repository for product. Well-liked and relentlessly positive, Johnson, then 53, seemed to offer the kind of can-do Silicon Valley spirit that hadn’t been seen in the retail world since, well, Apple. “I just believed in the guy,” Ackman told me at the time. “I had a man crush on him.”

With Ackman as head cheerleader, Penney’s board offered Johnson the CEO position. When the announcement was made, on June 14, 2011, the retail world was astounded — and thrilled. Although Johnson wouldn’t start as CEO until Nov. 1 — he said the cancer-stricken Steve Jobs had asked him to stay longer — Penney’s stock rose 17% on the news. It was as if a triple-A team had just signed Babe Ruth.
When Johnson eventually unveiled his strategy, it centered on a few points. The biggest, perhaps, concerned Penney’s incessant price-slashing promotions — 590 in 2011 alone. The new JCP would have virtually none. There would be three prices for an item: the original price, which was far below the typical marked-up price; a month-long value price for certain items; and a twice-monthly “best” price for things that needed to move. No more clearance racks, no more mess, just an honest — or as a later slogan put it, “fair and square” — relationship between the customer and the store. In a retail world full of illusory market-share gains based on which retailer offered the lowest clearance prices, it felt like a welcome way to stop the madness.

The second component of his strategy was equally radical. Johnson wanted to remove the “department” from the department store, recasting each store as a collection of 100 separate boutiques, with a kind of town square in the center. The product mix would change too. The new JCP would feature a much higher percentage of branded merchandise — modern, higher-end, youth-oriented — compared with house brands. This was a very big move for Penney, which got 50% of its sales from its own brands and tended to display most of its products by classification (such as bath mats) rather than by collection (such as Martha Stewart).
The new strategy made sense if Penney could attract many top brands, which would lure consumers without the catnip of frequent sales. Clearly, the approach worked for iPhones. Would it work for mattress pads and pantyhose?

Johnson wasn’t going to wait around for an answer. When a director asked when he planned to test the notion, Johnson scoffed. Never mind that other retailers had tried such pricing only to see customers vanish. He had made his decision. After all, his hero, Jobs, disdained tests and instead relied on his gut. At the same time, Johnson didn’t seem particularly interested in how Penney operated, according to Ullman. The outgoing CEO noted in a regular update to the board that the new CEO had not asked a single question about how the business was currently running.

Meanwhile, there were hints that the board was not as focused as it could be.

Ackman had consistently complained about the chocolate-chip cookies served at Penney’s board meetings. Rather than soft, gooey orbs, Ackman grumbled, these were rock hard. To assuage him, say three people involved, Penney began ordering fresh-baked cookies delivered from local bakery Tiff’s Treats. Other Penney directors also expressed concern about the caliber of cuisine served at their meetings — so much so that on at least one occasion a senior executive personally sampled the food before it was served. (Ackman declined to comment on the company’s baked goods; Penney denies that an executive served as a food taster.)

The revolution begins

Johnson showed up in Plano on Nov. 1, 2011, ready to lead a transformation at the speed of light. By Jan. 25, 2012 — less than three months later — the new JCP would unveil its new look. A week later the new pricing strategy would be revealed. By the fall of 2012, hundreds of stores would be revamped. And by the end of 2015, if all went according to plan, the transformation would be complete. The timeline was beyond aggressive, but Johnson thought speed would be a great motivator and unifying force.

Johnson himself moved with alacrity. In his second week on the job, he met in San Francisco with Chip Bergh, the new CEO of Levi Strauss. Penney already sold the company’s jeans, but Johnson wanted Levi’s to open boutiques within Penney locations. He asked Bergh where his most innovative outlet was located, and Bergh said Tustin, in Orange County, Calif. “I’ve got a plane,” Johnson said, enthused. “Let’s go right now!” A few hours later Bergh led Penney’s CEO through the Tustin store. Johnson loved the layout, which included a “denim bar,” mobile checkout, and dedicated “fit specialists.” By the end of the day Johnson and Bergh had agreed to open 700 similar Levi’s boutiques inside Penneys in time for the back-to-school season in 2012 — less than a year later. Most of the cost would be borne by Penney.

Money seemed to be no object. It cost Penney some $120 million to build the Levi’s boutiques, according to one person involved. Johnson was also trumpeting a major new investment in Martha Stewart Living Omnimedia and an agreement to open Martha Stewart stores within Penney.

Meanwhile, Johnson was recruiting a team of high-priced all-stars from the outside. He’d hired Michael Francis, the head of marketing at Target, who was credited with bringing the low-end retailer its signature hip cachet. Francis became Penney’s president and head of both merchandising and marketing. Johnson plucked Apple alum Mike Kramer from apparel-maker Kellwood as COO, and Dan Walker, also an Apple veteran, as chief talent officer. Francis, Kramer, and Walker received a total of $24 million in cash signing bonuses, along with millions of stock options.

It was now Johnson’s show. The board had been stunned by the breadth of his planned transformation. But nobody insisted he slow down or test his theory that customers were sick of price confusion. He had a new team, an adoring board of directors, and a mission to reinvent his company.

Now it was time for his public debut at the official JCP launch party, which took place at New York City’s Pier 57 on Jan. 25 and 26, 2012. The cavernous shipping pier was bathed in white, with the new JCP logo omnipresent inside giant neon cubes. The lighting was perfect, the music appropriately ambient, the food top quality. A bevy of retail cognoscenti, including Martha Stewart, lent credibility. (She feted Johnson onstage, despite the fact that Macy’s had just sued her company, claiming that the new deal with Penney violated Stewart’s contract with Macy’s.) Calvin Klein, Mickey Drexler, Cindy Crawford, and Mary-Kate and Ashley Olsen were all in attendance.

Johnson presided with a beatific smile. Clad in a V-neck sweater over a button-down shirt, he waxed eloquent on the lessons he’d learned from Steve Jobs. Seemingly in perfect sync, Johnson and Francis — the two looked almost like brothers — rolled stylish, funny clips that featured Ellen DeGeneres, the company’s new spokesperson, and promised a world of fresh, compelling Americana. Fusty old J.C. Penney’s was no more. The company had rebranded itself with a sleek modern name — JCP — to match its new aesthetic. Ackman and other directors sat in the front section, beaming.

Many in the audience admired Johnson’s passion and nerve, even as they doubted that his plan could succeed. Johnson himself told me that day that J. Crew CEO Mickey Drexler had cautioned him, “Be very careful. You don’t have to be that bold. There’s only one Steve.” (Comments Drexler today: “I’m not sure that he heard me.”)
There was a fair amount of eye rolling in the audience. As Johnson talked about the “six Ps” driving the plan — product, place, presentation, price, promotion, and personality — Adrianne Shapira, then a Goldman Sachs analyst, said, “One ‘p’ that seems to be missing is people.” Kramer, the COO, added to the swagger with his refusal to provide sales projections because “we don’t want to cap what we think it could be.” Penney’s stock vaulted from $34 to $41 the next day.

Back in Plano, the employees were excited too. Many acknowledged that Penney needed an infusion of energy. On Feb. 1 an ebullient Johnson hosted a $3 million extravaganza to salute the company’s workers. Stages were constructed onsite, with four areas meant to conjure a particular season. In “winter,” set up in the cafeteria, there was a snowmaking machine. “Summer” boasted grass for a picnic, and “spring” had a wall of water. There were margarita bars, live bands, and caramel apples mounted on long poles. Hung on the walls were photographs of employees that had been taken at a welcome picnic on Johnson’s first day.

Still, the moment was fraught. The company had announced $900 million in planned cost cuts, and everybody knew that meant looming layoffs. Many of the people celebrated in photos would soon lose their jobs. Some of their images remained on the walls for months, ghostly reminders of the human costs of radical change.

The cool kids take over

The era of good feelings would be measured in nanoseconds. Indeed, the only thing speedier than Johnson’s planned changes was the velocity with which they unraveled. Inside Penney, the conflict started almost instantly. Johnson “wanted to do this as a mixed marriage,” says former COO Kramer. “He wanted to prove that we could do this with new people as well as the older management. But it was very clear that it was oil and water from day one.”

It was all well and good that Johnson wanted to, as he frequently proclaimed, run Penney like a startup. But it was a venerable company with 159,000 employees and 1,100 stores. It already had a culture, for better or worse.

The newcomers distanced themselves from the holdovers, starting with the fact that a cadre of new top executives refused to move to Dallas and instead jetted in weekly. The Ritz-Carlton, where Johnson and some of the most senior executives stayed, became an unofficial club and meeting spot for the people at the top. Johnson, Francis, and Walker each remained in other cities, and several created powerful satellite operations there; only Kramer moved to Dallas.

Those who were not part of this new team, with a few exceptions, found themselves out of the loop and, increasingly, out of a job. “You felt like you were back in high school with the cool kids and the noncool kids,” says one senior old-guard executive. “I felt slow, dumb, and weak.”

Many of the former Apple-ites looked to implement what they viewed as streamlined Silicon Valley ways. HR chief Walker eliminated performance reviews, which he saw as useless. That happened to make it that much easier to ax people, because all decision-making was up to the boss and there was no need to consult any performance-assessment data. Says Walker: “I abhor make-work HR bureaucracy that doesn’t really improve the capabilities of the people and the company.”

Johnson’s character shaped the tone of Penney’s transformation. As genial as he is — he is the quintessential cheerful Sunday-school teacher and kids’-little-league-coach kind of dad — he has the personality of a zealot. Johnson displays the sort of enthusiasm and unwavering commitment that inspires followers. (And he showed his belief in his own plan by investing $50 million in Penney warrants that would pay off only if the stock rose.) There were only two kinds of people in Johnson’s world — believers and skeptics. “I choose to inspire and create believers,” he told me at the time. “I don’t like negativity. Skepticism takes the oxygen out of innovation.”

Criticism, valid or otherwise, marked you as a skeptic. Executive vice president Steve Lawrence joined that category when he suggested that Johnson should conduct tests before eliminating price promotions from one day to the next. When a decision was made to reduce the top merchants from two to one at the end of February, it was Lawrence who was cut rather than Liz Sweney, who publicly supported the new plan.

Some 60 top performers from the old regime did have a chance to be part of the revolution via a new program called (naturally) the iTeam. The group brainstormed ways to improve the company and visited famous retailers like Selfridges and Printemps for inspiration. But when the firings began in April, many of the iTeam members were purged, causing a vacuum of talent who understood Penney’s business.

Employees who remained say the new leadership team seemed to have little respect — in some cases, they had outright contempt — for the holdover employees. Michael Fisher, the chief creative officer and another Apple veteran, lectured his team that they needed to learn more about fashion, according to two employees. Each, he said, should wear at least one piece of camouflage clothing every day, as he did. Fisher went so far as to deride the holdovers as DOPES, or dumb old Penney’s employees, according to six staffers. (Fisher declined to comment.) Some veterans retaliated by calling the new team the Bad Apples.

The contempt seemed to extend to customers. As JCP spent more and more on new collaborations with higher-end brands such as Vivienne Tam and Nanette Lepore, the company abandoned previous mainstay labels. Southpole, a clothing brand that appealed primarily to black and Hispanic customers, was dropped. The women’s line for St. John’s Bay, a drab private-label brand — but one that generated $1 billion in annual revenues — was eliminated.

Johnson was totally absorbed in his quest but, say numerous insiders, relatively removed from many specifics of how his team was forcing through the change. It’s hard enough for CEOs to get honest information when they ask for it, since nobody wants to displease the boss. But when you announce that you don’t want to hear skepticism, you’re doubly isolating yourself. In Johnson’s mind, everybody was behind him.

Ellen and the white picket fence

Johnson and his team knew that sales would slide in the short term. Penney had internally projected a 10% to 15% drop in same-store sales for the first quarter after the relaunch. But when the results were tallied in May 2012, they were dismaying: Stores open for at least a year had sold 19% less than in the previous year’s first quarter. Penney customers were bolting, with no sign of replacements, despite millions spent on new marketing that depicted white-picket-fence Americana with great prices and gorgeous products.

Instead of resonating, the ads sparked a firestorm. The company had named Ellen DeGeneres — a popular celebrity and an out and proud lesbian — as its spokesperson. A conservative group, One Million Moms, threatened a boycott.

“DeGeneres is not a true representation of the type of families that shop at their store,” the group claimed. “The majority of J.C. Penney shoppers will be offended and choose to no longer shop there.” The company was deluged with enraged letters after a Mother’s Day circular included a photograph of two moms. Johnson, who had supported the marketing as inclusive, began to fret.

When Johnson found out that a Father’s Day ad featuring two dads was also in the works, he decided the messaging had gone from inclusive to political. Too late, Francis told him. The photos had already been printed. Johnson went to the board, which supported going ahead with the ads. He then told Francis he wanted more say over marketing — much of which happened in Minneapolis, where Francis had built a large communications and advertising operation.

Quickly the mood shifted. “Do we need two cooks in the kitchen?” Francis asked. Within days of the meeting he was gone. DeGeneres stopped appearing in most Penney ads. (A source in her camp says the relationship ended amicably.) Says Francis: “I will forever be proud of the remarkable body of work, and I believe it delivered on the mandate.” Johnson himself decided to take on Francis’s duties. So hands-off in many realms, the CEO would become intensely hands-on when it came to marketing. “Ron read every single line of copy,” says Greg Clark, a former senior vice president in the marketing group. “He wrote half of it. He reviewed every single page, every single photograph.”

Internally the changes were hitting hard. The first round of layoffs had begun in April, with 19,000 employees losing their jobs over several months. Soon afterward, Johnson held a Q&A session. The mood was somber. People knew that the company’s results had been worse than expected, and they’d anticipated some cuts. Were more layoffs coming? Johnson remained unruffled. He joked that he had worn his Nikes “in case they chase me out of here.”

By May, less than four months after JCP’s gala launch, a few directors were already getting nervous. Debates over pricing policy began erupting. (On the plus side, the menu options at a board meeting that month — including New Mexican rubbed beef tenderloin with bourbon-ancho sauce and saffron poached sea bass — didn’t seem to rile the directors.) For the moment, they were boxed in. Johnson had warned that the transition would be painful, and the board had greenlighted his plan. There was little it could do at that point besides acquiesce.

Penney’s spending continued to mount. Johnson wanted to make checkout easy for customers by deploying Apple-style roving clerks who could take customer payments on iPads. To do that, Johnson spent millions to equip stores with Wi-Fi and mandated that every item have an RFID tag by early 2013. (As money grew scarce, the plan was shelved.) At Fortune’s Brainstorm Tech conference in July 2012, Johnson was calm and blithely confident, despite growing negative press and a stock price that had halved since the New York show. He reminded everyone that it had taken several years for the Apple retail stores to succeed.

Yet oddly for a former executive of a tech company, Johnson also made a crucial mistake relating to the Internet. He decided to separate JCP.com’s buying groups from the store buying groups — the way Apple did it — severing coordination between what was stocked for the website and what was available for stores. The dotcom decision-making team was based in Silicon Valley, while the store buyers were in Plano. As a result, a customer could no longer find, say, four colors of underpants in the women’s department and be confident that the four colors would also be available online. Ullman had consolidated the teams. All of a sudden the website found itself stripped of support and leadership. Johnson was focused on getting the right look and feel into the physical store. “The first thing is to fix the store,” he said at the time, though he added, “It doesn’t mean online isn’t an equally big opportunity.”

But by the quarter ending in October 2012, dotcom sales had plunged 37% compared with the previous year’s quarter. Just as the rest of the retail world was scrambling to boost mobile and online buying, the Silicon Valley executive was going in the other direction. Penney lost $500 million on that one decision, according to Ullman.

Other Johnson initiatives backfired. In his well-intentioned desire to build trust with customers, the CEO loosened Penney’s exchange policy, allowing customers to return merchandise — without a receipt — and receive cash. Almost instantly, some people began to abuse the policy, grabbing items off Penney’s shelves, bringing them to the register, and then trading them in for cash. At least one popular item was “returned” so frequently that its total sales turned negative for a time.

A second component of Johnson’s strategy — the headline-generating plans to put Martha Stewart stores inside Penney’s — also blew up. In August 2012, Macy’s followed through on its threat and sued Penney. Already Macy’s had managed to temporarily block the new stores. Stock speculators began licking their chops, with short interest that month hitting 40% of the total float.

Quietly, an even more fundamental part of Johnson’s strategy — the moratorium on sales promotions — began to be pared back. Between the rising resistance from the board and the terrible customer response, Johnson had gotten the message. He authorized a return to limited sales and promotions like free haircuts for kids, for example, which weren’t called sales but were certainly promotional. The word “clearance” began trickling back into use.

By Thanksgiving, Johnson — who had always said the transformation would take four years — had started to sound as if he were bargaining for more time. He claimed, on CBS This Morning, that Penney’s benchmark would come in February 2013. “It’s going to take a year to teach people how to respond to the new pricing,” he said. “We will return to growth next year.” He laughed off a question about the increasing pressure. “I’m trying to position JCP for the next 100 years,” he said, “not this year.”

The overthrow

Despite Johnson’s public optimism, the ground was quickly shifting beneath him. Penney’s board had begun splintering into two factions: a pro-Ackman “New York” contingent and a larger cohort led by chairman Tom Engibous, the former CEO of Texas Instruments. Johnson “is still the right man for the job,” Ackman proclaimed publicly. “We don’t walk away.” Still, he was so worried about JCP’s accelerating cash burn that he threatened the board that he would sell all his shares if he was not made the head of the finance committee. Ackman got the appointment — and hired investment bank Blackstone and AlixPartners, a firm best known for advising distressed companies, to explore ways to raise cash.

When 2012 results came out in February, they were atrocious. The company’s revenues had plunged by $4.3 billion, with same-store sales falling 25%. Penney recorded a $1 billion loss. The stock tumbled to $18 — less than half its value a year earlier, even as the overall stock market continued to surge. Cash fell from $1.5 billion to $930 million, and Standard & Poor’s cut the company’s debt rating to CCC+, deep in junk territory, based on concerns about Penney’s liquidity.
Johnson’s job was clearly in jeopardy. He offered to resign. But Engibous assured him of the board’s support.

Amid this turmoil the Martha Stewart case went to trial, and Johnson was forced to take the stand. He looked naive at best, arrogant at worst, as his emails revealed his belief that he could intimidate Macy’s CEO, Terry Lundgren. The best way to stop Macy’s from renewing its agreement with Martha Stewart, Johnson wrote to his team, “is to make our offensive so strong they simply pick up their toys and go home.” After the announcement, he gloated in an email to Ackman: “I’m inclined to let the press run and let [Lundgren] stew for a bit. The more this is seen as brilliant for JCP and Martha, the more he won’t want to interfere.”

The bad news was cresting. And almost simultaneously came the stiletto in Johnson’s back — from the very investor who had paved the way for Johnson’s accession. In March 2013, Penney director Steve Roth, the CEO of Vornado, suddenly sold 43% of his Penney shares at a loss of nearly $100 million. It was a long way from the email he wrote Johnson on Dec. 7, 2011: “Amazing to me how much you’ve gotten done in such a short time, not to mention the quality of the work and genius of the ideas.” Penney CFO Ken Hannah couldn’t make sense of it. “Steve was as supportive and as constructive in [the most recent] board meeting as he had ever been,” he explained at an investors’ conference. “There was not one indication coming out of that meeting that he was going to do anything with his position.”

Why did Roth bail out? The investor declined to be interviewed, but he was facing myriad pressures of his own. The CEO of Vornado had stepped down abruptly, and Roth, already the chairman, had re-assumed the position. Vornado’s shareholders were unhappy with the stock’s performance and questioned why the REIT had invested in retail companies at all. No matter the particulars, the message was clear: Roth had lost faith.

The noose was tightening around Johnson’s neck. Once again he offered to step down, and once again the board told him to stay. (The latter meeting occurred in Ackman’s conference room, which ironically is equipped with a vintage nuclear bomber’s ejector seat.)

In the midst of the turmoil, Johnson embarked on a family vacation in the South of France. When he returned, he got a call from Engibous, according to two executives. The chairman told Johnson that the board would, in fact, be accepting his resignation on Monday, April 8. Less than a year and a half after embracing Johnson’s vision, the board had renounced it. Penney quickly announced that Johnson was “stepping down.”

Most startling was the man chosen to replace him: Mike Ullman, the chief of the J.C. Penney that presumably had been left behind. Previously portrayed as infirm and on the point of retirement, Ullman was now Schwarzenegger on a Segway, back with a vengeance. Johnson never returned to the Plano office. Within weeks, all but one of his disciples were gone too.

The grand experiment was over — just as much of Johnson’s new merchandise was beginning to appear. On May 1, the company ran an apology ad for misleading the customer. “We learned a very simple thing,” an earnest female voice said, “to listen to you.” In June, Johnson’s baby — the renovated home department — finally opened, with quirky Jonathan Adler lamps, mod Conran tables, and Pantone sheets. It was gorgeous, but the items were far beyond the budget of the traditional Penney’s customer. It bombed.

With Penney stuck in limbo by the court case, the company’s Martha Stewart stores were reduced to displaying things that didn’t compete with Macy’s, such as a few party supplies and window treatments. And in what seemed like a cruel joke, a new billboard erected in Culver City, Calif., to announce the Michael Graves home collection featured a teakettle that, viewed from on its side, inexplicably evoked Adolf Hitler, moustache and all, his arm in Nazi salute. The topic “This kettle looks like Hitler” trended quickly on social media site Reddit. There was at least one upside. Unlike Graves’ other wares, the Hitler teakettle immediately sold out.

The unwinding

With Ullman back, it was only a matter of time before Ackman was gone. The investor initially resisted, demanding that the board quickly find a replacement for Ullman. When he was rebuffed, Ackman dispatched two caustic letters to the board, which found their way to the Wall Street Journal. “Sometimes being ‘disruptive’ is exactly what a company and board needs at a critical time,” he wrote. But by now the other directors were aligned. On Aug. 12, 2013, Ackman resigned from the board. He sold his Penney stake at a loss of $470 million.

For his part, Ullman took a giant eraser to just about every plan of Johnson’s. The new home store was jettisoned; by summer I saw 50% to 70% markdowns on newly introduced products. They ended up piled toward the back of stores. Many of the brands that were promised prominent placement found their wares tossed on clearance tables, prices slashed. That in itself caused headaches for Penney. One such brand, Bodum, sued for breach of contract in December. (Penney declined to comment.) Once again, customers’ mailboxes filled with “the noise” of multiple promotions.

Ullman began shoring up Penney’s finances, but not without a stumble: The company stated that it was “comfortable” with its liquidity — and then, only a few weeks later, announced an 84-million-share offering. (The news of the highly dilutive offering walloped Penney’s shares yet again.) The Securities and Exchange Commission briefly investigated Ullman’s U-turn before closing the inquiry with no action.

The company website, reintegrated with the stores, again became a major contributor and helped make up for still-anemic in-store sales. Finally, on Feb. 26, 2014, Penney reported its first glimmer of good news: increases in same-store sales for the first time in two years, up 2% over the prior year’s fourth quarter (which, let’s not forget, was down 32%).

Earnings, however, were even worse than the previous year. The company lost $1.4 billion. Still, Ullman has stabilized the business, slowed the sales skid, and hired a marketing executive who at least seems to be matching the products to customers’ desires. But if Penney has pulled back from the brink of extinction, it remains a long, long way from thriving.

Returning to the pre-Johnson status quo is not a solution. Brick-and-mortar retail remains in deep trouble. During the recent holiday season industrywide in-store traffic slumped by 6.5%, according to RetailNext, even as spending surged online.
Was Johnson’s plan doomed to fail? It’s easy to say virtually nothing would work. For starters, there are far too many stores in America. In early March alone, Radio Shack announced plans to close as many as 1,100 stores, and Staples said it would shutter 225, or 12% of its total. And there are no obvious giant candidates to take over the mall spaces, diminishing the value of real estate for companies like Penney.

Of course, much of Penney’s failure was self-inflicted: the bold attempt — blessed by an impulsive board — to wave a magic wand and make a deeply embedded culture disappear, not to mention the rejection of its own customers. Says one executive brought in by Johnson: “It’s akin to people who try to remodel a house when their family is living in it. What we did was try to remodel 80% of the house and, by the way, try to host Thanksgiving and Christmas and a wedding in the backyard.”

Some acolytes fiercely defend Johnson and maintain that his plans would have worked if given enough time. “I think the strategy was right on the money,” says former HR head Walker. “We’ll never know what the results would’ve been if we’d gotten to the point where the stores had been largely transformed. Then it becomes a different store. We don’t get to replay that.”

Indeed, several Johnson initiatives have paid off. The Levi’s stores have had healthy sales (as have similar Disney boutiques). Penney is also holding on to another Johnson favorite, Joe Fresh. And Penney’s wider aisles and polished concrete floors do make the stores look and feel more contemporary.

What Johnson hoped to do was laudable. He wanted to conjure the elusive magic that delights customers at Apple stores, or at a handful of brick-and-mortar retailers such as Burberry, H&M, Target, J. Crew, Lululemon, and a few others devoted to the art and design of the product and the space. Says analyst Brian Sozzi of Belus Capital Advisors: “I will give Johnson this: He did things too quickly, but at least he was trying to set up a company to thrive in terms of where the future of retail was going. He just didn’t go about it the right way.” It’s impossible to know whether Johnson’s reforms could have succeeded, but he does leave one legacy: Nobody will be attempting something similar for a very long time.

Reporter associates: Marty Jones and Susan Kramer

Originally published in Fortune, March 2014. Subscribe to the magazine here.

Photo: idovermani, Flickr

The Life and Career of Nile Rodgers, In His Own Words

Longreads Pick

Nile Rodgers reflects on how he ended up in the music business, producing hits for his own band Chic and artists including David Bowie and Daft Punk:

We took Chubby Checker’s “The Twist” and Joey D and the Starliters’ “ Peppermint Twist” and made it be about the “Freak.” To make it sound like it was ours, we called it “Le Freak.” But we didn’t tell people how to do the dance because we didn’t really know how to do it. It became better to speak of it in this euphoric way, and talk about the experience of doing it. We say, “Have you heard about the new dance craze.” We assume you haven’t. “We’ll show you the way.” But we don’t! The dance never became “the Twist” or even “the Hustle.” But the song is a triple-platinum single. And when we were on American Bandstand, Dick Clark introduced us in a really wonderful way. He said, “This is the biggest song by a band nobody knows about a dance that nobody knows how to do. Ladies and gentlemen, Chic! ‘Le Freak’!” It was so right on the money.

Published: Mar 30, 2014
Length: 7 minutes (1,930 words)

Straight Outta St. Johns

Longreads Pick

From the edge of America’s whitest city, a generation of North Portland rappers emerge:

Rap production in this town tends toward DIY: homemade mix tapes and simple videos shot along Martin Luther King Jr. Boulevard. But the music coming out of St. Johns offers an important look at the city. The lyrics recast places many Portlanders know. For these rappers, the St. Johns Bridge is not an Instagram image but a barrier that symbolizes the wide gulf separating their world from the rest of the city.

Source: The Oregonian
Published: Mar 7, 2014
Length: 19 minutes (4,930 words)

What Louis Armstrong Really Thinks

Longreads Pick

A deeper look at the legendary jazz musician’s work and thoughts on race in America:

Armstrong chose his battles carefully. In September, 1957, seven months after the bombing attempt in Knoxville, he grew strident when President Eisenhower did not compel Arkansas to allow nine students to attend Little Rock Central High School. As Teachout recounts in “Pops,” here Armstrong had leverage, and spoke out. Armstrong was then an unofficial goodwill ambassador for the State Department. Armstrong stated publicly that Eisenhower was “two-faced” and had “no guts.” He told one reporter, “It’s getting almost so bad a colored man hasn’t got any country.” His comments made network newscasts and front pages, and the A.P. reported that State Department officials had conceded that “Soviet propagandists would undoubtedly seize on Mr. Armstrong’s words.”

Doing things Armstrong’s way, no one had to accept responsibility for his actions but Louis Armstrong. When Eisenhower did force the schools to integrate, Armstrong’s tone was friendlier. “Daddy,” he telegrammed the President, “You have a good heart.”

Source: The New Yorker
Published: Mar 7, 2014
Length: 10 minutes (2,547 words)

The Feel Of Nothing: A Life In America’s Batting Cages

Steve Salerno Missouri Review | Winter 2004| 24 minutes (6,016 words)

Steve Salerno’s essays and memoirs have appeared in Harper’s, the New York Times Magazine, Esquire and many other publications. His 2005 book, SHAM, was a groundbreaking deconstruction of the self-help movement, and he is working on a similar book about medicine. He teaches globalization and media at Lehigh University. This essay first appeared in the Missouri Review (subscribe here!). Thanks to Salerno for allowing us to reprint it here.

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Observed on video at half-speed, through the metal lattice-work of the batting cage, it is a perfectly choreographed pas de deux of man and machine. While the machine readies the pitch, the man executes the idiosyncratic but vital preparatory movements of torso and hand that jump-start his batting rhythm; he leans forward, then rocks his weight back, the bat wavering in a narrow arc above his head much as the young palms visible in the background yield to the soft ocean breezes—slightly forward of true vertical, slightly aft, slightly forward again. As the dimpled yellow ball shuffles down that last segment of the feeder sleeve toward the pair of spinning wheels that will propel it homeward, the batter’s hands twist around the axis of the lower wrist in a subtle cocking mechanism; when the ball drops between the wheels and disappears for an instant, the batter’s front foot lifts, then returns to earth perhaps six inches beyond its initial resting place; the bat itself remains well back, high over the rear shoulder, in obeisance to an ancient admonition—“hips before hands.”

Even in slo-mo, the swiftness of the ball’s flight to the plate startles. At first it seems that there’s no way the man can snap the bat down and around his body fast enough to intercept the sphere (which actually, now, more resembles a yellow antiaircraft tracer) before it blurs by him…. But no, he starts his swing, his lower body leading the way, pivoting sharply on the front foot—now—and in fact, somehow manages to confront the pitch out
 ahead of the ersatz plate. If you pause the video at this precise point—that millisecond before impact—you marvel at the fact that, slicing through the strike zone, the bat, despite being molded from a single sheet of metal, is no longer a straight, rigid line. Rather, the bat- head clearly lags behind the handle in its travel to the ball, a vivid manifestation of the explosive torque all good hitters rely on for generating power. An instant later, post-contact, the ball too is misshapen, flattened on the impact side, shooting off the bat in a shallow upward arc with such velocity that it appears to leave a comet-like contrail in its wake.

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On White Hip-Hop Artists Performing for White Audiences

In 2013, for the first time in the 55-year-history of the Billboard Hot 100, not one black artist lodged a number-one single. (Of the eleven songs that held the spot for some portion of the year, four were hip-hop, and four featured black singers or rappers in guest roles.) There’s been round, sustained clamor over Macklemore’s Grammy haul, which was all the more glaring because it came at the expense of fellow nominee Kendrick Lamar, a (frankly) far more talented artist, who is black. (Macklemore handled the situation awkwardly, too, writing Kendrick a text message that said, “I wanted you to win. You should have. It’s weird and sucks that I robbed you.” And then posting a screenshot of that text to his Instagram account, so everyone could see how magnanimous he is.) Macklemore admits that white privilege is a factor in his success. “I benefit from that privilege,” he has said. “And I think that mainstream Pop culture has accepted me on a level that they might be reluctant to, in terms of a person of color.” But that doesn’t change the facts on the ground: A new white hip-hop superstar has been anointed, one who does not live up to most rap critics’ definition of excellence. (Eminem is widely considered to be an extremely skilled rapper.) Some have even gone so far as to anoint Macklemore some sort of savior of hip-hop, a Great White Hope who will help the genre evolve into a more enlightened form. A recent Dallas Morning News headline sums up this perspective: “Macklemore shows hip-hop doesn’t need to be homophobic, violent in Dallas concert.”

Dave Bry, in a short essay for The New Republic, on the state of rap music. Read more on music.

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Photo: sffoghorn, Flickr

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Can Checks Save Lives?

Longreads Pick

As a teenager, Jonah Ogles began sponsoring a poverty-stricken boy in the Caribbean. Twelve years and thousands of dollars later he flew down to meet him—and to learn if his efforts did any good at all.

When I started sponsoring Ervenson, I was camping at a Christian alt-music festival in rural Illinois, where bands played concerts for sweaty mosh pits of Jesus-loving teens. Between two of the shows, someone from Compassion International got on stage and talked about how difficult it was to be a child in places like Haiti. They described the lack of clean water, the rampant disease, the voodoo ceremonies on every corner. Even then I was vaguely aware of my privilege as a white American male and felt a little guilty about it. Plus, I had a part-time job at a guitar store, which meant that I had enough spending money that I wouldn’t miss thirty-odd dollars out of my monthly paycheck. I signed up as soon as I got home. All I had to do was get online, do a quick search by age, country, or birthday (in case I wanted someone who shared mine), and then click that I agreed to send the checks.

Source: Outside
Published: Jan 31, 2014
Length: 21 minutes (5,331 words)

David Cronenberg on Transformation

Stories of magical transformations have always been part of humanity’s narrative canon. They articulate that universal sense of empathy for all life forms that we feel; they express that desire for transcendence that every religion also expresses; they prompt us to wonder if transformation into another living creature would be a proof of the possibility of reincarnation and some sort of afterlife and is thus, however hideous or disastrous the narrative, a religious and hopeful concept. Certainly my Brundlefly goes through moments of manic strength and power, convinced that he has combined the best components of human and insect to become a super being, refusing to see his personal evolution as anything but a victory even as he begins to shed his human body parts, which he carefully stores in a medicine cabinet he calls the Brundle Museum of Natural History.

There is none of this in The Metamorphosis. The Samsabeetle is barely aware that he is a hybrid, though he takes small hybrid pleasures where he can find them, whether it’s hanging from the ceiling or scuttling through the mess and dirt of his room (beetle pleasure) or listening to the music that his sister plays on her violin (human pleasure). But the Samsa family is the Samsabeetle’s context and his cage, and his subservience to the needs of his family both before and after his transformation extends, ultimately, to his realization that it would be more convenient for them if he just disappeared, it would be an expression of his love for them, in fact, and so he does just that, by quietly dying. The Samsabeetle’s short life, fantastical though it is, is played out on the level of the resolutely mundane and the functional, and fails to provoke in the story’s characters any hint of philosophy, meditation, or profound reflection.

Director David Cronenberg on Kafka, The Fly, aging and storytelling, in The Paris Review.

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This Is Not Really the Worst Song of All Time

I’m not here to defend “We Built This City,” though I hardly think it’s the worst song of all time. Instead, I’m here to urge every music fan to dig deeper and interrogate his or her own definition of what makes a song terrible. I feel like we pile on “We Built This City” because it’s too feeble to fight back; because we as a community of music-lovers accept that it’s the worst song ever the way we accept that Pet Sounds or Sgt. Pepper or A Love Supreme or Blue or Blood on the Tracks is the best album ever. That is to say, we accept these opinions as truth because they’ve been accepted that way before most of us even got here.

NPR’s Stephen Thompson, in a short essay on All Songs Considered, questioning our society’s collective decision to hate Starship. Read more on pop music from the Longreads Archive.

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