Penney snags Apple retail executive as next CEO

NEW YORK/SAN FRANCISCO Tue Jun 14, 2011 6:02pm EDT

Ron Johnson (C), Senior Vice President of Retail Apple, speaks to the media at the company's retail store in the Carrousel du Louvre shopping center in Paris November 5, 2009. REUTERS/Jacky Naegelen

Ron Johnson (C), Senior Vice President of Retail Apple, speaks to the media at the company's retail store in the Carrousel du Louvre shopping center in Paris November 5, 2009.

Credit: Reuters/Jacky Naegelen

NEW YORK/SAN FRANCISCO (Reuters) - J.C. Penney Co Inc (JCP.N) is bringing in the man who oversaw Apple Inc's (AAPL.O) wildly successful foray into retail stores to be its next chief executive and help speed up the department store chain's turnaround.

Ron Johnson, Apple's senior vice president of retail, will take the reins on November 1 from Myron Ullman, who will become executive chairman of the board, Penney said on Tuesday.

Penney's market value rose more than $1 billion on the announcement, with its shares adding $5.26, or 17.5 percent, to close at $35.37.

As part of the package to lure Johnson to Plano, Texas, from Silicon Valley, Penney also gave Johnson restricted stock worth $50 million, which replaced the value of the equity award that Apple gave him that were due to vest on March 24, 2012. The new Penney restricted stock vests on January 27, 2012.

J.C. Penney first was interested in Johnson as a potential successor to Ullman three years ago.

As two of J.C. Penney's largest shareholders, William Ackman's Pershing Square Capital Management and Vornado Realty Trust (VNO.N) had the right to appoint another director to the 14-member board. Interest in bringing Johnson on as a director and executive was rekindled earlier this year, J.C. Penney said.

At the same time, Apple Chief Operating Officer Tim Cook, who is pinch-hitting for CEO Steve Jobs who is on medical leave, is widely assumed to be first in line to be CEO, making it unclear whether Johnson would ever have gotten the top job.

PLANTING THE APPLE STORE SEED

On Johnson's watch Apple opened its first retail outlet -- in McLean, Virginia -- in May 2001. It now has a chain of more than 300 stores, which generated on average $34.1 million per store in fiscal 2010 and accounted for 15 percent of the company's total net sales.

Mike Janes, chief executive of startup FanSnap and a former Apple executive who ran the company's online store, said Johnson was a perfectionist, just like Apple boss Steve Jobs.

"From day one, and ever since, I have never heard Ron refer to somebody coming into the stores as anything other than a guest," Janes said. "When you hear him talk, you feel like you are talking to somebody who was running a Four Seasons hotel as opposed to somebody who was running retail."

Johnson's understanding of how to integrate technology and retail at a time Penney is looking to tap e-commerce to improve sales is a key reason he got the job.

"We've been a leader in the digital place in retail but we're nowhere compared to the great technology companies," Ullman, who has been CEO since 2004, told Reuters in an interview.

Penney suffered dramatic sales declines during the recession as its shoppers, more exposed to the weak economy than those of rivals such as Macy's, pulled back. Sales are recovering but are still well below 2008 levels.

Penney in recent years has tried to remedy that by remaking itself as a more fashionable retailer with more exclusive lines, such as Liz Claiborne LIZ.N clothing, and stores-within-its-stores for cosmetics seller Sephora and Spain's fast-fashion chain Mango.

But both Ullman and Johnson said Penney had a long way to go to tap the potential of technology such as mobile commerce.

"The intersection of tech and retail in my experience is one of the megatrends of the next decade," said Johnson, who will join the Penney board in August and report to Ullman.

Brian Sozzi, analyst at Wall Street Strategies, said that the experience Johnson brings from both Apple and an earlier 15-year stint at Target Corp (TGT.N) should help Penney differentiate and update itself in shoppers' minds.

"They are trying to become a cheap chic retailer and not just the 'mom' brand," Sozzi said.

Johnson said his experience at Target helps him understand the needs of Penney's budget conscious shoppers.

PENNEY'S GAIN, APPLE'S PAIN

Johnson's departure was seen as a coup for Penney but a loss for Apple.

"It's one of the best retailers in the world and he has an enormous part building that retail distribution. It's going to be a loss, but I expect the bench is deep there," said Channing Smith, Co-Manager of the Capital Advisors Growth Fund, which owns Apple shares.

An Apple spokeswoman said the company is "actively recruiting for his replacement."

In October, Pershing bought 16.5 percent of Penney shares and Ackman faulted Penney for lagging rivals such as Macy's Inc (M.N) and Kohl's Corp (KSS.N).

"The board seems to think that traditional retail is not the answer to Penney's problems," Morningstar analyst Paul Swinand told Reuters. "You expect someone like Ackman to shake things up."

In February, Penney gave Ackman a new spot on the board, along with Steven Roth, chairman of Vornado Realty Trust (VNO.N), which bought shares at the same time Pershing Square did, and is Penney's third-largest shareholder.

Penney, founded in 1902 by James Cash Penney in Kemmerer, Wyoming, operates 1,100 department stores across the United States.

(Reporting by Phil Wahba in New York, Poornima Gupta in San Francisco and Brad Dorfman in Chicago; Additional reporting by Svea Herbst in Boston and Alistair Barr in San Francisco; Editing by Dave Zimmerman, Gerald E. McCormick and Phil Berlowitz)

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