Ron Johnson: Business Lessons From Apple’s Success and JCPenney’s Nearly $1B Failure | Entrepreneurship | E417

Young and Profiting (YAP) with Hala Taha: Entrepreneurship and Self-Improvement Podcast

In this episode, Ron Johnson shares his transformative experiences leading retail revolutions at Apple and Target. He details the high-stake

Key takeaways

• Ron Johnson helped pioneer the Apple Store concept by leveraging mall traffic to reach customers where they already shop.
• The 'Genius Bar' was originally proposed with a name Steve Jobs initially rejected because he feared it sounded too much like a 'Geek Bar'.

Main topics

• Apple Store Creation
• Retail Innovation vs. Improvement

Notable quotes

If you think through any problem hard enough, you'll come to the inevitable only answer.

Conclusion

The episode provides a masterclass in how bold, imaginative thinking c

Transcript preview

Speaker 1 (0:00) Most people thought it was insane that Apple was going to open stores, including a couple of the board members. Steve said to me, he goes, Ron, we have $4 billion in the bank. If I could write a check for a billion dollars today and have a hundred stores, I'd be happy. Speaker 2 (0:13) When Ron Johnson joined Apple in 2000, the company had a tiny share of the computer market. Ron helped create and launch the Apple Store and Genius Bar. Ron takes us behind the scenes of his work at Target, Apple, and GC Penney, while sharing what he learned about innovation, leadership, and decision-making through both his greatest successes and biggest failures. Speaker 1 (0:33) Steve believed after that experience that if Apple is going to win, it had to control the customer experience. Because the reality, Dell's done pretty well selling computers over the internet. And Gateway selling PCs is closing its doors. Speaker 2 (0:46) You came up with the concept of Genius Bar, correct? I Speaker 1 (0:49) called Steve and I said, Steve, I got the name. I'm going to call it the Genius Bar. And he said, you can't do that because anybody you find who can talk about technology is a geek. So if you want to call it the Geek Bar, maybe that would work. I said, the main reason I want that name. How Speaker 2 (1:04) did that impact your ego? Like, did you feel down or like that you were a failure because you had failed? I Speaker 1 (1:10) was a failure. Make no mistake about it. When you're the CEO of a company and you do something, fails in everyone's mind and you walk away from it, you failed. I think even today, there'll be times I wake up and my stomach churns about. Speaker 2 (1:25) Ron, welcome to Young and Profiting Podcast. Speaker 1 (1:27) I am so excited to be here. Nice to meet you, Hala. Speaker 2 (1:30) Nice to meet you as well. Thank you for flying out, being here in person. You've got such incredible experience. You've been with Apple, Target, JCPenney, in the C-suite, and you've done such an incredible job transforming these stores, especially Apple and Target. So I want to start with Apple. Sure. I learned that you convinced Steve Jobs. to put in Apple stores, before they were even a thing, in really expensive malls when Apple only had 5 % of the PC market share and four products. Speaker 1 (2:05) Right. Speaker 2 (2:05) How was that not a completely insane idea at the time? Speaker 1 (2:08) Well, most people thought it was insane that Apple was going to open stores, including a couple of the board members. But I didn't convince Steve. Steve wanted to open stores. Speaker 2 (2:17) Okay. Speaker 1 (2:17) Steve had come back to Apple in 1997. launched that cult hit, the iMac, Speaker 2 (2:23) which Speaker 1 (2:24) had rave reviews, even made the cover of Time magazine. Wow. But it didn't change the game for Apple. It sold to the Mac faithful. Speaker 2 (2:31) And Speaker 1 (2:32) Steve believed, after that experience, that if Apple is going to win, it had to control the customer experience. Speaker 2 (2:38) So Speaker 1 (2:38) it wanted to open stores. So he... called me to come out and talk to him about stores. Speaker 2 (2:44) So he poached you from Target. He Speaker 1 (2:46) recruited me from Target. But during that first conversation, interestingly, I said, so who's the customer? How big can this be? Speaker 2 (2:54) He Speaker 1 (2:55) said, Ron, we've got 5 % market share, Speaker 2 (2:57) which Speaker 1 (2:58) it turns out it was two or three, but he said five. And he said, if we go after the creative consumer, now Apple does a great job with creative apps for pros. We have high market share. In the marketing departments, the creative departments, but not as much in the business side. I think we can double our market share and get to 10%. And later he told me the board wasn't supportive. And I said, well, you know, the board might be right. If all you want to do is double your market share. Because the reality, Dell's done pretty well selling computers over the internet. Speaker 2 (3:30) Yeah. Speaker 1 (3:31) And Gateway selling PCs is closing its doors. Speaker 2 (3:35) So Speaker 1 (3:35) maybe the board is right. And I said, but I don't know why you want to sell to the creative pro only. And I come from Minneapolis, so I was living and working with Target. Speaker 2 (3:44) And Speaker 1 (3:45) in Minneapolis, very few people had computers. Speaker 2 (3:48) And Speaker 1 (3:49) it turns out only 50 % of American households had a computer. Speaker 2 (3:53) And Speaker 1 (3:53) I said, you think you've lost the PC war to Microsoft? There's half the market to go. And I said, now, if you want to go after everybody, that'd be interesting. And I had that idea because I just brought design to Target, Speaker 2 (4:07) which Speaker 1 (4:08) became design for all, and people loved it. Speaker 2 (4:10) And Speaker 1 (4:11) once I told Steve that, he got real excited. And he said, no, I could do that, but where would you put stores? And I said, well, we'd go where they shop, where people shop. That's the mall. Speaker 2 (4:22) And he hated the mall, right? He goes, Speaker 1 (4:24) I hate malls. Speaker 2 (4:25) Why did he hate them? Speaker 1 (4:27) He said they're filled with crappy stores and they're crowded. Speaker 2 (4:31) And Speaker 1 (4:32) I think for him, it was a little bit back to Steve had become a celebrity Speaker 2 (4:36) at Speaker 1 (4:37) age 24 when he launched the personal computer. Speaker 2 (4:40) Yeah. And Speaker 1 (4:40) founded Apple and Pixar. And it was hard for him to be in a public space. Yeah. Speaker 2 (4:46) So he didn't. Speaker 1 (4:47) But it was pretty clear. I said, look, Steve, if you want to find your customer, you got to be more convenient than a remote parking lot where all the computer stores have been located. Speaker 2 (4:58) Because Speaker 1 (4:58) they're bought every four or five years. So why would you pay for expensive mall traffic was common wisdom. Yeah. And the next time I met Steve, a couple weeks later, Speaker 2 (5:07) the Speaker 1 (5:08) first thing he said to me is, Ron, I'm going to offer you the job. I said, wow, that's pretty good. Yeah. One discussion. Speaker 2 (5:13) But Speaker 1 (5:13) he said, but you're right about malls. We should put stores in malls. So I didn't really have to convince him. Speaker 2 (5:20) Yeah. It Speaker 1 (5:21) was pretty obvious once we decided we were going after everybody that the only way to do that would be in a mall. Speaker 2 (5:27) But Speaker 1 (5:27) Steve said to me, he goes, I realized. I might not be able to get someone to get in their car and drive 10 miles to check out a Mac, Speaker 2 (5:35) but Speaker 1 (5:36) I could get them to walk 10 feet out of their way. Speaker 2 (5:39) Yeah. And Speaker 1 (5:39) that's all we have to do in a mall. And he was right. Speaker 2 (5:42) Yeah. It's so interesting that there was some initial pushback, but he said that he was going to give you a billion dollars, basically, to build these stores. Is that right? Speaker 1 (5:51) Yeah. So Steve offered me the job. I came out two weeks later with my wife, Karen. to kind of just talk to him one more time. He took me to a Macworld, super exciting. You see just how interesting Apple is as a company, how strong Steve is as a leader. And we went and toured Stanford Shopping Center. And at the end, he said, so any other objections? I said, Steve. You said the board has approved a test that we should open four stores and see how it goes. I said, unfortunately, I won't come for a test. Speaker 2 (6:28) Not going to change your whole life, just for a test. I said, I'm not going Speaker 1 (6:30) to give up the career or have a target for a test. But more importantly, I won't be able to recruit any A players to come for a test. If you believe in something, you need to be all in. Well, that's Steve's nature. He's always been all in. Everything he's done, he's been all in. Speaker 2 (6:47) And Speaker 1 (6:48) he quickly just looked at me and he said, Ron, we have $4 billion in the bank. If I could write a check for a billion dollars today and have 100 stores, I'd be happy. Well, I knew it wouldn't cost $100 million to build out 100 stores. And then I said, okay, let's go do this. Speaker 2 (7:05) Yeah, Speaker 1 (7:06) very Speaker 2 (7:06) cool. So let's talk about some of the principles that you used when designing these stores. You really wanted the store to be a place of belonging. You really wanted to be more about relationships than transactions. Talk to us about what your philosophy was. Speaker 1 (7:23) Yeah, it was pretty obvious. This is 2000. When we're talking about the stores, we're at the height of the dot-com bubble. It bursts like four months later, we're in the middle of design stores. But people, there were literally smart people who thought stores were going to go away. Some people still believe that today, Speaker 2 (7:43) even Speaker 1 (7:44) though it couldn't be further from the truth. But when you're designing a store in the midst of the internet, which is taking off, you have to think through, what could I do that the internet could never do? And that's essentially create a place to belong, to deliver an experience. So we had to design a store that had so many advantages to shopping online that everyone would prefer to come to a store. Speaker 2 (8:10) And Speaker 1 (8:11) the beauty is because Apple had such a small product lineup, four total products, Speaker 2 (8:16) computers Speaker 1 (8:17) only, two portables, two desktops, that's it. We could present the entire product line in 30 square feet. Speaker 1 (8:27) We built stores that were 6,000 square feet Speaker 2 (8:30) big. Wow. Speaker 1 (8:31) And we did that because that was the size, basically, of a great space in the mall. That's what The Gap had, and they were like the leading specialty store. And Steve agreed that how you present yourself Speaker 2 (8:42) has Speaker 1 (8:43) a big impact on how people perceive you. Speaker 2 (8:45) It was like the dominance of the mall, basically. Yeah, we wanted to be a Speaker 1 (8:48) brand that was like A Gap, Speaker 2 (8:50) you know, Speaker 1 (8:50) because he said we're much bigger than The Gap. Speaker 2 (8:52) And Speaker 1 (8:52) that enabled us to have the space to create experiences. Speaker 2 (8:56) So Speaker 1 (8:56) we devoted very simply, first rule, half goes to new customers, the ones we're trying to attract. That'd be the front of the store. And everyone could try every product. Up until then, you couldn't try products in a physical store. Speaker 2 (9:10) They Speaker 1 (9:10) were just things on display. Speaker 2 (9:12) But Speaker 1 (9:13) we had to connect them to the internet to figure out how to keep them current with software, Speaker 2 (9:17) et Speaker 1 (9:17) cetera, et cetera. But the half went to the products and the other half went to owners, assuming people buy. How do we help them overcome their fear of technology? Speaker 2 (9:27) Because Speaker 1 (9:28) that was the enemy. Speaker 2 (9:29) The Speaker 1 (9:29) reason people didn't have computers, they were too complicated. They were scared. They'd buy this and never use it. Speaker 2 (9:35) So Speaker 1 (9:35) we put it in theaters where you could take classes and tables where you could get training one-to-one eventually and a genius bar where you could get face-to-face help. So we put in all of these services along with the thing, and the stores became immediately one of the most popular stores in the world. Speaker 2 (9:52) And when you first launched the stores, you actually had basically, like, designed the stores, and then last minute you realized that you had designed them wrong. Speaker 1 (10:03) Well, that was the instinct I had, yeah. Yeah. You know, Steve and I had spent a long time designing. And Steve had spent a lot of time. Speaker 2 (10:09) You know, Speaker 1 (10:10) Steve's obviously a really busy person. Yeah. Speaker 2 (10:12) He Speaker 1 (10:12) was running two companies at the time. Speaker 2 (10:13) Yeah. Speaker 1 (10:14) CEO of Pixar and Apple. You know, leading Apple. And we got this new initiative called Retail. And he had come over every Tuesday for four hours in a warehouse to help design the store with me and the team. Speaker 2 (10:28) Put Speaker 1 (10:28) a lot of energy into it. Steve called me every night the first year at 8 o'clock for me to get to know him so he could delegate and trust. Speaker 2 (10:37) He Speaker 1 (10:38) put a lot of energy into it. Speaker 2 (10:40) Yeah. And Speaker 1 (10:40) then one day I was flying back. I was commuting from Minneapolis. And my wife had just completed another beautiful scrapbook of my. two-year-old son and four-year-old daughter. And it hit me that I live in an analog world on the weekends when I'm with my family in Minnesota. But in Cupertino, I'm in a digital world where we're inventing all these apps to like get rid of the scrapbook. And I talked to Steve one night on a Thursday and I said, Steve, have you ever thought about this? You know, the Mac, if we succeed, it'll be the center of someone's digital life. Yeah, where I am. My wife makes, takes pictures. We go to the grocery store, we get the film developed. She cuts them up, puts them in a scrapbook. It's wonderful. Speaker 2 (11:26) I Speaker 1 (11:26) come to Cupertino, we're making digital scrapbooks. And that's true of movies. That's true of music. And I said, the Mac's kind of the center of your digital life. And Steve said, can you write me an email on that? I said, sure. And I wrote him a little note the next day. And then Monday, he bounces into ET. And I think my conversation is probably crystallizing thoughts he had from many other conversations. So I'm not taking credit for this. But he walks in, he doesn't sit down like he always does, hardly says good morning. And he goes up to the whiteboard and he goes, I've got the future of the Mac. He said, we're going to call it the digital hub. Speaker 2 (12:01) I love that. The hub. Speaker 1 (12:02) And he said, the Mac will be in the center. You'll have your devices like your Canon camera Speaker 2 (12:07) or Speaker 1 (12:08) your Sony camcorder, and we'll create a layer of software in the middle. And we'll be able to take your out your content from your camera into Speaker 2 (12:16) the Speaker 1 (12:17) Mac and through our applications like iPhoto, iMovie, iTunes, we will do things you couldn't do before. Speaker 2 (12:24) And Speaker 1 (12:25) that's how we'll position the Mac. And so we talked about that at EDT. And then that night, I woke up about two in the morning. I couldn't sleep. I said, well, if Steve really believes in the digital hub, we've designed our store around products. Speaker 2 (12:38) They Speaker 1 (12:39) should be designed around the digital hub. about what people can do. Speaker 2 (12:44) So Speaker 1 (12:45) the next morning, it was Tuesday, which is when we have our retail meeting, and Steve used to like me to go to the main building at Infinite Loop in Cupertino and ride with him to the store Speaker 2 (12:55) just Speaker 1 (12:57) so we could catch up and chat about what we're going to do that day. And I got there and he said, you look tired. I said, well, I was up. And I said, you know, I've been thinking about the store, and if you love the digital hub, you know, I think the store is wrong. Speaker 1 (13:12) He looked at me said tell me more and I told him what I just told you and he said God You know, you might be right, but do you know how much work I put into the store? Let's go. I don't want you to talk about this today. Let's work on what we're going to work on because you might be right, but I don't know if I have the energy to design an entirely new store. Speaker 2 (13:34) I Speaker 1 (13:34) said, okay. And we got in the car and quiet. You know, usually we chatted the whole way there. It's, you know, eight to 10 minutes depending on traffic lights. And we got there and we walk in. He hasn't said a word yet since I talked to him. We meet, there's a group of 15 people there waiting. And Steve's coming. Who's going to get to go first? There's all that Speaker 2 (13:55) pressure Speaker 1 (13:56) of now Steve's in the room. And Steve looks at everyone and goes, well, Ron just told me that our store is all wrong. Speaker 1 (14:06) And he's right. And so we're going to start over. But I'm going to leave now and leave it up to you guys to figure it Speaker 2 (14:12) out. Speaker 1 (14:12) You Speaker 2 (14:12) guys figure it out. But Speaker 1 (14:14) he told the story then really affectionately to the group that every great thing he'd done. There became a moment in the project when you did have the courage to do a U-turn or to start over. And he told a story about Toy Story, one of the great movies, first great movie with Pixar. Speaker 2 (14:33) And Speaker 1 (14:34) he said, you know, we got to have the courage to do it right. And that delayed the first store about six months, but it allowed us to create a place that really became the Apple store we still see today. Speaker 2 (14:45) Yeah. What a cool story. I love that story. What did that teach you about decision making and being flexible enough to change direction while also being like firm in your original decisions? Like what did that teach you about decision making? Speaker 1 (15:03) Well, it became a lesson that I really learned from Steve. Steve used to say, if you think through any problem hard enough, you'll come to the inevitable only answer. Speaker 2 (15:15) And Speaker 1 (15:15) everyone will agree with you. Super counterintuitive to what companies like Facebook do today where let's just get stuff out there and test it and the customer will evolve. Speaker 2 (15:25) Steve Speaker 1 (15:25) believed in thinking things through with a small group of people and putting your best, best foot forward. Speaker 2 (15:33) That's Speaker 1 (15:34) how he designed products. That's how he created movies. That's how he created this store. And Steve was never in a hurry. Now, he wasn't driven by... Product timelines. Speaker 2 (15:45) Now, Speaker 1 (15:45) there are a lot of products we thought, is it ever going to come out? Speaker 2 (15:48) Yeah. The Speaker 1 (15:49) phone was actually quite a bit beyond when we initially thought we Speaker 2 (15:53) could Speaker 1 (15:53) bring out a phone at Apple, right? So the lesson I learned from that was you get one chance to launch a store. You get one chance to launch a product. Do it great. If you have a better idea, have the courage to make a change. Speaker 2 (16:08) So you came up with the concept of Genius Bar, correct? Speaker 1 (16:12) What Speaker 2 (16:13) was your initial reason for it? I know that people were not familiar with computers, so obviously to educate, but what else beyond that? Speaker 1 (16:21) Yeah. Well, first, you know, I get credit for the Genius Bar, but I wouldn't. take ownership. Everything is done by groups of people. And so I had been in a meeting at Offsite, which was really fun with 18 people talking about how do we build the store? What's the service philosophy? Speaker 2 (16:41) And Speaker 1 (16:41) in that conversation, it became very clear that people felt like they get sold to its stores, but great services and hotels, especially five-star hotels. So we asked the question, I said, right, okay, let's just spend two days. designing the Apple Store service as if we were a five-star