By JOHN JANNARONE
The latest from Apple: a $1.1 billion man.
That's how much the market capitalization of J.C. Penney increased Tuesday, when the department-store chain hired Apple retail head Ron Johnson as its chief executive. Mr. Johnson, who joined the technology company just before the first Apple Store opened 10 years ago, helped shape the shop format into a retail phenomenon. Apple Stores often generate more revenue than department stores 20 times their size.
Penney certainly could use a magic touch. Like many mature department stores, Penney has suffered as shoppers turned to specialty retailers with clear niches. And even among department stores, Penney likely has lost share to discounters or higher-end rivals, with same-store sales lagging behind the likes of Kohl's and Macy's over the last year.
The trouble is that Apple's sales have been driven by a steady flow of blockbuster gadgets different from Penney's undistinguished range of products, stretching from apparel to patio furniture. Just a few months after the first Apple Store opened in 2001, the company launched the iPod. The next year, it unveiled the flat-screen iMac computer, followed shortly after by the iTunes Music Store. Then came the iPhone, which accounted for $25 billion of the company's $65 billion in sales last fiscal year.
Another issue is the sheer size of Penney's stores. Revamping the layout or appearance of stores that are often 100,000 square feet or more would be a slow and expensive undertaking. Such a move could conflict with other uses of cash, such as the recently announced $900 million share-buyback plan, the largest in five years. In addition, it will be a huge task to engender anything like Apple's legendary level of customer service across Penney's large work force.
Mr. Johnson does appear confident in J.C. Penney's prospects, investing in warrants to buy 7.26 million Penney shares. With Tuesday's 17% rise in the stock, he already is up $38 million. And he spent years in merchandising at Target, where he helped the company choose distinctive products across a range of categories.
Even so, it's hard to justify such a significant move in Penney's stock. That's especially true given the cost inflation the company needs to pass along to shoppers in coming months. Morgan Stanley research shows that average unit prices in U.S. apparel rose 6% in the first quarter, but unit sales fell 7%, suggesting consumers are sensitive to markups.
For Mr. Johnson to turn Penney around now would be a superhuman achievement.
Write to John Jannarone at john.jannarone@wsj.com
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