Full transcript: Apple store creator Ron Johnson on Recode Decode

On this episode of 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.

You can read some of the highlights from the interview at that link, or listen to it in the audio player above. Below, we’ve posted a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Recode Decode on iTunes, Google Play Music, TuneIn and Stitcher.

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Kara Swisher: Today in the red chair is Ron Johnson, the founder and CEO of Enjoy, which is a personal commerce company that hand delivers tech products to your home. That delivery also comes with a real person who comes to help you set up all that technology. Ron is a legend, actually, in the e-commerce business, having spent 15 years at Target, making it hip, before joining Apple in 2000 to run its well-known retail stores. Ron, welcome to Recode Decode.

Ron Johnson: Thank you, it’s good to be here.

So you have been around the block. You have done amazing things. Why don’t you talk a little bit about your career, because I think it’s really interesting how you’ve moved from ... I don’t know if you know this, but I covered retail for seven years at the Washington Post. So I know all about Target’s hipness and everything else.

Yeah.

I wanted to get a sort of sense, just where you came from. You started off traditionally, just the way I started off in traditional media. Talk about your journey a little bit.

Yeah, so my journey, I grew up in the Midwest, went to Stanford, Harvard business school, pretty typical. Worked on Wall Street in the summer, everyone wanted the big jobs, like at Goldman. I had an offer to join Goldman’s M&A group, which was pretty popular.

Wait, that’s the hotspot, right?

Back in the ’80s.

Oh my God, you’d have been right in the middle of Michael Lewis, Liar’s Poker, the whole center.

Kind of a big deal. But, I kind of wanted to be a retailer-

Really?

I just loved being at stores.

Why?

I just had energy, I liked the creativity of it, it was kind of like playing sports. I played soccer in college, it’s fast moving, it’s team oriented, it’s very creative, but we forget, if you go back to the mid-’80s, retail was kind of like the high tech industry today.

That’s where all the venture capital was. There was no big-box retail. Mickey [Drexler] had just reinvented The Gap, so essentially retail was just being invented. Retail was just exploding and I thought that that’s where the opportunities were.

Right. I’m trying to think, Crate and Barrel, there were all kinds of stores ...

Really great stores.

Reimagining themselves. They weren’t boutique, they were specialty stores, I think, as I recall, and people were getting out of the department store era.

Yeah, but we forget, Walmart was just a little old discount store in Bentonville at the time. They hadn’t gone to “Everyday low price” yet. They hadn’t implemented their POS technology. So I’ve been around a long time.

Yeah, so you decided to go into retail and you went right to Target?

I went to Mervyn’s.

Oh, Mervyn’s.

In my first job. Well, remember, Mervyn’s was the darling of the industry.

They were.

Target had acquired them to get a West Coast presence, to get in this new idea of promotional department stores. I just wanted to go with a high-growth company I could learn from. The idea was very simple, most of the people going into retail were college grads with an MBA from Harvard, I thought I was a pretty smart guy if I put my head down, and retail had leaders that were pretty young. So I thought it was a great path to a great career.

Great career, so you started off doing what? You weren’t selling ...

Unloading trucks.

Unloading trucks, huh.

Back of house, unloaded trucks, got a chance to get to the sales floor, got to check people out in the men’s department. And then I moved into headquarters after about a year. I was a distribution person, and then I was a buyer in [the] boys [department], and then a buyer in womens, and then a divisional merchandise manager.

So hitting all the spots.

Learning about merchandise.

Right.

Then, from Minneapolis, I was turning about 30 and I decided to go back to Minneapolis where I joined Target. Target was just becoming big. So I joined there as a toy buyer and then I became divisional clothing, and then I took over the home areas. That’s where I probably had the biggest impact.

What was happening then? Talk about what was happening, because Target really shifted itself dramatically through marketing and through product selection, and all kinds of stuff that made it sort of, again, the hip place to shop.

It was. Well, in the ’90s, remember, all of the discount stores opened the same year, 1961: Target, Walmart, Kmart.

Wow.

They were regional. Retail used to go regionally, and now it’s different with online, but there were 10 discount stores. In 1987, Walmart hit the hammer on pricing and went to low price. They started to win, no one could compete with them.

Right, everyday low price.

Everyday low price. So Target made a strategic shift, led by the CEO at the time, a really smart guy named Bob Ulrich, said, “We’re going to go upscale, we’re going to be the upscale alternative.” The idea was, in every segment, you have a premium store and a low-priced store, and both can win, but if you’re in the middle, you’re kind of fuzzy.

The muddy middle. I covered Woodward and Lothrop, remember them?

Great. So then the big idea I had, which was the breakthrough, people used to think of two categories of merchandise. Basic, where you had to be priced right every day.

Paper towels.

Fashion, but fashion’s hard because sometimes you get it right, sometimes you don’t.

Sure.

I hit on the idea of design, that you could have design as a core segment that got the markup of fashion without markdowns. So we went to Michael Graves, got him to do teakettles and different things.

Famous architect, yeah.

That was kind of when Target became Target.

Target, that’s right. Did you name it Target?

I didn’t.

You didn’t, yeah.

No, customers did.

Customers did. So why Michael Graves, for example, when you did that?

Well, we were looking for something that could be a signature with really great design.

Right.

In the 1980s, he had done a teakettle with an Italian design company called Alessi, that became the “It” item. Every hip kitchen in New York had a Michael Graves singing whistle teakettle on its counter. Did a million of these at $150 one year. So the idea was, if we’re in the home area, what if you could take design and put in great design at a Target store, at a real value.

At a value price.

So we brought out a teakettle I think at $25.

Right, which was expensive. Right.

Well at the time, our highest priced teakettle was $9.99.

Right.

We had to convince people, but we believed that most young families needed to shop value, but they didn’t like to be at Walmart.

To be cheap, right.

So how do you create a fashionable thing to do? Back in the ’90s, everyone would say, “I got that at Target.”

Right.

It was kind of socially hip and cool to buy your kids’ clothes there.

It wasn’t just Michael Graves, it started with Michael Graves and [grew].

It started with Michael and then we went on and we got Calphalon cookware to come from the department stores down to Target, at the time, down to Target.

Right.

See, we forget, there was a big change back then. Premium products were only sold in premium stores. The moderate stores, the discount stores, only had access to low-price merchandise.

Or their own merchandise.

Or their own.

Right.

Target bridged that gap because we became hip enough that Calphalon would [work with us] and different types of people starting to come to Target. Bodum, different people, and that made it kind of hip.

How did you convince them?

Well, you had to do two things. You had to say, one, we’re going to treat you well, we’re not going to discount, we’re going to move to everyday price. So I converted the entire home area to everyday pricing back in the ’90s. 97 percent of our business was full price, whereas a lot of people were still promoting.

Right, discounting.

They were shallower, but because we treated their products well, we worked on presentation, we treated the gondola as a canvas and we tried to make like paintings on these things.

Right, right, and also the stores look good.

They look good.

They had a very strong red and white look, they had the design element.

Clean, bright, happy, energy, it was a different feel.

Right, so, “I’m cheap, but I’m not cheap.”

Yeah. Walmart, you feel like you’re at a warehouse and you do the picking. Target you felt like, I’m in kind of a hip, cool store with a big cart, and it’s kind of fashionable to be here. And it worked.

And I can get my pickles.

Yeah, and so Target did really well. When I was at Target, the stock went up 12 times during the period I was there.

That’s right, and you lived in Minneapolis.

Lived in Minneapolis.

Yeah, how was that?

And then Steve called.

Yeah.

Minneapolis was great. Hard to get people to go there because of the weather, impossible to get them out. Great families, great schools, great parks, nice people, good community service, lovely place.

So you were at Target, getting a lot of attention and changing retail, and again, there were a number of retailers like this that were sort of down, like Pottery Barn redid itself if you remember.

It was great.

How cheap Pottery Barn was, there was a whole bunch of companies doing this. So Steve Jobs found you.

He found me. He decided if Apple is going to win on innovation, it had to control the last mile. It had to have its own stores. Now, it was an interesting choice because Gateway had 300 country stores selling PCs to the 95 percent, and they were closing the stores, and Steve goes, “I want to open stores.”

Right.

But Steve always had great intuition. So he found me and I was at a point, I had been basically doing general merchandise retailing for 15 years. You kind of get pegged in, I was a merchant. I was always going to be a merchant. I might be lucky and rise to the top, but I’d never get to do ...

Could be the CEO.

Maybe, but I’ll never do store design, I’ll never do real estate, I’ll never go hire the people that work in the stores. So by coming to Apple, Steve was going to let me design, develop a retail strategy for Apple, and I thought that’d be really fun.

What did you think when he called you? What did he say? “Hi.”

Oh no, someone called for him and I went out and met him one day, and I remember sitting up there on a Monday, in his conference room, waiting for him.

In Cupertino.

And he was late, you know, blah-blah-blah. All of the sudden, this ...

He was busy speeding somewhere.

Who knows?

Driving his car.

This guy walks by, I remember seeing this big knee with a torn pair of jeans, and it was Steve, he said, “I’ll be right back.” So we sat down that night from 6:00 until about 8:00 and it went by in an instant, we just clicked from Day One. I love Steve.

Yeah, and what was the concept, from your perspective? Did he have a concept that he wanted you to implement or did he want you to come up ...

No, he wanted stores. And he said, it was so funny, he said ... We hit it off really well, he said to me, “Why don’t you do this? It’s Thanksgiving weekend coming up, why don’t you write down a little bit what you would do, how would you approach retail, tell me about.” So I went back and I wrote up this like 10-page thesis of why Apple should do stores, what they should be like, blah-blah-blah. I get the call, “Hey, can you come back?” I came back, and at that time met Mickey Drexler, met the folks at Apple.

[Drexler] was on the board.

Then I was going to met Steve at the end. I walked in and he goes, “Hey, thanks for coming back.” I said, “Glad to be back.” I said, “So what’d you think of my thesis?” He goes, “Oh, I didn’t like it very much, but that’s okay, let’s talk.”

What didn’t he like about it?

That’s Steve.

Yeah, yeah.

He offered me the job that day.

Wow.

So I met him once ...

So you thought it was finished and then ...

It was funny.

Yeah.

If you look back, if you were to take that out, it’s pretty much what the playbook for the Apple stores were.

So the thesis was exactly ...

It was great, I think it was right on.

What was your central thesis? It was probably one of the greatest retail victories in a long time.

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.”

That was it, yeah.

That was it, because we had two desktops and two portables. So we could fit our product line in 36 square feet.

On a table.

We went and built 6,000-square-foot stores. But, that enabled us to design a unique store. We could create sections about what you do with a Mac, not about the products. We had movie sections, and music sections, and on and on, and photography.

But not enough product, really.

But we then made half the store devoted to service, like the Genius Bar, and training. That was because we said, if someone’s going to switch to Mac, they’ve got to know we stand behind it.

Then we put the store, it’s this really interesting decision, in shopping malls. Which everyone thought, that is absolutely idiotic. Because shopping malls get frequency and it’s for things you buy all the time. You buy a Mac every three or four years. Why would you pay that rent?

So why?

Because we didn’t believe people would go 10 miles in their car to go see an Apple store.

Right, but they did.

But we could get them to walk 10 feet out of their way.

To go into the mall store.

They’re in the mall anyway, so all they need is a 10-foot decision to walk in a store. We got really lucky because in 2000 — we forget it’s only 16 years ago — 97 percent of America was on dial-up internet with AOL. So they come into the Apple store and they’re going to meet somebody, what do you do? Well, there were no smartphones, you’re starting to get online, you want to check your email, “I’ll use this computer at the Apple store.”

Right.

So all these PC people tried a Mac for the first time. Well it turns out, we had everything hardwired to high-speed internet.

So it felt great.

It was so fast. People thought the Macs are incredibly fast, but then we let the store become basically a free internet café. Suddenly it’s busy, it’s a beehive, but that got people to try the computer.

Right.

Then our employees would define people that looked a little more interested, so you’d see someone trying out iPhoto, or checking out iTunes, and we’d talk to them, and we began to build just an incredible business from putting stores where people didn’t expect them to be. It was the first technology store in a mall.

So the first store was where?

We opened two on May 19th, 2001, one in Washington D.C., one in Los Angeles.

Why there?

Just because they were great ...

Because it was the New York store that got most of the attention.

It did, but at the time, we made ... I told Steve, “If we’re going to do this, you can’t test it. You’ve got to believe in it.”

You’ve got to just roll it out.

You’ve got to go for it, so we booked 25 sites, and we said, “Let’s open the best relative site first,” so we got just a great site in Tyson’s Corner.

Tyson’s Corner, Virginia, that’s where I was.

That’s one of the top 10 centers in the country.

It is.

You know you’re going to be there eventually, so ...

I spent many December 24ths there.

Oh, isn’t that fun?

Yeah, I covered retail for the Washington Post.

Yeah, but my attitude was, “Steve, it doesn’t matter what store is first. If we’re going to open 25, let’s just get great locations.”

Right, so you had Tyson’s Corner and then?

Glendale Galleria, but then we opened up all the places, Short Hills ...

The Great Mall.

Mall of America, Woodfield in Schaumburg was a big mall at the time. We went down to Dallas. We went across the country. We opened 25 stores in 25 weeks.

Wow.

It was great.

Yeah. Talk about the concept of the store. First of all, it’s a café, it’s a social space.

It’s a social place, but mostly we said, the entire purpose, when someone comes in the store, is to engage. They’ve got to talk to a person or get their hands on a product. Nothing else matters.

So we got everything out of the way, there’s no inventory on the floor, that was really counterintuitive, right?

That people can’t grab stuff. Although, now they can.

They grab stuff ... In the walls, but it was very spartan. It was just computers and that was it, because we didn’t have other products and they were just hooked to the internet, and people came, and what do you do? It’s an inviting, beautiful environment, I might as well put my hands on a product.

Then you used glass and wood.

We did. We used ...

What was the thinking? What were you trying to copy there?

No, no one.

No one? I’m trying to think about ...

I give Jony credit for this. Jony Ive, his lab, he had designed these beautiful wood parson’s tables, which were kind of what the products would sit on. There was something neat about this very familiar, homey wood, this beautiful maple wood veneer, that he paired with high tech. It was high tech, high touch.

And?

It just looked approachable. It made you want to put your hands on it. So you had to offset the technology with something much softer, so the Apple store had these stone floors that came ... The same things that are Florence sidewalks, beautiful maple wood tables, very simple design, clean, well lit. The idea is that all you would only see in there is products and help.

Right, and the glass stairways.

And the glass stairways.

Whose idea was that?

That was Steve.

Because?

He loved doing beautiful design. We were opening our first two-level at SoHo and he imagined a glass stair. That was amazing about Steve, he had more ... He designed that stair probably like he did the iPod, which were about the same time.

Wow.

But Steve was into every little detail. The fittings, the structure, he understood the engineering of it. Steve was so incredibly smart on so many subjects, that was the amazing thing about him.

What about the Genius Bar? When you just referenced it a lot, but that you had to feel like you were ... Putting the Genius thing in was genius, the idea that it was also a place ...

Turned out to be great, yep.

Yeah.

Yep. The idea there was very simple, I said, “Let’s take help and make it center stage.”

Right, rather than the annoying help guys who ...

Don’t hide it. Don’t hide that you need help. You’re switching to a Mac, you’re going to need help, technology’s hard, that’s what people think. So just like a fashion retailer, we take the back wall and put their big video screen, we put in a bar — and the idea behind the bar was, create a place that’s really friendly, think of getting a drink. Bartenders can make any drink on the planet.

Right. Why wasn’t there food?

We had water, we had Evian water.

Yeah.

But a bartender, they’re friendly, they connect with people, they can make anything you want. Imagine we had great bartenders called Mac Geniuses, smartest Mac people in town, but they dispense advice. Just like a bar.

And highly trained.

Highly trained.

Also all your employees were highly trained.

Everyone was highly trained, yeah.

So they didn’t feel dumb, like when you go to a Best Buy or wherever, where they just don’t know what they’re talking about.

So I remember the day I came in and told Steve about the Genius Bar, he says, “That’s so idiotic, it’ll never work.” I said, “Why?”

That’s his first move, all the time.

But he said, “You know, Ron,” he goes, “You might have the right idea, but here’s the big gap: I’ve never met someone who knows technology who knows how to connect with people.”

Yeah.

He said, “They’re all geeks, so you can call it the Geek Bar.” I said, “Steve, kids who are in their 20s today grew up in a very different world, they all know technology, and that’s who’s going to work in the store.” He called the GC at the time, a day later he said, “Could you trademark Genius Bar?” So then we did it and it turned out to be one of the ... It’s kind of the soul of the store.

It is.

Everyone kind of remembers it, but it’s like anything, you have an idea, you have to go execute it.

Then New York, which was a big deal.

The glass cube was a big deal. A really big deal.

And the thinking behind that?

Well, we wanted to put a store on Fifth Avenue. It’s the greatest shopping street in the world. We looked for years and years, and finally our real estate guy came back and said, “I’ve got a brilliant idea.”

Downstairs.

He goes, “We’re going to take a spot that Donald Trump couldn’t lease for seven years, it’s been unoccupied, and we get a hole in the ground.” I said, “What do you mean?” He says, “You can’t put a store above grade.” I go, “We’re going to Fifth Avenue without a store, we’re going to go underground?”

Yeah.

He said, “Yes.” We started to think about it. Well, the nice thing, where we are on Fifth Avenue, Apple is, there’ll never be a store north of it because it’s zoned residential. So, we’re not in the middle of Fifth Avenue, we are the first store.

The last store. The center, across from Grand Army Plaza.

No, the first store. The beginning of the world’s great shopping street. We decided, if we could create ... The architect did a great job, Peter Bohlin. Steve loved it, we all loved it. Imagine creating a glass box that was a door, that was 32 by 32, 900 square feet, and if we did that, sometime during the day, the light would be on every corner of the store at some point in the day.

And it only took up 5 percent of a public plaza. Plazas in New York are all 20,000 square feet, 100 deep, 200 wide. So we convinced the city to let us put in this physical presence, because we said, “Look, we’re going to take 5 percent for our door and we’re going to redo the plaza for the city of New York. We’re going to put in Wi-Fi,” and the city said, “Okay.” And that became the Apple store. But we rented, parking rent is like renting a parking lot-

Down below.

Because it’s underground.

Yeah.

We had the cheapest rent on Fifth Avenue.

Right, because it’s a basement.

Our rent was one-eighth of two blocks away.

Wow.

And we got a signature square.

Why was Donald Trump in charge of this?

Well, he owned the building. So Donald owned the General Motors building for a number of years, and then he sold it to a guy named Harry Macklowe. He was our landlord, we rented from Harry, but this spot had been unrentable for seven years. Nobody wanted it.

Right, and Donald didn’t think of an idea for it?

No, he didn’t.

Yeah.

Yeah, he’s a smart guy, but it’s ... That’s where I give Steve so much credit.

That he said, “Okay.”

He could have said, “Apple’s on the top of the world now, it’s approaching 2005, we should have a big building like Louis Vuitton right at 57th and Fifth, and be a signature store,” but he understood that doing some beautiful, simple, giving back to the community, could have more power.

Huge statement.

You know, a few years later, the Apple store is the fifth-most photographed thing in New York.

I just was there.

Yeah.

I enjoy it.

Yeah, it’s fun.

I enjoy going there. All right, so we’re going to end this section, then you left Apple.

I did.

Why?

It had become a hobby. I’d been there 12 years. We had opened stores in 13 countries.

Including?

We were just nearing 400 ...

Had you gotten to China?

We’re in China.

Right.

Yeah, we had a bunch of stores in China, maybe like five to 10. It’d just become a hobby and then I got a call to go to J.C. Penney and I said, “Well, maybe that’d be fun.”

Really? Okay, well talk about that. That wasn’t as fun.

It wasn’t as fun.

It wasn’t as fun. All right, we’re here with Ron Johnson, the well-known retailer of the digital age, I think. I think that’s what we can call you.

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Okay, we’re here with Ron Johnson, he is best known for creating the Apple stores, along with Steve Jobs, someone you might have heard of, and also a number of other things, and he’s been since then an investor, he’s been the CEO of J.C. Penney. Let’s talk about your experience at J.C. Penney, so it was a big appointment. You started at Target, you went to Apple, and then you moved to J.C. Penney.

Yeah.

What were you thinking?

A lot of people asked me that question.

Yeah.

I was inspired by the challenge. I’ve always liked to take on big challenges. People didn’t think Apple could do stores.

No, they didn’t.

And people were thinking, department stores are pretty tired.

Yeah. Especially discount department stores.

But I kind of thought, wouldn’t it be great if you could reinvent a department store? I was led to believe that that’s what the board wanted to do and I kind of got talked to about being a board member, and then once I met with them about being a board member, they said, “Would you become CEO?” I thought about it. Steve said, “Don’t you dare. If you want to be a CEO, I’ll find you a great company.”

Why did he say, “Don’t you dare”?

He thought it was silly to go to a company that’s kind of got the wind in its face, not the wind at its back.

Sure, that’s declining.

He just wanted me to go to a place that I could flourish at and he didn’t think that would work. He was right. He just didn’t think it was right.

Right, okay.

Bill Campbell tried to talk me out of it, a bunch of times, my wife didn’t want me to go, nobody wanted me to go, but I did.

And there we go. Why? Did you want to just be CEO?

No, I just wanted to take on a big challenge. I thought I had a vision.

How many stores did J.C. Penney have?

They had about 1,000 at the time. Maybe a little more.

It’s an enormous, famous, iconic retail store.

Iconic, great footprint.

Sears and them are probably the two.

And one of the remaining department stores. There had been 60, as you know.

Right.

Now there were three. It was basically Macy’s, Kohl’s and Penney’s, and then you had a couple smaller ones.

Like Mervyn’s and the others, yeah.

Well, they were gone.

Yeah.

But it was smaller things, like Bloomingdale’s was a ’60s store ...

Sure.

Nordstrom, there are others, but the traditional mainline department stores, there were three. 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.

Why is that? Talk about that, because you thought that you could just ... Like it had to be transformed because it was headed down, there was no choice.

Well no, it was just flat. It was doing just fine.

Right, but it hadn’t made any ...

The stock prices was the same.

The new digital commerce age was coming and it was not prepared.

Put it this way, in 2012 when I joined, the stock price was the same as it was in 1961.

Wow, flat.

So they survived, but there wasn’t much growth and value to the company, right?

Mm-hmm.

So my feeling, they have a big footprint, let’s go create new value.

Wait, did they understand e-commerce or did they ...

No, they were about ... Their IQ on e-commerce was probably comparable to others.

Right, which is to say low. Because Walmart was pretty aggressive.

But it wasn’t a problem, they were actually pretty good because they had had a catalog for a lot of years, so they had people shopping out of stores, and so they could transition to an e-commerce thing. The big issue that happened there, and this is what I can learn, this is what Steve’s instincts told him, transformation’s really hard. Apple in 2002, sales went down 38 percent when we switched to OS 10, but Steve understood, you have to do that. Sometimes you have to go backward to go forward, right?

Same thing here, you de-promote for a year, then you start building back business with a new customer, a new experience. As we went through it, it became very clear employees didn’t like, investors didn’t like it, the board was not comfortable. So after a year I said, “Look, if you want to do a U-turn, the sooner you do it, the better, but I’m not going to do it because I don’t believe in that old model,” and the board accepted my resignation in April, like 15 months after we did the transformation. I left, I learned a lot of lessons.

Tell me some of the lessons you learned there.

I learned you’ve got to ... Well, one thing is, take your time. I went way too fast, in three months we changed.

Like what? What did you do?

We changed the pricing and we didn’t test any messaging, and we ran a really, in hindsight, insulting television ad that got attention, but it kind of insulted people who had shopped at the store and felt very loyal, that was a big mistake.

Why did you do that? You wanted shock?

Well, I wanted to shock the employees because I felt that if I didn’t do something quick ...

They wouldn’t get it.

They would never change. So sometimes you have to just say, “This is what we’re doing, this is the path we’re going.” That’s what Steve would do, he would say, “This is the direction, we’re going.”

And you better follow.

But in hindsight, if we had gone slower, it would have been better. That was probably the big lesson. The other one is, you’ve got to be careful who you work with. 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-

See what you can work with.

Yeah. So it was a hard thing, but it’s all right.

Where are they now? Where’s the company now?

They’re struggling, yeah.

Coasting along.

The stock is well under half of when I left.

So you leave here, not a success.

No, I was like ... People thought I ... They came to my funeral. Because I was in the middle of ... It was like — not Donald Trump’s press, but it was like that, you know? People were pretty angry and thought I was an idiot. I went from being the retail wonder boy to the world’s worst CEO. So I’d see people and they’d look at me like, “Are you okay?” It was kind of funny because I decided after that ...

What did you do? “Now I’m very depressed.”

No, but I wasn’t. I’m not that kind of guy. So I decided, in spite of this last chapter that had been really tough, I look back, I was pretty blessed. I joined Target at the right time, I joined Apple at the right time, worked with great teams. I had a tough year and a half at Penney’s, but if you’re blessed, be a blessing.

So I decided, I’ll make myself available for a year, if anyone wants to talk to me about what I’ve learned, I’ll do it.

Right.

Well, I started to get 10 requests an hour, “Can you meet with me?” “Can you meet with me?” “Can you meet with me?” Blah-blah-blah. I was kind of like, “Do you feel sorry for me?”

What did they want?

No, it was all these people, VCs, saying, “Hey, can you go talk to Brian Chesky at Airbnb, he’s building a company, can you give him some lessons?” “Can you talk to so-and-so from Dropbox?”

So you had successes and failures and therefore can speak to the ...

They just wanted ... A lot of people, a lot of young leaders in the Valley, that would love mentors, and so people wanted me to say hi, and I was happy to do it. So I would take about three meetings a day, at the most, because I wanted to take a break, too. I’d just go bounce up for an hour and talk to someone and I discovered the energy. What I love is creating. I created the Apple stores, I had helped reinvent Target. My strength is imagining, right?

Right, but here you are giving advice.

Yeah, and so then I said, “Well wait, even though I’m 56, I’ve got silver hair and I’m not your typical startup guy, I’ve got a lot of wisdom,” and so this idea came to my head, which became Enjoy. And I decided, let’s go do it.

But you had also been investing, before we get to Enjoy, you had invested in which ones?

I invested in a variety. Philz Coffee, I’m on the board, that’s been really fun. The Melt, you know, the grilled cheese thing here in San Francisco, with Jonathan.

Jonathan [Kaplan], we’ve had him onstage many times.

I was involved with Nasty Gal, which was really interesting-

Not as great an outcome.

It didn’t turn out well, but it was interesting.

Are you still?

No. I’m not involved right now.

Okay.

But that was one ... Then Enjoy’s the big investment, but it’s been good.

What were you looking for in these investments when you were doing these things? It was probably just a fun thing, right?

Well, things that I could have impact. So like Philz, Philz is this great coffee shop based on experience. The Apple store is based on experience.

Right.

They’ve got to figure out, how do I expand? At what rate?

This is Jacob Jaber and his dad.

Jacob and his dad, and they’re wonderful people.

Yeah, they are.

I love helping them.

They love it in Silicon Valley, too. And also competing with a lot of internet people are investing in Blue Bottle and all the others.

There’s all kinds of coffee, but it’s kind of fun. To me, if I can add value, somehow my experience could apply ...

What do you think, the work at Philz? The experience, the whole ...

Well, I think it’s the heritage, it’s authentic. If you go, people just want to be there. They hang.

And the process, and there’s the process.

Process, and it’s personalized, and it’s real, and they’ve got great people, and you just feel a sense of authenticity. Where Starbucks is kind of like a factory. Even though they don’t like to think that, it kind of is.

And some of the other coffee businesses are too hip.

Too hip, and Philz is just kind of homey, authentic, downhome and likable.

Yeah, I feel like I hate handing over $5 to people who hate.

Yeah, yeah, yeah. No, Philz is great.

Yeah, Philz is great.

They do it all, it’s great, it’s been fun.

So but Enjoy, start to explain to Enjoy.

So Enjoy, really simple, a couple of people I talked to like John McFarland from Sonos came to me, he said, “Ron,” he goes ... He wanted to meet and we hadn’t met before, and he said, “How do I go to market? Stores don’t work anymore. I’m in Target, it just sits there.”

That’s a hard sell, Sonos is a hard sell because it’s complicated.

It is, and Best Buy takes an arm, a leg, a foot, a toe and they want more every year. They’re expensive, “I can’t get people to buy online.” I said, “Just go directly to the customer. We’re moving into a deliver world, why not just bring it to their house from online? Don’t ship it to them, bring it to them and teach them how to use it.” He said, “That’s a good idea,” and he came back and said, “Too expensive, we don’t sell enough to be able to afford to train people.” I said, “Oh.”

To bring product to the people.

Right. So then I started to think about it, I said, “But imagine in this world that’s led by Amazon.” Amazon’s the world’s largest convenience store. It’s got a broad assortment, fair pricing, easy to shop, but in the old days, premium products were never sold in a convenience store. How should the best products go to market? I said, “What if you create a team of employees that represented all of the best products?” Apple smartphones, and Sonos music players, and Eero Wi-Fi, and DJI drones, and you took all the best, the leader of every category, you said, “We’re going to enable that company to go direct.” You can go to their website and just say, “Order from here at the same price as Amazon, and we’ll hand deliver it and teach you how to use it, for free.”

So when you’re going to do this, Sonos couldn’t do it by itself, it had to go across ...

It needed a partner who could carry more than one product because you needed more volume of sales every day.

So it couldn’t be just Sonos, because there’s only a limited amount of people who want to buy Sonos.

Yeah, so we decided, what if we could create the world’s first smart last mile? If you think about it, a store was the last mile and you found trained people at times. What if you could deliver a really authorized, trained person that could go through the door, for free?

So you’re combining what people like about stores still, which is expertise, presumably, like the Genius Bar. At the same time, nobody wants to go to a store anymore.

Yeah, we’re providing speed, so today you can order by noon, get it today.

Wow.

So we’re fast. We’re faster than Amazon, we’re smarter than Amazon because we teach and train.

Where? Where can you only do it?

We’re in 10 cities right now, we’re going to a lot more by next fall.

So you keep inventory in all those cities.

We have inventory, we have trained employees, and our employees are amazing, they’re all employees. They’re salaried, benefits ...

They’re not on-demand.

They’ve got stock, but they have the freedom of on-demand because if they’re a 40-hour employee, they just set their schedule to 40 hours. They set their own schedule, we match them up with customers. So we’re creating the first really great jobs of the mobile world. It’s not a contractor, it’s a real job.

So do people then go to their sites and then you-

Yep.

Enjoy is part of the service.

Yeah, just like Amazon. Amazon started, they had a little bookstore.

I was there.

But then they hosted the e-commerce for Target and Toys ’R’ Us because they didn’t know how to do it, but that built a business, and then eventually people came to Amazon.com.

Yes, eventually they screwed those retailers.

We have Enjoy.com, which is kind of like a little specialty store, that we don’t invest in, but people can buy from, but we integrate into the website of our partners.

So give me each of them.

AT&T’s our biggest partner, we’re kind of working with them to reimagine how to buy a smartphone. So you can order a smartphone from AT&T.com and have it delivered today.

Because those stores are a living hell. They really are.

No, they actually ...

No, the stores are not great, they’re not great service.

No, they’re better than you think.

No, I just was in one.

I think they’re much better than you think.

Yeah, okay.

But I do. At the end of the day, the stores ...

Were I drinking, it would have been better, but ...

No, if you think of it, what’s AT&T’s No. 1 issue? What do they do? It’s not about the phone, it’s about the network and what you do on the phone.

Right, exactly.

Like right now, they bought DirecTV, they’re a media company, they’re trying to change how we watch television. Well, if they just ship a product online and it lands somewhere ...

Your phone, yeah, it’s like, “What do I do with it?”

Like a thud. Like Amazon would deliver. No, just a box. You don’t get to talk to them about DirecTV. So once every two years, you’ve got to take the time to have a conversation about everything new you can do on your phone. That’s what you did in the store, that’s what a smart last mile can do.

So there are certain products for which it’s more important to deliver a person with the product than you just deliver a product. Think of Apple, they’ve got all these services, that’s their biggest growth segment. Wouldn’t it be great to talk to them about Apple Pay? Let’s sit in your kitchen and load all your credit cards, and let’s ...

Do you have Apple as a client?

We do Apple as a client, on Enjoy.com, we’re not talking integration with them, but they’re a partner, Sonos is a partner, DJI, and then we do all these cool startups like the June Oven.

I know them, they’re fascinating.

And Navdy, turn by turn, and Magic Leap’s a big partner, I spend a lot of time down in Florida with Rony [Abovitz] and the team, but they’re not launching yet. So we’re kind of helping the greatest and the latest.

So these are products that people do need extra help with too, that they do need to be introduced to. Then, say, with AT&T, you can upsell them on other things.

Yeah, but even your smartphone, people need help. People don’t know how to connect it to their Sonos, they don’t know how to do their Bluetooth in the car ...

This is free?

It’s free.

How do you make money?

The manufacturers give us a fee for every delivery we do.

I see, so you get a vig, essentially.

We get a little ... Yeah, and what happens though, because it’s so expensive to sell through a store because a store had to pay rent and depreciation, all those people when you’re not busy, we’re a lot cheaper than a store. But then, what’s amazing, our smart last mile starts to make money for the manufacturer because nobody returns anything when it’s set up and working.

I see.

They save on returns. Nobody calls the call center because they talk to us. There’s no fraud, because we’re face to face. Your credit card fees are lower if you buy ...

And finding qualified people to do this?

Piece of cake. There are 20 million people in the mobile economy. More people work in the mobile economy than work in store.

Right, and they don’t want to work in stores.

Well yeah, they want freedom. Right? But they’re all working kind of not-so-good jobs, so if you’ve been working at an Apple store forever, it might be fun to make your neighborhood your store versus the physical store you work in.

So how much money ... You’ve raised $30 million ...

No, 80, I think 80.

80 now, I thought it was 30, and that’s from all kinds of people. Where do you imagine it going that you could do this with everything?

Well, you know, we’re starting electronics, like Amazon started in books, right? We’re proving our mile. We’re two years into it.

Where else could you go? Anything.

Fashion, beauty, banking ...

Oh, bring in a bunch of pants?

Wellness. No, think about it, any place where your purchase counts and you want to reinvent the experience, we could do it.

So a store in your home, is what you’re saying.

Could be a store in your home.

Which people used to do that, trunk shows, do you remember those?

But it only works for the premier products. If you’re into low-priced products, there’s not enough margin or value.

Right, you don’t need to help with your paper towels.

And you don’t need it. But if you think about it, if you’re a premier brand, think of Apple, they take pride in thinking it through the entire way, from the manufacturing to the customer experience and onboarding.

Right, and to the box.

Yeah, and they’re not going to want the thud. So if you’re a premier company, you’ve got to figure out, “How do I compete?” Well, we’re a lot cheaper than a physical store, so you’re always better off than going to the store. By moving service from where you buy to where you use, you change the game.

So how do you prevent these companies from doing it themselves?

Well, if they want to, they should go ahead and do it, but it’s really hard.

Yeah, it’s interesting, because in food, there’s a lot of this going on, where like premier restaurants are using ... There’s all kinds of services.

Delivery services, but remember, they’re all dumb delivery. I mean, all of them are basically disrupting delivery. We are personal commerce, we’re delivering a person with a product to provide help. There’s a big distinction, no one understands that. We’re a smart last mile in a world of dumb last. FedEx is the Pony Express, and it’s dumb. In today’s world, FedEx is slow.

And here it is, it may get stolen, we’re dropping it off.

All that, and like a phone, it’s probably the most expensive purchase many people make all year. It matters.

When you talk about the idea of the Pony Express, that’s an interesting concept. That it’s just that people want more. This can only be on high-end purchases, right? Or people who have money.

That’s all we care about. If you look at the industry that we’re in, the top market-share player has 40 percent of most categories.

Such as? Like the drones.

Drones, 60 percent. Apple had 90 percent of the iPod, AT&T has 33 percent of the smartphone market, Apple has 40 percent of the smartphone, so if you represent the best, they tend to ...

So you could go into these Samsung televisions, you could go into a lot of things.

A lot of products, yeah.

Right. But you wouldn’t say you work for ... Would you work for Best Buy? Or not?

No, never, only for the manufacturers.

Manufacturers.

What we’re trying to do, remember the world’s going to Amazon, think about Amazon ...

Which we’re going to talk about next, yeah.

In 22 years, they’ve built an $80 billion e-commerce business. It’s disrupted the heck out of the industry.

Everything.

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.

And you need to reach the consumer a different way.

So what are your options?

Stores?

You can open stores, but there are no stores that sell electronics but Best Buy, and they’re expensive. So you’ve got to figure out ...

And not a good experience.

Yeah, so how do I go direct? In theory, people all go to the manufacturer’s site to look at which product model do I want, why not just take them right from the homepage to the customer’s home? That’s what we enable because we compete on, today, we’re faster than going to a store. You can get it from us faster than you can probably arrange to go to the store.

And it’s a better experience.

And we give help, and we give as much help as the customer wants. They get to pick how much help they want.

Right, exactly.

What’s not to like? It’s free, it’s fast.

So you make money on these as you expand, category after category, so really you’re a service business.

We are a high-touch experience.

Like a butler.

We’re an experience business. We deliver experiences.

A smart butler.

Yeah, and we’ve got unbelievable NPS. We have the highest NPS every measured.

What’s that? What’s NPS?

Net promoter score, where customers tell you, give you a grade.

Oh right, yes. That’s right, yeah.

We’re the highest organization, I believe, ever measured.

You could judge your people on reputation and the skills ...

Just like Uber, we get feedback from every customer, what their grades are, what they thought of the person, and they always mention them by name.

What products would you love to get? Would you think that wouldn’t be possible?

Oh I think we can get ...

I could think furniture, I could think ...

No, no, no, no. I just think, right now, I just want to learn and do it well with electronics.

Electronics.

The whole connected home is a wonderful dream, it’d be great, but it’s hard. Most people don’t know how to do it.

Right. No, nobody does.

But we’re going through doors and so we set up Sonos, and we tune their room, and we introduce them to digital music, and show them subscriptions, and they do multi room and it changes their lives, and it’s really fun to do.

I just had a similar experience just putting a TV in, Best Buy put in the thing and I still had 90 questions afterwards, and I’m pretty savvy. It was worth every penny. It cost a lot of money for them to put it in, but it was ...

Ours is free.

Oh all right, well, next time.

That’s pretty good.

Yeah, yeah.

Amazing. Imagine, you can buy a product, have it delivered anywhere you want, your home, your office, Philz coffee. Today, by a really smart, trained person, for free.

And installation, too?

And we’ll do all the install for the product you need. Now, we stay away from heavy install.

Right, right. In the walls.

We try to stay away from wires, so we’re not doing TVs yet, but most of our products are mobile, like a smartphone.

Right, and how do you work this.

And how do you work it.

Drones must be an ... How do you find people who know how to use drones?

Oh, all our people.

Like an 11-year-old works for you?

No, it’s our favorite product. When you have a drone visit, we take you to your neighborhood park and within 20 minutes you’re flying your drone. And you’re just sitting there learning how to do it.

People need that because they basically ruin these drones.

You can break them easy, yeah.

Easily.

Yeah, but it’s really ... But it’s fun for employees.

Yeah, so they can do that.

Yeah.

All right, so you’ve raised all this money and you’re just going to keep just building it out, correct?

I’m just going to slowly ... Not slowly, but we’re just going to be really methodical.

Because you don’t want to be really owned by anyone because you want to use lots of product.

I just want to build a great company.

Well, Amazon could actually buy it.

We care about two things. We want to create great jobs and reinvent personal service in a digital world.

Okay. All right, when we get back, we’re going to talk about Amazon, the impact of where online retail is going because it’s really shifting rather quickly. It seems as if Amazon’s dominating everything, but you may have some other thoughts. We’re here with Ron Johnson, he’s one of the creators of the Apple stores, he worked at J.C. Penney, Target, and now he has a new company called Enjoy, which is personal service, right now electronic goods, but other things, that last mile store.

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Okay, we’re here with Ron Johnson, who is best known probably for creating the Apple stores, along with Steve Jobs, who you might have heard of, and also a bunch of other things. His new company is called Enjoy, which is doing last mile stores because delivery and online home delivery have become so important to consumers. I can’t remember the last time I’ve been in a store, I do everything via Amazon, that’s pretty much it.

You’re not alone.

And sometimes, every now and then, I’m in a store because I’m interested in looking at things. But, talk about that concept about what’s happening, because you’re doing something that’s going to ... Taking what’s already a trend, which is everybody likes things delivered to their home, and you’re adding a special thing to it which is lacking, is that the box drops on your front porch, and as long as someone doesn’t steal it, you just get it, you open it up, you collect boxes, essentially. Talk about where it’s going. Is that just never going to change again? Is retail over?

Well, no, because retail’s still the majority of places we buy. 90 percent plus is bought in stores, but retail’s got to wake up and figure out how to get people back in the stores.

So how do you do that?

Because the online business is a bad business, you can’t make money. You think about it, you price it at the same as you price in the store, but now you’ve got to do all the logistics.

Right.

In the store, the customer does the logistics. They drive to the store, they do the last mile.

They look around, they wander about.

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.

You see something, yeah.

And you buy something else, you get a higher average transaction.

There’s not great merchandising online, that’s what I used to always talk to Jeff Bezos about, I’m like, “You can’t merchandise online.”

It’s really hard.

They can offer you suggestions and they can say, “If you bought this …” I’ve never done that.

Right, but that’s where I think online is the most amazing convenience.

Right, for the consumer.

Amazon’s the world’s largest convenience store. They make it really easy to buy something you need, with Alexa, it’s easier all the time, but that’s a part of what we buy. There are a lot of things for which the purchase matters, right? That’s where the stores can win. So if you go to Stanford Shopping Center now, you can’t even park.

Right.

Everything’s reinvented, a mall has become a place where you go for your life, you go to your SoulCycle class, you eat at all these fancy new restaurants, the stores are interesting, it’s kind of an experience, you’ll drive further. So retail’s got to reinvent that experience, get you back in the store.

So talk about the things they have to do. So they put SoulCycle things, or you have to physically be ... Although there’s Peloton. You don’t even have to leave your house.

They’re in the mall, too.

Yeah, they are, that’s true, they’re in that mall.

Here’s what I think, if I were running ... Walmart, I think, is going to give Amazon a run for its money.

Okay, tell me why, because everyone keeps saying that.

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.

Which we love.

Ninety-nine bucks, and they add services all the time, and that gets you such incredibly loyalty, you’ll always buy from them. Imagine if Walmart had its equivalent of Walmart Prime. But it offered benefits online and in store. Every time you come to the store, you get free food. You get a discount on your purchases, you develop all these benefits.

So why hasn’t it done that?

I don’t know.

Well, none of them have.

Here’s why, I don’t think they understand. I said this last week to someone, too many people are looking internally instead of externally. Example, they’ve been focused on, “I’ve got to become omni channel, I’ve got to figure out how to get more people to my website,” well that’s like the Warriors going to play Cleveland in the NBA finals and not caring about LeBron James, but saying, “Let’s improve our zone defense.” At some point, you’ve got to say, “LeBron’s the challenge, we’ve got to defend LeBron,” right? People have to look at … Amazon’s the poster child, we’ve got to beat Amazon.

Sure. Right, so why don’t they?

We have merchandising, speed, I got stores, I got all these tools, how do I do that to create a better experience for a customer than Amazon?

Yeah. They don’t even copy Amazon, it’s fascinating.

No, they just let them ... I think they all ...

They literally don’t even copy them. You have Facebook copying Snapchat every five minutes, pretty much.

Yeah, they just have great scale, and they’re a great company. Amazon’s so innovative, what they’ve done with the cloud, what they’re doing with this walk-out walk-in store, they’re a really great company.

And I think they’re getting into logistics.

Probably.

Robotics and logistics.

They’re unbelievably innovative, so they’re a really big, tough competitor.

So why don’t retailers compete with them better? They either bemoan them or ...

See, I think it goes back to my experience at Penney’s. Retailers have always been innovative on merchandising.

Meaning a nice plate ...

Yeah, they know how to pick a beautiful plate.

Right, and put it next to a napkin.

The buyers, they might know how to design a decent product, but when it comes down to everything else, they aren’t very innovative. The store designs haven’t changed much in the year, locations strategy hasn’t changed, technology hasn’t changed. We still go to checkouts. Can you imagine going to a cash register today? Why isn’t the cart a smart cart? You put in your products, it knows what’s in there, you walk out the door. It’s that kind of innovation that would take the friction out of shopping, that would make stores more palatable.

So why don’t they?

They will, but I think ...

Well you know, I was just thinking this in the Apple store the other day: They don’t know who I am when I walk in and I wish they would.

I do, too.

Why don’t they know who I am?

They couldn’t.

Exactly.

Before I was leaving, that was their No. 1 program.

They still.

No, I want you to walk in and say, who are my friends at the Apple store?

It’s Kara.

I’ve worked with Matt, when I had my Mac repaired, I worked with Mary when I bought my iPod, and I can walk in and I can know if Mary’s working or Matt’s working, and I want Matt and Mary to know, Kara’s here.

But not just that Kara’s here.

Kara’s here.

I bought, through our companies ... I was just thinking, I was sitting in there the other day, and I’ve bought at least $100,000 of their equipment, it’s got to be, if you add it all up over the years and years and years. Through my business and personally, a lot of money spent at Apple, and then there’s this kid sexting over there on something I want to look, I’m like, “Why does he get to do that and get the same amount of attention?” He can go do that if we wants, or someone’s doing their email, or someone’s ... I like that experience for people, but why aren’t I getting extra special attention? It should ping them the minute I walk in.

It should, I agree.

All stores should do that.

Well, they might be working on that. See, Apple can do things others can’t, like in 2005, we introduced what we called Easy Pay checkout, you didn’t have a register.

Right, because they knew who you were.

Yeah, but we ... Everyone at Apple store had a credit card, we already had built in Wi-Fi networks to do the store.

See, and you trust them.

And people bought one or two items, so you didn’t need a big cash wrap, you could just walk up anywhere, so we had reasons why we could do that, but everyone should have mobile checkout.

Right, or know who you are, especially if you’re ...

I agree with you, you should be able to opt in that when I walk into the Apple store, I want the people to know I’m here.

I want a little glass of wine, I want ...

I want a standing ovation.

I know, exactly.

They should do that.

Depending like ... Yeah, they should do, but what about the idea of stores being bigger or smaller? We had Walmart’s Doug McMillan onstage at Code two years ago. And he came because he was really confused about what was going on and wanted to meet all the digital people. One of the things he said I thought was really striking onstage was, “Maybe we don’t need 100,000-200,000-square-foot stores, maybe we need a 10,000-square-foot store," which I thought was ... People didn’t really pay attention, but having covered retail, I was blown away by the repercussions of that idea.

Right.

That Walmart does not have to be this massive warehouse experience. That it was much smaller, and I was thinking the repercussions on work, on real estate, on trucking, on ding, ding, ding, you just ... The whole industry changes really drastically in that case. Do you see that?

Absolutely.

So, what?

Because what’s the world doing? It’s going to cities. Everyone’s going to live in cities, they’re getting dense, they’re getting more interesting, the transportation’s changing, so Walmart needs a store for different environments.

Right, but do they need those big stores?

They still need some big stores, sure.

Because?

Because that’s part of what makes them great. If you’re in rural America, the idea of going to one big store where I can get my groceries, and all my stuff, and I’ve driven 10 miles, pretty good.

What about having it all delivered to you?

That’s not going to happen in rural America because you can’t afford to deliver. Remember, delivery is primarily a thing for cities and suburbs, it doesn’t extend beyond certain trade areas, for all these things. So you’re going to need big stores, you’re going to need small stores, and you need great stores, and they have to all be integrated, and they’re part of your life. You’ll have stores where you work, Walmart should have stores near where you work, they should have stores near where you live, they should have stores near where you play.

Or where you buy and that it delivers to your home, too.

Yeah, yeah. They can do that.

So what about others getting into delivery? When you see the Googles and the others? Uber, I guess.

I think we’re all learning it’s a really tough business.

Because?

It’s hard to make money because if you have to get a product and get it somewhere, and it’s low priced, there’s not a lot of margin to be made. I don’t think people are going to pay a lot of money for that. At some point they’ll just say, “I’ll go to the store,” and eventually, the stores will get convenient. They’ll fix the checkout thing, they’ll do the click and collect where it’s easy to pick up. So you’re not ever going to get a premium to deliver.

The only way delivery will work, really, is if it’s free. And that’s why we’re doing Enjoy. We’re free and we’re fast, and we’re helpful, so we, like a good specialty store, work with a group of products that have enough economic margin.

To allow them to do this.

To allow it, but most products you can’t.

And have this need.

And have a need. So if there’s a need and there’s economics, you’ve got a chance.

So what does the store of the future look like from your perspective. They’re different, obviously.

They’re totally different but they’re all ...

What are the main things they need to change? Checkout and transaction.

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 ...

Such as? Because specialty stores have seen ups and downs.

They have, but the reality, the product isn’t that special, you know?

Mm-hmm.

It’s also true, there’s new specialty stores that are doing great.

Such as?

H&M, Zara, Massimo Dutti. The hard thing is, people are always looking for the next thing. Young kids, they don’t want to wear what their parents wore, so it’s really hard for a specialty store to last generation to generation. And I think that’s part of the problem, but the new ones, they seem pretty popular. Uniqlo has done a pretty good job.

But you know what? They’re not too fashion conscious. They are fashion conscious, but not too much so.

Not too much.

I remember one, years ago in Washington that I wrote about, and it was a hot, hot, hot store and I’m blanking on the name of it, but it was hot, hot, hot and it was a big stock market, huge stock market valuation, and literally they got culottes wrong one year, and that was the end of it. It was fascinating, it was so fashion oriented for teens that it just ... They missed three or four trends and that was the end of that, and they weren’t cool, and then it was done, and done.

Yeah, and the stores have to improve the logistics. The goods should go right to the floor and they shouldn’t have too many, and they’ve got to speed their turns, and there’s a lot you have to do.

Do you need people? Do you need sales people?

Yeah, well, 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.

Which is what Amazon’s trying to do with their things. They’re trying to have people who help you with your stuff.

I mean, if you walk into a Walmart or a Target, all the people are those red shirts at the register. How many people do you see on the floor?

Right, telling you about things.

If they’re doing anything, they’re stocking the shelves. So you’ve got to redeploy people to value-added functions.

So, when we’re finishing up, talk to me about what you think ... who’s doing some great things? Like if you had to go through a bunch of people, if you had to go through, who would say who’s doing amazing things? Both offline and online retailers.

I think some of the online specialists are doing a really nice job.

Such as?

Like Everlane’s carved out a little niche. Warby Parker, Bonobos ...

Warby Parker is a great experience.

But there are all these other ones. Mack Weldon specialized in men’s underwear and it’s unbelievable. So a lot of the special category, niche online retailers I think are doing a beautiful job.

Able to be profitable?

I think they will ... Well, the problem is scale. It’s hard to make money online until you get over $100 million.

Right.

That was Nasty Gal’s problem. They got to $80 million, $100 million, but then they couldn’t quite get over the hump, so that’s the challenge.

Was going into retail stores a problem for them? Was that a mistake?

No, that was actually a good thing, the stores were incredibly productive. They just got over their ski on price points, they got their price points too high for their customer, and there isn’t a lot of room for error on that. That was the big issue for Nasty Gal. But there are a lot of people doing well.

You’ve seen some non-hits though, like you’ve got ...

There are more non-hits than hits.

I just had breakfast with Michael Dubin from Dollar Shave Club, he sold to Jet. Honest, it’s not clear what’s happening to them.

Yeah.

How do you look at those? Because a lot of them are ... I wouldn’t say Dollar Shave Club was a mistake because they did sell for that enormous amount of money. At the same time, they knew they couldn’t get to the next level.

It’s hard to get to the next level, but there are a lot of big consumer, packaged good brands that want a new thing to grow. That’s what Honest, I think Honest Tea, is it?

Honest. No, Honest, it’s just Honest. Honest Tea was another thing, that was a product.

A product, but you know Coke buys these people up, and P&G will buy them up.

Do you see a lot of this ...

I think there will be a lot of acquisition of people who want to build these young brands because remember, you’re targeting a segment. The millennial loves these brands.

Like Everlane is ... Yeah.

The millennials love these brands. That’s Target’s big issue, I think.

That they don’t have the millennial [audience].

The big issue for Target, to me, that hasn’t been talked a lot about is, they used to own the young mom. Every young person wanted to shop at Target.

Get your baby stuff.

Get your baby stuff, get your kids’ clothes, that customer is the online customer.

That goes to Everlane. The same thing with The Gap.

So it’s those people, as they grow up, they’re not going to be going to that Target bubble. And so Target’s No. 1 issue not merchandise, and food, and Canada, it’s how do they recapture the young mom? Which is their core customer base. Walmart always had the value seeker and still does, and Walmart’s competing well. I think Target’s losing the young mom.

Right, and so when you look at where it’s going, do you think Amazon is going to continue to barrel ...

They’re going to grow. I mean, they grew 26 percent last quarter, imagine ... You’re an old retailer, 22 years old, you’re $80 billion and you comp 26 percent, never been done; 26 percent in three years is over 80, it’s a double. So they’ll be a $160 billion commerce player in the U.S. in three years. $80 billion is the size of the entire U.S. department store industry.

So what do you do if you’re a manufacturer of goods?

You try to get out of Walmart. I mean, if I were a manufacturer, I would say, do I really want to be there? But I’m not going to let it get above a certain share because the history is filled, when people get big, they tend to get greedy, they tend to get powerful. Steve used to say, “The reason we’re going to beat the PC industry is they’re pigs,” right? He used to say, “Intel and Windows have all the profit and none of the value.” Also, bigness tends to be dangerous, and so you never want to get too much.

What’s the mistake Amazon will make?

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.

Just like the others.

Just like the others.

They become pigs.

Yeah, I think so.

Anyway. On that note, Ron, just one last story, I always ask everybody what mistake they made that they wish they hadn’t or they learned from, and it doesn’t have to be a learning experience, this isn’t one of those shows. I think a lot of entrepreneurs, you’re obviously entrepreneurs, you’re still entrepreneurial.

Yeah.

You’re doing something else, you can’t help yourself. If you had to give a piece of advice or something, usually people learn through mistakes, it doesn’t have to be mistakes, maybe something you did incredibly well.

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.

Where would Steve Jobs be today? What would he be doing?

Oh, Steve would still be running Apple. He loved Apple so much. His life was his family, who he loved, and Apple.

Yeah.

Those were his twin loves and he’d still be loving them to death.

Yeah, yeah. He would’ve designed better earbuds, I’m sure of it. I still like them, but they’re still pretty ugly. Anyway, Ron, thank you so much, it’s been a fascinating conversation. We’re here with Ron Johnson, he’s one of the creators of the Apple stores, he worked at Target and J.C. Penney, and also has a new company called Enjoy, which is last mile service.

Yeah, it’s just ...

Come fix my stuff.

Well, it’s the first smart last mile.

You know, I wanted to send Walt around as a TV show, him showing up at people’s houses and fixing and yelling at them and stuff like that, that would be a hysterical TV show. Anyway, thank you so much, I really appreciate you coming by.

Thank you.

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This article originally appeared on Recode.net.