Brand, Trust, Communication, E-Commerce & Future of Tech
Listen on Youtube Podcast or read full transcript.
Recode Decode, hosted by Kara Swisher, serial entrepreneur Ron Johnson traced his history through reinventing Target stores to creating the Apple store to completely failing to reinvigorate the J.C. Penney brand — and how his new company, Enjoy, is looking to solve the last-mile problem in retail delivery.
For me personally, I love Redcode Decode podcasts and Kara’s interviews, so this was very fun to tear through and relate to experiences I’ve faced in Technology.
The central thesis is, if Apple was going to do it, it had to be bold. It had to do something different. I was meeting with Steve that second time, we were in now the boardroom, and I said, “Steve, how big is the brand?” He said, “Really big.” I said, “Well then, is it bigger than The Gap?” He said, “Much bigger.” I said, “Then we need the store to be as big as The Gap, because otherwise, people are going to think we’re in a small idea.” So we looked around and I go, “Where’s the product line?” He goes, “On the table.”
This is a beautiful example. To further build on brand, creating these 6,000-square-foot stores to essentially sell product that can fit on a simple table. Idea becomes the product and product becomes an idea to sell to masses. With well thought out creative marketing, 6,000-square-foot store becomes the monolith to be adored. Based on an idea, sold as an idea and marketed as an idea, full circle, always true and simple.
You know, a few years later, the Apple store is the fifth-most photographed thing in New York.
I was inspired by the challenge. I’ve always liked to take on big challenges. People didn’t think Apple could do stores.
Appreciating a challenge, seeking it out, and not easily being intimidated by the size and scope – this is a great quality in my opinion – although it can lead down path of success, it can also lead to path of failure. This is also something that has taught me to adopt more Agile ideas – to always be prepared, not to flip flop, but adjust the path to goal.
J.C. Penney… I had this belief that while they could, they had to find a way to appeal to a young customer. To do that, you had to be bold. Young people don’t like promotions, young people shop at H&M and it’s everyday low price, and you just buy when you want and every time’s good. You need to have great merchandise — like when I was at Target and we went to everyday pricing, we got all these great new brands to come. I said, “Let’s just go modernize J.C. Penney.”
I thought that would work, and the board said, “That seems like a good idea.” I said, “It’s going to be really hard, though, because that first year, when we take off all promotions, our sales are going back, we’re going to drop 15 percent.”
And we did. We went back, we dropped a little over 20, but it was clear from the moment business got tough, this was not a company up for a transformation.
So they survived, but there wasn’t much growth and value to the company, right?
So my feeling, they have a big footprint, let’s go create new value.
Their IQ on e-commerce was probably comparable to others.
There was a definite opportunity missed to rebrand and grow for J.C. Penney. Interpretation of Ron’s take on this could result in many hypothesis on why Board was not prepared to take a planned detour to reach the ultimate goal. I refuse to think that this was a surprise. Definitely it seems like trust and communication was an issue.
Typically, it is not only communication that needs to happen. All levels of management need to have firm understanding of what is communicated not just communication. This is why I love “picking brain” moments and being blunt and open, not to only understand/share what is being done, but actual thoughts that led to decisions. In turn I’m able to grow myself, better manage, trust decisions, and even provide occasional guidance if necessary.
IQ on e-commerce remark is a whole other beast – I mean, just think… what is the IQ of these traditional stores on e-commerce?
Look at Wall-Mart, it was years behind in even getting a digital storefront, and not much better can be said about their across-the-border (home) operations. Not only could you not have inventory transparency as consumer, but whole product lines ware hidden from online shopping (and still are).
Shopping stores I “must” occasionally “visit” here in Canada like Toys-R-Us, Canadian Tire, Sears, Best Buy, The Bay (sold! to survive) – are all basic online catalogues (some more basic than others in disastrous way). They have taken traditional paper flyers and literally posted them online. There are huge missed opportunities – which hopefully will change or new technology, marketing, and sales trends lead by disruption Amazon brings will destroy them. For some it might be too late already.
Apple was great because people wore their opinions on the sleeve, you knew exactly what they thought. In some of these larger companies, people don’t communicate very clearly, they care more about retaining their position than winning, so people would tell you they get it, they’d go along, but then they leave the meeting and they just go, “Don’t worry about that, he’ll be gone soon.” I had a lot of passive-aggressive people on the team, not being critical, they were trying to protect their jobs, but it was really hard.
Did you think about getting rid of everyone at once, or …
I didn’t want to do that, but I remember when I came back, Safra Catz is a good friend, and Safra said, “How many of the leadership team did you keep?” I said, “About all of them.” She goes, “Mistake No. 1.”
Honestly, if you’re going to continue, that team’s probably great. If you’re going to fundamentally change your business strategy, you need a team that can implement that and who will embrace that. So you probably would have, but I’m not that kind of guy, I like to bring people along-
Getting stale “talent” to change in large companies, to become more agile, open minded, better at retaining information and communicating is a real challenge. Even if change and personal growth within a company does take place, for well established company native workers/managers, it becomes unbelievably hard to rebrand one self and shift out of rut. Usually where large changes are required, cleaning house is very well justified and can benefit employees and companies alike – especially new management takes throne. Days of “wait and see” or giving multiple opportunities is waste of time when large changes need to happen.
What we’re trying to do, remember the world’s going to Amazon, think about Amazon …
In 22 years, they’ve built an $80 billion e-commerce business. It’s disrupted the heck out of the industry.
In the next three years, they’re going to add $80 billion more. So if they’re 20 percent of your business today, it’s going to be 40 percent in three years. At some point, that’s a problem.
There is nothing preventing Amazon to sell online almost 99% of products and further extend in International markets.
What happens when they launch a service that disrupts conventional logistics/warehousing/distribution of non-consumer B2B services and products? Platform that enables wholesale trade, manufacturers to distribute and use Amazon platform and services though simple EDI methods and have their products reside in places where it’s required eliminating co-location warehousing & product distribution hubs. If it’s not Amazon that builds such solution – I’d love to team up with Kuehne + Nagel or DHL or Schenker!
They do the picking, they bring it to the register, and you transact. That’s much more profitable than having to do all that work for them, right? So the problem is, so many of these retailers said, “Oh, to compete with Amazon, I’ve got to figure out how to get online.” So they invest money to go online. Well, that’s nice to do, but the more you sell online, the less people come to your store. When people buy online, they only buy what they need today. When they go to the store, you buy what you need, but you pick up something else.
There is doing ecommerce for sake of doing ecommerce, and then there is doing it properly, putting thought into creating relationship with customer and having them keep coming back, having them buy things that they could/would purchase in store. In essence, thought and work that goes behind creating an experience is more important than technical hurdle of creating a presence and digital storefront.
Especially with today’s ability to track information, you know what they want, you know what they like, what their interest are – for B2B throw in some well curated CRM information and you know their kids names and ages, hobbies, etc. (creepy I know, but you must be living on an island if you think this is not information that ends up in CRM) an algorithm away from using information you know about your customer to create long lasting relationship.
Amazon knows what products you’ve looked at, knows what products you show interest in, and what you’ve bought in past. Amazon does fairly decent job of reintroducing same type of products to you – for one, I don’t object to this. It makes it easier, more personalised shopping experience, and I can always jump back into history of a moment when I made that purchase – it presents an experience and an idea of shopping experience which I like a lot better than a flat categorised shopping cart. It is like someone opening a bag of goodies, all which I LOVE and showcasing it to me. Better than random salesperson telling me that they have picture frames on sale.
Walmart, I think, is going to give Amazon a run for its money.
Well they earn $15 billion a year, Amazon earns three. They’ve got more cash. They’ve got the physical footprint, which is like a warehouse network, right? They’ve got a large customer base, they have access to all the merchandise, they can price lower than Amazon if they want to because they’ve got a lower cost structure. So, Walmart could compete really hard. It’s interesting to contemplate, to me, Amazon has this program called Prime that locks people in and they have a lot of benefits.
There is not many more companies that can compete with Amazon. I’m just afraid that Wal-Mart is too large to reinvent itself. This is why I’m also a fan of running incubator startups within existing companies, funded by existing companies. Over few years such startup from within can bring a platform to your existing business model to a new level.
It would be impossible creating “new” departments within same corporate architecture, or even having loose affiliations with mother company – it would be too restrictive, slow and counterproductive to maneuver. Otherwise just buying out promising new company with a solid platform or starting a new division with single focus could also work well. Whatever Wal-Mart can create internally by themselves, it will never be good enough – they have good focus and it should stay where it is as it’s brought them great success. Again, this is business I’d love to be in creating such platform from scratch would be a wild and rewarding ride!
Well, you’ve got to get rid of all checkout, that should be easy to do with technology today. You walk in, we know who you are, you walk out, we know what you walked out with. So you’ve got to eliminate checkout and then you’ve got to find a way to get the content in the store to be really unique. It’s got to be special, you’ve got to carry things that are different than you find elsewhere. Then you’ve got to create and engage…
…what I think you want to do is get rid of people, eliminate the transactional things like the people at check-out and redeploy them on the floor so they can help.
So much innovation potential even in regular brick and mortar stores. Walk in, pick up what you need, and walk out. No cash, no line, no worries, and amazing experience finding items you are looking for, receiving related items, bundled items, etc. all in real time while shopping on a tablet attached to a cart, including full length commercials for products you are likely to purchase or are passing beside.
If store can identify what you have bought, so will your smart fridge or smart pantry, or smart garbage bag – and maybe reorder and delivery is a button push away. All completely buildable solutions with today’s tech. Who will build it first? Who will package like Steve Jobs into an experience that is going to be so amazing, that anything less will be like going to basement flea market.
On Amazon: I think their biggest mistake is if they don’t really take care of all of their stakeholders. I think they care deeply about their customers and I think they care deeply about themselves. I’m not sure how much they value their manufacturing partners. The art of business is treating all stakeholders well. I think the great companies, the reward of great service is a profit, and you’ve got to serve your customers, you’ve got to serve your employees, you’ve got to serve your partners, and if you do all those well, you’re probably going to have a great business. I think Amazon’s biggest risk is they become greedy.
Being distribution partner, you really depend on manufacturer’s support to survive and keep relevant. Amazon is sure to keep on plowing on and expanding it’s services – it’s not like Wal-Mart is going to grow a tech backbone and be able to compete. Wal-Mart might not disappear any time soon, but it is reaching it’s peak in performance as we know it.
Topic to consider – what other industries are in for this rude awakening and shift in conventional “status-quo” business practices? Banking? Manufacturing? What type of platforms can be made to power growth of these industries and support innovation?
Yeah, my advice, the big mistake I made, if you look back at my career, is probably going to Penney’s. It also became my best learning experience. So the key is, when you make a mistake, get out.
Quick.
Move, go to the next thing. It’s true, I think, when you’re young and in a relationship, it’s true in life, if you make a mistake, like some people have been doing at work lately, doing something they shouldn’t do with an employee, admit it, acknowledge it, clean up, move on.
Be done.
So I think the key here, when you make a mistake, we all make good decisions, we all make bad decisions, fit issues, move on. Be honest with yourself.
And fix it.
Fix it. That’s true with business decisions, that’s true with career decisions. You’re going to make mistakes, learn and move, but keep moving.
Great last words of interview. Everyone makes mistakes, you learn and you move on. Hopefully we all learn something from mistakes other make, not having to make them ourselves, by understanding ideas and thoughts and what lead to mistakes being made, to better ourselves and grow.
We will definitely see a shift in coming years where cities become served by free shipping and on demand services, where as rural country will continue being served by large central shopping centers as free delivery cannot be achieved at cost. It is possible that in Canada to make adoption of on-demand services we will require a generational change – but it will become very evident to pioneers that online is a place to be, and habits of companies doing everything themselves needs to change. This is services and platform driven world, splitting logical functions and focusing on what you are good at, and outsourcing rest.
Not to use car analogy…. but in terms of coders, every business will become a class, when you need it, you will use it, so improvements made to each class, switches being made from class to class, will have no negative impact and you as company, you will always find someone willing to fill that gap for you, new class, improved class, and all you need to focus on is doing what you are good at and driving your business. We do this in very crude way already, and it’s still one of best ways to grow your business and compete with large businesses.
This was a great interview for me to listen to and review. I’m hoping that I was able to provide some valuable thoughts for those who find time to read it and learn something new.
Hopefully, I will find time soon to review more Recode Decode interviews, when time allows. Please share this if you found it helpful or interesting.