JC Penney CEO: It may get worse before it gets better

July 18, 2012: 12:45 PM ET

JC Penney CEO Ron Johnson addressed his naysayers at Fortune Brainstorm Tech. The transformation of the embattled retailer has only just begun.

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Ron Johnson

FORTUNE -- Ron Johnson's experience building and running Apple's (AAPL) formidable retail operation was formative. It taught him to think differently and to stick to his convictions even in the face of adversity.

Now Johnson is applying these lessons to the challenging task of turning around JC Penney (JCP), the struggling retailer where Johnson is CEO.

"We're in a marathon here," Johnson said during an interview at Fortune's Brainstorm Tech conference in Aspen, Colorado. "We are going to stick to our plan."

Johnson admitted that not everything has gone according to plan since he became CEO in November. The company angered many consumers when it moved away from its strategy of offering coupons and discounts. Its marketing plan misfired. Traffic to stores declined and sales dropped sharply.

MORE: Full transcript and video from this interview 

But Johnson said he will stick to his core plan to win customers back by offering competitive prices every day. "We want every day to be a great day to shop," he said. After customers get used to the new pricing, he added, JC Penney will "have a business based on integrity."

Johnson also highlighted some of the improvements he is making in the stores. He announced that JC Penney had scrapped an outdated technology infrastructure and replaced it with an Oracle-based system. The new technology will allow the company to improve the in-store experience with mobile checkouts, self checkouts and tags based on RFID instead of bar codes, which would speed up purchases.

Johnson said that JC Penney would begin launching mini-stores within thousands of its retail outlets in order to offer more compelling shopping experiences intended to bring customers back. But he said the transformation of JC Penney, like any other turnaround, will not happen overnight, and that the company may lose more sales before it starts growing again.

"We are going to treat it like a start up," Johnson said. "The only question is what size will the startup be." He declined to say how much the company could afford to downsize, but said his board is squarely behind his plan. "We are going to get to the right level," he said.

He later added: "Apple went through much tougher years than we are going through this year at Penney's. Transformation takes time."

Facing an audience that largely believes that online retail will obliterate physical stores, Johnson took a contrarian view. He said he is bullish on physical retailing, and predicted that online retailing, just like catalog shopping a few decades ago, will eventually reach a plateau. He said different categories of retailing will level off at different points, and that "the physical store will have a permanent place." If he had to choose between a bricks and mortar retailer and an online only merchant, Johnson said, "I take a physical retailer in a heartbeat."

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About This Author
Miguel Helft
Miguel Helft
Senior Writer, Fortune

Miguel Helft is a San Francisco-based Senior Writer at FORTUNE, where he covers Silicon Valley. He joined FORTUNE in August 2011 following a 5-year stint as a reporter at The New York Times covering companies like Apple, Facebook and Google. His knowledge of Silicon Valley and the tech world runs deep. He worked as a software engineer at Sun Microsystems in the late-1980s, and for the past 15 years, he has chronicled major industry events -- from the Microsoft antitrust trial to the dot-com boom and bust - at publications like the Industry Standard, the San Jose Mercury News and the Los Angeles Times. Born and raised in Argentina, Helft emigrated to the U.S. to attend Stanford University, where he earned a BA in Philosophy and a Master's in Computer Science.


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