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Can new CEO bring Apple cool to J.C. Penney's?

Ron Johnson, the man who helped make Apple stores hip, will take over the CEO helm at J.C. Penney from Myron Ullman III in November.
Image: Ron Johnson
Penny's shares soared 17.5 percent on Tuesday, the day the retailer announced it had poached Ron Johnson. Getty Images
/ Source: The Associated Press

Imagine the possibilities of J.C. Penney in the future: An iPad enables one shopper to mix and match shirts and slacks without having to undress. A teen sends a mobile photo of a skirt to her father, who pays for it without leaving home by using his smartphone.

Ron Johnson, the man who helped make Apple stores hip, will take over the CEO helm at J.C. Penney from Myron Ullman III in November. Johnson has declined to discuss his plans for the retailer other than to say he wants to "reimagine" the store. But industry watchers say they expect him to borrow from Apple's playbook to completely transform the retailer, increasing Penney's mobile and Web efforts and changing everything from the way customers pay for clothes to how employees are trained.

"Johnson's skill set matches Penney's need set: customer experience, branding and innovation," says Craig R. Johnson, president of retail consultant Customer Growth Partners. "If you can introduce one quarter of Apple's coolness, that will do a lot to make them a mall destination, instead of a mall sidebar."

With Johnson as Penney's CEO, the retailer is in an enviable position as other merchants have struggled to replicate Apple's excitement in its stores. During Johnson's 11 years at Apple as senior vice president of retail, Apple has grown to more than 300 stores in the U.S. and abroad and has become the gold standard among retailers looking to make their stores hip and exciting.

Sales associates are trained to not just hawk products, but to be problem solvers and cheerleaders. For instance, Johnson has been credited for creating the popular Genius Bar, where customers can get hands-on technical support. And when shoppers walk out of the store with a newly-launched product, sales representatives applaud.

That strategy has translated into packed stores. Apple said it attracted 71.1 million visitors to its stores in its latest quarter, more than the 60 million who flocked to Walt Disney Co.'s four biggest theme parks for the entire year, according to Themed Entertainment Association.

Penney, based in Plano, Texas, could use a boost. Its performance has lagged key rivals as its core middle-class customers have been among the hardest hit by economic woes. Penney's average household income is $45,000, compared with $65,000 at Kohl's and $75,000 at Macy's, says Deborah Weinswig, retail analyst at Citigroup Global Markets.

Last year, revenue at Penney's stores open at least a year rose 2.5 percent, compared with 4.6 percent for Macy's and 4.4 percent for Kohl's. Sales at stores open at least a year is a key measure of a retailer's financial health. Penney's total revenue climbed to $17.76 billion in fiscal 2010, up from $17.55 billion in 2009, but it's still below the $19.9 billion it generated in 2006.

To spur sales, Penney updated its merchandise. Since Ullman became CEO in December 2004, Penney has added more trendy offerings, including Sephora cosmetics boutiques and lines such as Cindy Crawford Style home furnishings. It's also the only department store selling MNG by Mango, a European clothing chain.

But in its quest to go after hipper brands, analysts say Penney neglected its stores. With the merchandise updated, they say they expect the new CEO to focus on revamping the stores and expanding Penney's mobile and Web efforts, which so far have made it a leader in technology among its peers.

Ullman last year held a meeting for its board of directors at Facebook's headquarters in Silicon Valley to teach them about the power of social media. That same year, Penney became the first major retailer to enable shoppers to buy merchandise on its Facebook page without leaving the social media page.

Kiosks in Penney's stores — 42-inch touchscreen fixtures that allow shoppers to order merchandise not available in the stores — are also more interactive than the ones in its peers' stores. Penney's kiosks allow customers to email messages about an online item, for example.

Penney also became the first home furnishings and clothing retailer to allow customers to receive mobile coupons. "Penney has really become focused on tying in the mobile experience back to their stores," says Lori Schafer, executive adviser at SAS Institute Inc., which creates software for major retailers.

Schafer says she expects Johnson to push Penney even further in mobile technology, particularly embracing a program to convert cellphones into so-called digital wallets with which people can make purchases. She also expects Penney to look at new ways to identify the most loyal customers as they walk in the store — and take care of their shopping needs — if the customer grants permission.

Initially, Johnson will not take over operation of Penney's stores and some other responsibilities that Ullman will retain when he becomes executive chairman. The duties Johnson will oversee immediately as CEO include merchandising strategy, marketing and product development.

Shares soared 17.5 percent on Tuesday, the day Penney announced it had poached Johnson. But they have since lost 3 percent, closing at $34.29 per share on Friday on the news that Johnson would not assume all the responsibilities of the CEO role immediately.

The company has declined to give a timeline for when Johnson would assume all CEO duties. Burt Flickinger III, president of retail consultancy Strategic Resource Group, says the arrangement could last two years.

Flickinger says such a division of duties is rare, but it will afford Johnson time to get acclimated to the company. In the meantime, Flickinger said he expects Johnson will have immediate influence on all areas of business.

"It's going to be collaborative," he says. With rapid-fire changes in store technology, Penney can't afford to hold Johnson back, he added.