Target Corporation Should Give Ron Johnson a Chance at Redemption

Retail visionary Ron Johnson spent the first 15 years of his career working his way up the corporate ladder at Target (NYSE: TGT  ) . That was before he spearheaded a retail revolution at the Apple Store, and long before he oversaw the collapse of midtier department store J.C. Penney (NYSE: JCP  ) .

Target is now looking for a new permanent CEO following the resignation of Gregg Steinhafel. It should seriously consider making Johnson its next CEO -- despite his colossal failure at J.C. Penney. Johnson has had more than a year to reflect on his mistakes at J.C. Penney, and he is the type of visionary who could reinvigorate Target's image and help the company return to growth.

Target needs a makeover
The proximate cause of Steinhafel's downfall may have been the company's massive 2013 data breach -- and its response to the fiasco. Criminals infiltrated Target's data network and stole credit card, debit card, and personal information for tens of millions of customers. Moreover, Target may have overlooked warning signs pointing to a security issue.

Target botched its entry into Canada, where it is now racking up big losses.

However, it's not like everything was sunny at Target prior to the data breach. Sales momentum in the U.S. has been weak for the past two years or so, and the company's entry into Canada in 2013 has been a complete disaster so far.

Target's struggles in Canada can be attributed to market-specific factors that have affected its pricing and assortments there, but in the U.S. it is suffering from the broader malaise of big-box retailers. Comparable-store sales fell last year, due in part to weak consumer spending driven largely by government gridlock, as well as the impact of the data breach at the end of the year. In the few years before that, comparable-store sales growth remained in the low single digits.

Target's main strategy to jump-start sales growth since the Great Recession has been a move into selling fresh foods. This boosted sales of food and other household essentials to 46% of the company's U.S. sales last year, up from 37% of sales in 2008.

Target's gains in fresh food have come at the expense of its traditional strengths.

However, one of the main goals of the fresh-food campaign was to drive store traffic and thereby boost discretionary sales. Unfortunately, sales have stagnated in home furnishings, apparel, and accessories -- previous areas of strength for Target. These categories represented 36% of U.S. sales last year, down from 41% in 2008.

The right man for the job
That's where Ron Johnson comes in. Johnson ended his previous stint at Target as vice president of merchandising, where he was in charge of the home department. In that role, he was instrumental in creating Target's "cheap chic" image.

Most notably, Johnson made a bold bet on a partnership with architect Michael Graves for a line of trendy housewares. The Michael Graves collection became a big hit and changed the way most consumers thought about Target.

Johnson's success in transforming the home department at Target 15 years ago makes him a logical candidate to lead a turnaround of the company's home and apparel businesses today. Many retail analysts believe that a drop in the quality of Target's design partnerships is a key reason that the home and apparel businesses are losing their appeal. Johnson had no trouble lining up star partnerships in his short stint at J.C. Penney.

Ron Johnson may be able to recapture Target's "cheap-chic" allure.

Of course, Johnson's performance at J.C. Penney would give pause to any board of directors. He took a struggling retailer and tried to reinvent it too quickly, which merely accelerated its sales declines.

Fortunately, Johnson now seems willing to acknowledge that he moved too fast at J.C. Penney. Moreover, Target is not in nearly as much trouble today as J.C. Penney was when it brought Johnson on board in 2011. It needs fresh thinking, but not a completely new concept.

Hitting the Target
Johnson has been out of work for more than a year now, so he could be ready to take on a new challenge. While his vision for reinventing J.C. Penney was a stunning failure, he could still be the right person to lead Target.

Johnson spent the first half of his career at Target, so he understands the company's culture. His experience creating the "cheap chic" feel of the Target home department and connections with major designers could help him revitalize sales for the home and apparel sections. A Target-Ron Johnson reunion could be just what both need to get the magic touch back.

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Read/Post Comments (11) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 14, 2014, at 10:39 PM, argue0 wrote:

    Yeah, then maybe he can drag Target into the mud like he did JCPenney.

  • Report this Comment On May 14, 2014, at 10:41 PM, argue0 wrote:

    Yeah, then maybe he can drag Target into the mud like he did with JCP.

  • Report this Comment On May 15, 2014, at 1:15 PM, XXF wrote:

    Ron tried honest pricing at JCP, maybe he can try honest marketing at Target and change their slogan to "Target - Where you pay a little more to avoid going to Walmart".

  • Report this Comment On May 15, 2014, at 5:39 PM, aaronep wrote:

    Without commenting pro or con about Ron Johnson, the choice should be Alan Mulally who

    saved Ford from bankruptcy and made it into the

    profit center it is today. Yes, he never sold groceries, only cars and airplanes. But Target in hiring him would excel in benefiting from his strengths in bringing people together and working as a united team. This is something lagging in

    many corporations today. After reading

    "American Icon: Alan Mulally and the Fight to Save Ford Motor Company" , there would be no other choice. Aaron Epstein, N. Hollywood

  • Report this Comment On May 15, 2014, at 6:19 PM, dd1 wrote:

    Yea that's what Target needs, a CEO that has failed miserably somewhere else. VP of Home Department is basically a category manager with a glorified title. Apple products sold themselves, nobody should take credit for that except Jobs.

    RJ almost destroyed JCP with his "vision" it's called "respect your core customer"

  • Report this Comment On May 15, 2014, at 6:25 PM, Bill57 wrote:

    I am sorry this writer is coming from left field. Look what Ron Johnson did at Penny. He revamps store space without doing market research by opening a couple of Joe Fresh locations and learn from market response before national roll out. This is basic marketing 101. National roll out without market research just burn thru the cash at Penny. Now this writer is proposing to let this gut run Target? Let him ruin another national chain with his I know better ego. Sorry Adam Levine-Weinberg, stick with writing and not offer investment or management advice.

  • Report this Comment On May 16, 2014, at 10:06 AM, TMFGemHunter wrote:

    Thanks for the comments everybody.

    I know that offering another CEO post to Ron Johnson is an outside-the-box idea. However, he wouldn't be the first person to flop miserably at his first CEO job and then turn out to be a good leader somewhere else.

    @dd1: I think you're underestimating the influence that Johnson had in his last stint at Target. He did enough there to get noticed by very smart retail guys like Mickey Drexler. (Drexler recommended Ron Johnson to Steve Jobs, even though as far as I know Johnson had never worked under him.) Also, Apple products definitely were not selling themselves when Johnson arrived at Apple. How much his work building the Apple Store contributed to the company's success is hard to say, but it wasn't just a walk in the park.

    Adam

  • Report this Comment On May 16, 2014, at 10:10 AM, TMFGemHunter wrote:

    @Bill57: Bill Clinton has a funny anecdote in his autobiography. After getting voted out of the governor's office because he raised the price of license plates, he decided to run again. He met with lots of people to ask for their support.

    One guy said that he was very upset about the increase in license plate fees but that he would vote for Clinton again. When Clinton asked him why, the guy replied that Clinton had already gotten in trouble for raising the car tag price before, so he definitely wouldn't do the same thing again!

    Generally speaking, people won't make the exact same mistake twice. Johnson might or might not be good as CEO of Target, but I don't think he would repeat the same mistakes he made at J.C. Penney.

    Adam

  • Report this Comment On May 16, 2014, at 10:11 AM, TMFGemHunter wrote:

    @Bill57: Bill Clinton has a funny anecdote in his autobiography. After getting voted out of the governor's office because he raised the price of license plates, he decided to run again. He met with lots of people to ask for their support.

    One guy said that he was very upset about the increase in license plate fees but that he would vote for Clinton again. When Clinton asked him why, the guy replied that Clinton had already gotten in trouble for raising the car tag price before, so he definitely wouldn't do the same thing again!

    Generally speaking, people won't make the exact same mistake twice. Johnson might or might not be good as CEO of Target, but I don't think he would repeat the same mistakes he made at J.C. Penney.

    Adam

  • Report this Comment On May 16, 2014, at 3:01 PM, SyDVooh wrote:

    Retail at Apple was great because Apple products are great and just fly off the shelves. You could take any empty store at any big mall, soap up the windows, draw the Apple Trademark in the soap, fill the store with Apple products and it would be a big retail success. That what happened with Apple's retail success. Ron Johnson just happened to be there at the time. JCPenney showed his real retail "abilities."

  • Report this Comment On May 16, 2014, at 6:21 PM, WesChong wrote:

    I think the IT people needed to be let go... not the CEO, I don't think the CEO had much to do with it other than hire somebody, was it a bad hiring decision? Yes.

    ~Wes Chong

    http://www.GetItAllSecrets.com

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