Apple’s reality distortion field envelops JCPenney

June 14, 2011

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Apple’s reality distortion field has enveloped J.C. Penney. The U.S department store chain poached Ron Johnson, the man behind Apple’s iconic shops, to be its eventual chief executive. The hire helped lift J.C. Penney’s market value by nearly a fifth, or $1.2 billion, before edging back a bit at the end of the trading day. It’s true, Johnson also spent 15 years at retailer Target, but the circumference of Apple’s halo looks too wide.

When Apple opened its first stores in Tysons Corner, Virginia, and Glendale, California, a decade ago, the concept was widely derided as folly. Almost no one could understand why consumers would be more inclined to buy computers and gadgets in an Apple store instead of any number of other electronics shops. After all, places like Circuit City offered a wider selection of brands for comparison.

But Johnson pulled it off — and in style. Circuit City is long gone while Apple commands some of the highest sales per square foot of any retailer. Its more than 300 stores worldwide generated $10 billion of revenue in the last fiscal year and accounted for almost one in every eight dollars of Apple’s operating income. And Johnson is no one-hit wonder either. He was instrumental in one of the more unlikely retail transformations — turning Target from a dowdy Midwestern chain into a popular destination for chic suburbanites.

Still, investors may be expecting too much of Johnson. A little Apple marketing goes a long way. New iPads and iPhones practically sell themselves. Wrangler jeans and American Living polo shirts don’t. J.C. Penney also lacks Apple’s rabid fan base and a commensurate product development team. It will prove hard to inspire the same long-term customer excitement that shareholders exhibited on the day.

There’s a simple measure of the exuberance. Johnson undoubtedly has contributed to Apple’s powerhouse status. But Chief Executive Steve Jobs can boast a far larger role reinventing a nearly bankrupt company into one worth more than $300 billion. When Apple announced Jobs was going on indefinite medical leave in January, the shares fell 2 percent. However great Johnson’s retailing prowess, his appointment probably doesn’t justify a stock move of almost an order of magnitude larger.

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