707 — Why Apple Built Retail on Kindness with Ron Johnson

Hey, hey, hey! The guy who built the most profitable store in the world is here today. More sales per square foot than Tiffany. He says the future of retail isn't tech; it's kindness. And in the age of AI, Ron Johnson thinks the physical store gets more important, not less important. Let's find out why. Hey everybody, I'm Bill Gallagher, scaling coach and host of this show. Comes to you every week, 700 episodes now by the time you're hearing this, um, and everything to do with growing your business. We talk to authors, gurus, executives, CEOs, founders, all the things that they went through as they grew their businesses. And then I got a book of my own now. Busy Is Broken. Busy Is Broken tells the stories of CEOs, some very well-known like Michael Eisner and Bob Iger, um, Gwynne Shotwell, and then a lot of our clients, both good and bad. We hide the names of, uh, anonymize the stories that are really painful in here, but Busy Is Broken is about how you become the bottleneck. You can find it now, order it, get it, and some extras at busyisbroken.com. All right, listen, our guest today is Ron Johnson. He's the creator of the Apple Store and the Genius Bar, fastest retail concept ever to a billion in annual sales. He brought design to the masses at Target, at Target with Michael Graves, and, uh, he was the former CEO of JCPenney also. And, uh, he's got a background in economics from Stanford, Harvard MBA. He's a first-time author here with his book Shop Different. How Retail Revealed Apple's Genius. John— Ron, welcome to the show.

Yeah, it's great to be here, Bill. Quite an introduction. Well done.

Uh, Ron joins us from, uh, the South of France where he is today. He splits his time between the West Coast here and the Mediterranean coast there. I'm delighted because about the time you're hearing this, I, uh, am just getting back from a summer in Greece. And where I'll be doing work, research on my PhD that goes along with the subject of the book. So I, as we're recording it, I think—

I say, like I like to say, I think it's good to be you, Bill. That sounds like a pretty good way to spend the summer.

It's good to be me. Yeah. It's good to be all of us really. Like fundamentally gratitude, love, appreciation make a big difference in an awful lot of things.

Yeah, I agree.

Uh, well, let's, let's, let's kind of stay on that theme or vibe anyway. You've said leadership is an affair of the heart, and that's a funny thing to hear from a man who ran numbers at the highest-grossing store on earth. What, um, where did heart actually click for you? Where did the importance of heart, uh, come in? Was it Apple, or was it something that cost you more?

Well, that's a really good question. Uh, I think, you know, we all have a personal geography, which is kind of our lived experience, where we grew up, our families, where we went to school, the jobs we had along the way. And I grew up, uh, in a family that was filled with kind of unconditional love and service. I grew up in a suburb outside of Minneapolis. You know, there's Minnesota nice, but you know, when our neighbor's husband passed my brother and I had another driveway to shovel every week, you know, when the snow came down. Hmm. Just what you did. And so service was kind of a big part of my upbringing. Being kind to people was a big thing. My parents modeled it. And I remember when I met Steve Jobs and we had our first conversation, and after about 3 hours he said, so what's our service philosophy gonna be? And I said, we're gonna do what you've always done. He said, what's that? I said, we're gonna love our customers.

Hmm.

He looked at me with a funny— he said, you're gonna love our customers? I said, well, isn't that what you do? And I said, love means to secure the good of another person. And I said, isn't that what you do when you make a product easy to use, when you design something beautiful, when you create software that can connect a camera with iPhoto and someone can— mere mortals can make Great photos or movies. He goes, yeah, because you know Cupertino is the most secular zip code in the world. Can you find another word? You know, and we ended up changing to we're going to enrich lives. But no, the heart has always been the most important thing to me, and it was important to Steve too. You know, Steve always said great marketing has to connect with your heart, your head, and your heart. You know, and so often in the computer business back then, it was all about speeds and feeds and technical features, and it got too geeky for customers. And, you know, for Apple to win, you know, you got to connect emotionally with people. And the stores played a big part in that, I think, over the years.

We'll come back to the stores. Talking about, you start back in your childhood, our careers, our businesses are filled with loads and loads of ups and downs. And you have talked in your keynotes Um, about the whole range of your experience. Take us back to old school retail and, uh, what did you learn, uh, from the JCPenney experience?

I think I'll jump into that. You know, I've had highs. I mean, I went from top of the retail world, you know, I left Apple, our stores were doing $50 million a store all over the world, the most productive stores ever created. And I went to JCPenney and attempted, you know, I had this crazy idea. I'm turning 50. I've had 12 good years at Apple. My work's kind of a hobby. If I could do another thing that'd be really hard, what would I like to do? And I got invited to join the board at JCPenney. And then in interviewing the board members, they kind of flipped it and said, how would you like to be the CEO?

Mm-hmm.

And I thought, well, this would be a big challenge. 'Cause I had grown up, you know, literally going back to childhood. In 1957, the first enclosed shopping mall in the world was opened 2 miles from the house I grew up in.

Mm-hmm.

You know, so I grew up going to malls, going to retail stores. And in 1967, 10 years later, Penney's opened a store there. And, you know, I'd been, familiar with JCPenney for a long time. And when I was in kids at Target, they were a real good competitor of ours. And so the idea of ending my career by going back to where it started had sort of an appeal to it. But at the end of the day, for a lot of reasons, my time there was a disaster. Had a great vision. But ultimately, different than I'd done elsewhere. It was my vision for JCPenney. It wasn't ours. Uh-huh. You know, I didn't take the time, didn't have the time to build it with the team. You know, the board wanted to move quickly. I said, okay, we'll go quickly. And it turns out it was way too fast for everybody. You know, your whole idea is to learn about scaling. You know, retail, you tend to open a store, and you earned the right to open the next one. With Apple, we opened our first store after designing a warehouse and better, better, and better, and eventually the stores became super productive. You know, I went to turn around JCPenney but treated it like a startup, like someone in the tech industry would do, and the teams weren't ready for it, the customers weren't ready, ready for it, and it was a really difficult experience for me. For the company, you know, and unfortunately, the company then made another mistake by trying to do a complete U-turn back to what I tried to change, and that caused more problems than I created. Eventually, you know, the store basically went away, you know, but it's it still operates, but it's a handful of stores, you know.

Well, as longtime listeners know, I have a. small amount of experience with retail as a vendor, as a CEO of a fashion jewelry brand. And I have watched the complete disruption, and it still feels like it's very much in flux right now. Brands going direct, stores not understanding and not adding value necessarily, missing the experiential piece that has risen so much. The— where we don't need it going direct because I can order something on Amazon, right? And boxes and piles and piles

of

cardboard filling our world. Um, more and more of that. And yet other times, like, oh, I want to go. I want to— before I decide on that new phone or whatever it is, I want to go touch it. I want to go— or I've got a friend who's got a problem. Let's go into the store. They'll help you sort it out, right? Like That like high-touch experience. And then, you know, a store wants to create something and it's not enough to just put a piano in the store anymore, is it?

Right, exactly. Well, you know, it was 2000 was a big inflection point for the retail industry. That's when the dot-com boom was at its peak. You know, that's when online shopping was beginning. Amazon had started 6 years earlier in '94, whenever it was. All the money going into— that's into AI today was going into online shopping. There was a store for everything, it seemed like. And a lot of people predicted the end of retail stores when you could buy so conveniently. But as we all know today, it created a rebirth in retail stores. And in retail, tired stores, stores that don't keep up always go away.

Mm-hmm.

But the ones that embraced a physical store with an online experience, which we now call omnichannel, have flourished. You know, you look at even Walmart today. You know, Walmart was the leader. It was one of the highest market cap companies in the world back in 2000, but it had a $130 billion market cap. If Amazon was gonna hurt anybody, It was Walmart because they both had broad assortments with low prices to serve everybody. But today, you know, they've dropped off a little bit, but they crossed the trillion-dollar mark, Walmart, in the last 2 months. So it's worth 8 times what it was when people said there's no future for stores. Yeah. So what's happened today is About, uh, 70% of merchandise is bought in stores, 30% is ordered online. But of that 30%, half is the online arm of like Walmart or Apple or a physical store. So physical stores, which do the majority of the business, are about 85%, and then you got 15% being Amazon and some online-only retailers. But even most of the online-only retailers are trying to figure out how to do retail. There's no direct-to-consumer companies today that are DTC only unless they're just getting started. I mean, look at Warby Parker, it's 12th year probably now. They're all stores. And so the world's changed. But physical stores have a big place. They have a big place.

So tell us about your Target experience before the Apple Store.

Yeah, well, that was a— it was a really wonderful thing for me because, you know, I picked— you know, so much in careers is the luck of picking companies at the right time. And when I joined Target, 1990, I was a few years out of business school. Target and Walmart were in a battle to who's going to win the discount wars. Yeah. You know, there had been 10 big regional discounters. It was very clearly Walmart had the low-price position. And there'd be one that was more differentiated, and that was Target. And I got a chance to play a part in leading, helping Target really differentiate itself in the marketplace. And we did that, as you mentioned in your introduction, through design.

Mm-hmm.

You know, we did the first ever— it's hard to believe it today, they happen every other week— collaboration where a retailer reached out to a designer and said, would you Create products for us, and we'll go source them, and we'll bring them to life at scale and bring lower price. And we brought good design, you know, in many ways to America and rode the design wave in the '90s. During my time there, Target stock went up 12 times, which was just a precursor to my time at Apple. But it was a really good period for Target.

It's an interesting thing to think about how you know there was Kmart, there was Target, there was Walmart. There right there, there were these places. Well, there was Venture, there was Ro.

There was Hills, there was Gemco, you know, every retail back to scale always started with a single store.

Mm-hmm.

So when the new industry came out, Walmart, Kmart, and Target were the 3 big ones. They all opened their first store in 1961. That was the start of off, off-mall kind of shopping. And, and then they all started to scale. But eventually the world's not gonna have 10 or 12 discount stores. And it ended up there were really 2 winners. And what lives today are Walmart and Target.

Hmm.

You know, and that happens in almost every industry. In 1960, there were 60 different department stores in the US. Every city had their own department store. And then a couple came in and today we have 4 or 5.

Yeah, they had a lot of, a lot of regional retail, and then they started consolidated with Federated and, um, exactly, a lot more of that.

And then eventually Macy's said, let's put our name on all of them.

Yeah.

And so like Marshall Fields was the Chicago, Dayton's was the Minneapolis. It became, you know, Marshall Fields. That was a better nameplate. And then eventually Macy's, you know, and that's just how that evolved. And today Macy's is doing pretty well. They're back growing again. The stock started to move up again, but it's off a very low base because they're reducing their footprint. You know, they've announced they're closing 100 stores. They'll probably end up with 400 stores. At one point, the Federated Macy's Group, I think, had 1,000 department stores. But again, that doesn't mean online beat them. You know, we gotta remember, up until the online store, the only way to grow your revenue in a retailer was to add more stores.

Mm-hmm.

And then you'd have your comp stores. And during the '80s and '90s, we went through a building boom, you know, as the country grew, where we got way over-stored. The US in 2000 had 10 times the square foot per capita of any country in Europe. 10x. Yeah. You know, we were very— so when online came, the stores that were just— shouldn't have been there anywhere had to close, and some of those markets went down. And then the companies decided, I can pare my footprint and be more efficient by having an integrated omnichannel strategy. And that's why the market caps went up for all the retailers that survived, for most of them, because they just be more efficient. But we live in a world today where if anyone wanted retail, it wasn't online or digital, it was omnichannel.

And

that's how we shop.

As a former vendor partner, CEO of a designer brand, I remember some of the painful experiences. We did business.

Who did you sell to? What, what, who were your big partners?

Uh, so Nordstrom was the biggest, longest. We did Bloomingdale's and Macy's. I walked away from that relationship because it was too adversarial. And, and I think so much of that world was win-lose. You know, the, the retailer is out to make sure the vendor is making no money, um, and wanting to squeeze everything out, but they're also squeezed. in between everyone else. And I— we did well with, uh, QVC, which now is not a thing. Um, and, uh—

But that's, that's the art of being a business leader.

Yeah.

Unfortunately, when your power gets so great— like, the department stores had a lot of power over their manufacturers, their vendors— and at some point you got to let everyone earn a profit. Or it's not going to work. And you got to figure out how to grow together. Like I used to tell—

That's very true with the QVC people, um, and, and less true with the Amazon people. Very true, uh, for a while with Nordstrom. There was a moment where it disappeared. I don't know what it's like today, but, um, Nordstrom was very much like, you have to continue to exist. We don't want to Run you out of business, you know.

Yeah, but you know, the reality is if you work together— like, I remember when I took over the home area Target, when we did design, our margins grew 4 points from 36% to 40% over a number of years. But all of our manufacturer partners' margins grew too. And I would tell them— it was really easy. I just said— it wasn't easy, but I'd say, look, Let's work together. Let's grow our combined profit a point a year, and let's share that 50/50. And we're going to do that by bringing in new products, and the new products will be exclusive to Target. They'll be a little higher price point because we're going to win on design, right? And we'll take the money we make on that to allow us to maintain or even improve our prices on the Established items, but by winning on newness and having new products, we could have higher margins. And we did that collectively, and everybody won. And that you know really played a big part in getting people to want to create products for Target. And so we had people like Calphalon Cookware, which were was only sold in department stores. I'll create a line for Target, and that really helped Target become Target. But we did it because we wanted everybody to win, you know, and that goes back to this whole idea of kindness in business and doing the right thing. You know, anytime someone gets greedy, too greedy, it's gonna hurt you down the road. You know, I really believe that as a business leader, you know.

One of my friends, uh, who I, I miss now, um, because he's retired and not Maybe if I went more, but I don't see him in the business world anymore, is Tom Peters. And I think he's had an impact on you as well. This idea of appreciating and loving human beings, like not very businessy, but something—

That book came out in 1982, you know, In Search of Excellence, one of the great business— 25 million copies sold. That book had a big impact on me. You know, I was going to Harvard Business School. Uh, my first year was 1982. I was applying, graduating '84. And that was a big part of changing how we thought about business. You know, that's part of why I'm excited to write a book, because when I look back at my career, 2 or 3 books really had an impact and you get a thought or two. And, you know, that's kind of a way to give back if In telling a story, someone enjoys reading it and gets inspired. That clicks with me.

You

know, maybe they can apply it to their work, their life, or something. And you do something good, you know.

Yeah, I think that's, you hit on something really important there about the book and the approach of books in general, right? So there are stories that help bring underlying ideas to life. My book has research; it has case studies. And the case studies are the stories. There's a framework. There's, you know, so there's the research, there's the framework, there's the history. But the cases bring it all to life. The cases help us connect with it as human beings. It's those stories that engage all parts of our thinking in our way that, that conveys it. We've been teasing you about—

No, it's interesting. My whole book, you know, I, I told the publishers, I didn't want to do a framework book. You know, I didn't want to— I wanted people to have lessons reveal themselves by reading the stories.

And,

you know, I decided that I wanted the reader to not only be in the room, to be in my mind. You know, as the Apple Store was conceived, as we launched the iPhone, as I worked with Steve, as I made all my mistakes at JCPenney. You know, I wanted the reader to experience it like I experienced, because I thought it— and then it wouldn't be my lessons, it'd be the lessons they get from mixing their personal geography with my experience.

Right.

Because I think at the end of the day, for us to be great leaders, we have to be authentic. And that leadership, we can't adopt somebody else's style. We can learn from somebody else's style. But we ought to have our own unique style. It's just like a lot of people tried to copy the Apple Store. Nobody could because the Apple Store was designed uniquely for Apple and what it needed at that time. And you, like Microsoft, they didn't need an Apple Store. They already had 95% market share. When they tried to create an Apple Store, it made them look small. It validated Apple. Right. And, and so it gets really dangerous when you don't.

I mean, everybody had— Gateway had a store, Dell had a store, Microsoft had a store. Like, they were all like, we all need stores, you know.

But isn't it interesting that they were all serving 95% of the market? Apple had 5%. Apple had the best stores, you know. And it just shows the power of, you know, what Steve used to Say it was think different.

Yeah. Talk, tell us about now the idea behind the Apple Store, how it came to be, what didn't go well along the way in particular, where were you wrong or where were you schooled? And yeah, love to hear some of that.

Well, the idea was really simple. Steve had, you know, founded Apple in the late '70s.

Yeah.

He was part of the early PC revolution. He came back to Apple in '97, created this amazing product, the iMac, that was like a cultural icon, but it didn't move the needle for Apple because Apple wasn't sold where people would advocate for the Mac. All the kids who were working at the different stores were PC users. They had grown up doing games on the PC. They'd say, why do you wanna buy a Mac? They're twice as expensive, they're slower, the apps aren't running for it. And so Steve concluded if Apple was gonna win, even though computers were being bought online, Dell was winning, Apple had to open stores to control the user experience.

Mm-hmm.

And he reached out to me to do that. And I was privileged to be the one he selected to go create the stores and imagine the stores. But, you know, it was interesting. We started out, the first question you have to ask is, who's the customer you wanna go after? And Steve said to me, well, we do really well with the creative pro. We've got these apps coming like that do music and movies and photos. And I think if we go after consumers with creative interests, we can double our market share.

Mm-hmm.

And I said, so you wanna get to 10%? He goes, yeah, it'd be 25 million more customers. I said, well, Steve, half of America doesn't use a computer yet. I come from Minneapolis. I'm in the analog world. I still take pictures. My wife takes pictures with our camera and we go to the grocery store and get the film developed. We make scrapbooks. I said, that's the customer you want to go after. Now, if you want to go after 10%, just go online. You don't have to do much different to get to 10%. But if you wanna appeal to all the people that don't understand why they should get a Mac yet, why they should get a computer, that to me is the opportunity. I'd come to do that.

And

he got real excited. And so we opened our stores. When we created the stores, the goal was 5 down, 95 to go. Steve came up with that. We're going after everybody. Well, that decision led to every decision we made about the stores, because if you're trying to serve someone who's fearful of technology, your number one enemy is fear. It's not Microsoft, right? Mm-hmm. And so we put our stores where people live their lives, in shopping malls. Very counterintuitive. You're gonna buy a computer once every 4 years and you buy the most expensive real estate in the world. Where they depend on frequency. But we knew you couldn't— no one would drive 10 miles to go to an Apple Store, but they might go 10 feet out of their way. So we went to the mall, right? Then we built the store for an experience because we had to convince people why they wanted a computer. But if they went to it, we could stand behind it. So half the store was devoted to owners we didn't even have yet.

Mm-hmm.

And then we put in things like Genius Bars for service and theaters and tables for training. And, you know, we created an experience, but it was all because we were trying to reach out to people that didn't understand how technology could improve their lives, you know? And so the strategy always follows the market, the target market, your vision of what it's gonna take to reach them. which for us was service. And then the outcome is the Apple Store, you know, what you try to do. Um, but we launched this. Now, it didn't get off to a very good start. The stores were fine. We were doing $10 million a store the first 2 or 3 years, but we needed to do $15 million to break even. But we just kept working at it. We kept opening stores. We opened 25 the first year, 25 the second. 25th of the 3rd, you know, because I said to Steve, you know, if you really believe in a store, we got to get a footprint out there, and eventually we'll get a product that will, will make this thing pay off. Well, the iPod came out, and the iPod, when that went to Windows in 2004, the stores just became the busiest stores in the world. They were packed with people, and we couldn't build them big enough.

Mm-hmm.

And then 3 years later, the iPhone came out. And we had to build them bigger. And then 3 years later, the iPad came out, you know, but we had a footprint that could bring this technology to the world. And so the stores benefited from the new products and Apple benefited from having the stores. And so retail was the right strategy for Apple. And it really was a privilege to be a part of it.

Yeah, it's interesting. I remember when it first, actually I was on a, on the advisory board for one of the architects who did both Target stores and a lot of Apple stores. And it was a real, it was cool to see it because you saw that they were creating and moving into this kind of real experiential retail. It wasn't just facts and specs. I mean, if you wanted to buy an Apple Mac or related product in the past, The other retail experience was depressing because they stocked them poorly. There were a few specialty stores that sold them, especially if you're in a place like the Bay Area. But around the country in places, it was hard to get. People didn't know the products, that kind of thing. It came out and it started to be much more like, well, like if you think about Build-A-Bear.

Mm-hmm.

Or the kind of retail that went heavy experiential. So now I could go in, I could go to one of the classes. Oh, they're demoing some, there's Final Cut Pro or iMovie before, and they're gonna show you how to make your own movies and that kind of thing. And I remember we bought an iMac for the kids, you know, and we mixed movies on it. Now, I'd long had Macs in the companies I ran, but even that was a difficult thing that people chided me for. But suddenly it started to become much more legit. Right. And I'm like, well, I'm a business customer and they'll take care of me. And that Genius Bar was a place I could go talk to somebody But they were not the most technical people in the world, but they were really helpful.

Yeah, no, the whole idea was, you know, you had the art of retail is the customer, the employee that serves the customer.

And

you gotta find people. We were looking for people like at the Genius Bar that could go toe to toe with Steve on technology, but the Ritz-Carlton would wanna hire hire them to be the greeter in their hotel. Yeah. How do you find that? They had to have incredible people skills, love serving people, but they had to understand technology. And, you know, if you had to pick one of those two, you'd pick the service because that's the hard part to find. You know, the technology they're going to learn. You know, the more problem— you know, the more customers they serve, the more they learn. They'll figure that out. You either have an enthusiasm to serve people or you don't. And that's hard to train.

Yeah, people are either wired to do that or they're not. They're either welcoming, inviting, engaging, or they're not. It's not a— so the Genius Bar, not successful at first?

No, it was, I'd say it was successful. We just didn't have a lot of customers. So when we launched the store, the Genius Bar was there to serve people who bought a Mac. Well, we didn't sell a lot of Macs those early years. You know, we were selling 40 computers a week and we had this bar open all the time, but people love coming to the Genius Bar. They love talking to the genius. So we never backed up on that.

You had to make an appointment mostly. Yeah.

You know, you didn't need an appointment.

Oh

no, you know, no one needed an appointment for the Genius Bar probably till 2010.

Oh yeah.

I was opposed, I was opposed to appointments.

You know,

I felt the thing about stores, you ought to be able to walk in and get help. And we did a great job of multitasking. And I used to tell the teams, you're going to be your best at your busiest. The busy days are the most fun. They're going to fly by. If you have to serve 2 or— and people get to the bar and there'd be 3 people with an iPod issue. Why don't we all get together here and let me solve this one? I'll help you with this. And it became a community thing. And we, we tried to avoid this idea that going to the Apple Store was like going to the Department of Motor Vehicles.

Mm-hmm.

And I just fear if you got into this appointment-based thing, it would just change this idea of the store being a Gathering place where packed with people getting help, finding a way to make it right. And you know, it was really—I think those were many. The stores are awesome now. I had a great experience last week in Milan, but there was a moment there when the stores were just so filled with people, but everyone was smiling. Everyone was happy to be there. If the customer had to wait, they didn't mind. I mean, the Apple Store is a great place. Yeah.

In general, right? There's something like the kids run around, there's some stuff for them to look at. There's— everybody's got a little different thing and it's all lovely and generally well presented. It's funny, I, I remember when the iPod came out and I was so delighted. So I'd had an MP3 player or 2, but not too much because they were always a pain to load. And then this iPod comes out and I have— before then I had thousands and thousands of songs. I have a background in radio, so I always had a huge music collection and now I could suddenly like carry all of it. I didn't have to think about loading my player with a few things and making a playlist. And, you know, which is like I could make it on the fly, right? Rather than once upon a time— I mean, once upon a time making a mixtape was definitely a labor of love, but, um, but also very limiting, right? And now we could have all of it, right? I remember very well the early days of that, but it wasn't— it didn't feel like— and maybe you noticed it, but it felt like when the Apple Store blew up and when everything changed was the iPhone?

No, it was actually the iPod. It

was the iPod?

Yeah, it was, but it wasn't the initial iPod. People forget it took 3 years for the iPod to really become an important item. The first version was Mac only. You know, we didn't have a music store. There was really, and then the Windows iPad, we didn't have, you know, it was just, it took a while. Yeah. Until the, the combination of the Nano, you know, the price getting down to $199, all the colors, the great marketing, and it truly being a product for the PC owner, it really wasn't that successful. And then it took off, and that's when the stores got really busy, you know. Uh, by 2007, that was 3 years after the first Windows iPod, and our stores were super busy that whole period. But the phone took it to yet another level, you know, because that was probably fun.

Yeah, when I— just before then, I think I had a Treo phone, and I liked having the devices were starting to converge. I was starting to get some internet, some phones, some email on one device, and it was getting easier and easier over a few years. And then Steve stands and he reveals the iPod. And I didn't know all, but when I saw the keynote, I was like, oh, I need that. I want that device. It's sexy enough. And it required the initial one. I have actually, it's over in a case on the wall over there, one of the first iPhone, iPhone 1. And then I have here on my desk a 3GS, which is also—

Oh, that's a 3GS. Which is a really good product.

Yeah.

Yeah.

It feels good.

Right before the iPhone 4, which was the challenging one. That was the best of the iPhones, the glass on both sides.

And

remember Antennagate? And, uh, you know, there's a lot of interesting stories. Yeah.

Yeah, those are right. There's painful moments in things that—

There are. No, that's where people don't realize You know, especially when you're innovating, you know, it's not straight up. You know, it goes up and down. I joined Apple in 2000. In 2004, the stock was still below where it was when I joined.

You know,

in 2002, our sales dropped 37% for the year at Apple, right? We were trading at cash value. I remember the day the 2 guys from Rand Gateway came down and wanted to meet with Steve, and Steve invited me to join them because it was Gateway. And they said, we'd like to buy Apple.

Mm-hmm.

And Steve looked at them, and Apple's market cap was $8 billion, and Gateway's was $25 billion still, even though they were going away. And Steve said, are you kidding? Which company do you think's worth more? And these guys go, whoa. We're worth 3 times. He goes, you have nothing. You don't own your own operating system. You don't make your own products. You got some stores.

Yeah.

Get out of here. That meeting lasted about 30 minutes. But, you know, at the end of the day, uh, Apple had some tough periods. And the phones, you know, the iPod took a long time to go. The phone had its challenges early on. You know, the reception wasn't great. It was only available on one network, you know, the AT&T network. You know, it, you know, it was a learning experience, but those things get sorted out. And today Apple's got a franchise, probably the iPhone franchise is second to none in terms of a business that's built to last, that has great profitability. You know, maybe something will come out that will change that, and we'll all know when it happens. But what Tim and the team have done with the iPhone is incredible.

It's an interesting thing to watch as he took over, um, and didn't try to just repeat Steve. He, he did Tim, and, and now he's retiring, and we've got a new CEO coming in, and it'll be a new era.

Exactly. But it's nice that Apple's— but Apple's done a great job. Tim did a great job of managing its CEO transitions. You know, Steve was there basically for 14 years. You know, Tim has been there 15, but even longer because he was the interim CEO for a long time when Steve was ill.

Right.

So Tim had a long run and You know, he said all along, I'm gonna replace— we're gonna replace me with someone in the company. We had a lot of candidates and he found a great one. And I think, you know, the next era will be another great era for Apple.

That's fantastic. Talk about, um, the checkout process, right? You didn't have a regular register. How do you come up with that idea? Is it an instant hit? How does that go?

Yeah, so we, when we started out, uh, we decided to run transactions on the Mac. And so we had to write a software app to, you know, check people out on the Mac. But it was a traditional checkout environment.

Mm-hmm.

But I had always had this dream to get rid of the cash wrap. You know, I felt like in retail you wanna eliminate pain points.

Mm-hmm.

People love to shop. They hate checkout. You think what happens? You got to check out. Sometimes worry, is my credit card gonna work? Where do I put my handbag if I'm a woman? Are they gonna bring it up right? You know, blah blah blah. It's just, you know, how long's the line gonna be? You know, it's just not a fun process. And the worst thing is, you know, you the employee has to hand you off to someone else who doesn't know what you talked about. So I always had a dream to eliminate the cash wrap. And eventually, as the iPod, you know, started to take off, it had the capability to function as a mobile checkout.

Mm-hmm.

And so we began the process, 2000, really '07, of moving from a cash wrap to an iPod to check out, which is the first mobile checkout. This is 10 years ahead of when, you know, mobile checkout became ubiquitous. But it was hard because customers weren't comfortable with it. A lot of the employees, they didn't feel it was their job. They've been, let them go check out. I don't want to have to check people out. I don't want to carry around a cash wrap in my pocket because the initial one wasn't just the iPod. It had a sled. It had a big thing on it.

Right. Right.

Allow it to work. It wasn't as elegant as today where it's just, you know, your iPhone. Um, but what's interesting is, you know, the big bottleneck for retail, especially in busy stores, is checkout. And in 2010, when the iPad came out, we now had gotten to the point where every employee had a mobile checkout device. And I'll never forget, we launched the iPad And in the Fifth Avenue store, we didn't have any checkouts, but we had 300 cash registers ringing simultaneously because we had 300 employees that day in the store, all dedicated to getting people iPads. And I've never seen a store have more capacity. We were selling 300 iPads a minute. Now you think about being in retail and you think of the volume. In one store. That's how much mobile checkout helped us. You know, it wasn't just great for the customer and all the information you get and the speed. It allowed our store to have no limits.

And

that's unheard of in retail.

You

know, people still wait in line at checkout at a lot of stores. Yeah,

yeah, I tried to implement mobile ordering, mobile checkout in our trade shows and showrooms. And so we did iPod Touch and we did things before that. And in the early days, it was really hard. Wi-Fi wasn't easy and very expensive in trade shows. You had to generally have a server there. Like you'd have to set up behind the booth a separate server to handle the POS and the thing. Then you had to teach people and the software was kludgy and like getting it going in the beginning was pretty painful.

Well, no, you're exactly right, Bill. And that was what made Apple unique. Our stores had already been built with high-speed Wi-Fi networks everywhere. That's how we ran the customer experience. That's how people surfed on the Macs in the stores. That's how we managed our inventory. So we had the high-speed network. We had the devices, you know, we did the software for the devices so we could tailor that product to become a checkout device. So Apple had at least a 10-year head start on mobile checkout because of the nature. And the other one is we only— you only bought a few products, you know, you, you weren't buying 10 things. You know, if you're buying 10 things, you need a place to set them down. You're buying a An iPhone. You're buying a case. You know, our units for transaction—

A pair of headphones, something like that. Not a lot. Yeah, yeah.

So, so we could check out anywhere and it wasn't clunky, but other stores couldn't do it. And so sometimes you get credit for being ahead of the game, but there was something unique about the what you were selling and the technology you had access to that allowed you to be way ahead of the game. But that was the beauty of being at Apple. You know, Steve always, you know, figure out what's next, do it now, do it great. You know, have the courage to cannibalize your own product. Like that phone, he created 3 products in one. The first thing, it's a music player.

Right.

That's gonna get rid of the need to have an iPod.

Right.

But Steve knew if we didn't do that, someone else would.

Right.

Yeah. And, uh, yeah, Apple was a great place to work. It's still a great company.

Uh, uh, before we run out of time, let's go back to the human bit, uh, just for a moment. Um, what about, what's there? What's the philosophy? How did it arise about when a customer experience goes wrong? How do you handle that? What do you do? What's the opportunity? Talk about customer experience, especially when somebody is unhappy.

Yeah, it's— well, that's really simple to me. You know, you're, you're in the business of building. You're not selling products. You're building a community of users, a user base, right? And you have a choice every moment. What customer do I serve? Well, if you've got a customer who's upset, The sooner you take care of the problem, the easier it will be to solve it and the better off you're gonna be. And so you haven't earned the right to get another customer until you take care of the one you disappointed. And so at Apple, whenever we had a problem, we assumed the customer's right and we got it, we made it right.

Yeah.

And that included, you know, for a long time, When those— that iPhone 4, the screens were cracking because you drop them from 3 feet. That was on Apple. Come on, we got to design a product that can withstand an accident better than it was doing at the time. So we repaired them for free, you know, and that's because the customer— the screen wasn't just broken, the relationship with the customer shattered. You know, you get your new phone, you can't even look at it. It's all about the display.

And

then it's gonna be a couple hundred dollars to fix it. You're going, are you serious?

I

don't have $200. And we did that. And so, and, and I learned that lesson from really watching Nordstrom. You know, Nordstrom was the best. I remember there was a great story about someone came in and said, brought in a Goodyear tire and said, I need to return this.

Yeah.

And they go, we've never carried tires, but They took the tire back, you know. And then, uh, a gal I worked for at Mervyn's at the time— this is in the '80s.

Yeah.

Had gone to Nordstrom, was in a personal shopping appointment. She came back, she just bought a new car. Someone keyed it in the shopping mall at Hillsdale.

Yeah.

And, uh, she went back in the store and said, hey, guess what happened? I was shopping, they painted her car. It wasn't Nordstrom's fault, but they made it right. You know, and you realize the value of restoring a relationship or a fix is much greater than finding another customer.

Mm-hmm.

And that's a good life lesson. You know, every relationship we have, it's going one of 3 ways. You're launching, you're deepening, or you're restoring. And we're always making mistakes and you gotta be, pay attention to the people you love and You know, when you make a mistake, try to get it right. You know,

you know, it's funny, I, I've seen both sides of that. So, uh, uh, dry cleaner lost some pants to a suit that I bought at Nordstrom. And I go into Nordstrom and I'm like, I need to buy another pants because I really like this suit and it's my favorite suit. And they're like, yeah, you know what, we're gonna, um, we'll find you some pants. So they went in the back, they— and they just give me new pants. And they, you know, they fitted them to me. They hemmed them, you know, so they were right and all that kind of thing. And now as the vendor, I also know that then that jacket probably got returned to that vendor with a pants are missing.

Yeah,

probably got like, oh, these are damaged pants because they're damaged suit because it's missing the pants. It probably got not sold separately. So I think it— on the other hand, um, I was like, oh my God, whenever I need a suit, I'll go to Nordstrom. And—

Exactly.

I don't really wear suits very often anymore, but I always did and I was always loyal. And even today that I shop a little different, I still think about it and I'm willing to go there first. And I think about the Apple Store experiences too. I go in because my waterproof iPhone didn't turn out to be so waterproof and I used it by the pool and it failed. And they were like, oh yeah, we'll fix it. Right. And I went in, I had problems with the keyboard on a particular laptop, and they're like, oh yeah, we'll take care of this. And, you know, again and again, there were lots of things like that where they were just like, not a whole long thing, but like, yeah, we'll take care of this. Um, and that was noticeably different. Um, right.

And the last I looked, Apple's not having too much trouble with its profit formula, right? Now you look at the, the cash They generate. Yeah, you know, and the margins they earn.

Right, right.

You know, and the entire time they did that, they were making decisions to do the right thing for customers. And that's what I'm proud of Apple. And it just shows, you know, you earn profits by doing the right thing. And that's where some of these companies that, you know, we'll see how it plays out. But there's one big one in the Bay Area that's getting a lot of heat over the last few years, Meta, you know, because of, you know, their focus on profitability, maybe not always the right way, you know. And, and, you know, we'll see how this plays out.

Trust is also not there with their customer on the regular. Yeah, that's a big— it's a big issue.

It's a big deal. Yeah, yeah,

yeah. Uh, so, uh, we're starting to get long in the tooth in this show. Um, people are really important. If it's not right, don't give up. Keep at it. Keep trying to improve it over time. Launch, deepen, restore. Like land the customer, deepen the relationship, fix it when things go wrong. There's a lot of good, a lot of good things to talk about there.

And above all, choose kindness.

Choose kindness. You know, I think so much of our conversations these days are all about like AI and AI eliminating people and things like that. In the face of all that, it seems to me that people matter even more than ever before.

That's what I believe. You know, I've yet to see a technology that didn't enable us to do more. You know, it's interesting, while you read about people reducing workforce where AI is being implemented. Companies are making more money than they ever have, and that's why the stock market's at an all-time high. And so companies are launching new initiatives.

Mm-hmm.

You read about all the time, and that takes new people to do that and new jobs and new ways to work. And for the last 3 months, our jobs in this country are growing well ahead of what people anticipated. You know, so I know there's a fear that AI is going to take away jobs, but as businesses improve their profitability, some of that goes to the bottom line, but a lot of that goes to invest to continue to compete and to win. And teams have confidence. And, you know, I've yet to see a technology that didn't actually expand work.

Mm-hmm.

You know, we just have to be much more nimble. and willing to try new things. But I really believe the exciting thing is with general knowledge being just a quick query away, you know, it creates a heck of a lot more time for you to think, to create, to use your imagination, to use your inner voice to impact what you're doing than it did in the old days.

Yeah.

Because you had to spend some— think how much time we used to spend, you know, creating Excel spreadsheets. You know, doing keynote presentations, you know, or, you know, and today you can just think, you know. So I really think we're heading into a great period for innovation. And I think there will be more human connection, right? Convenience. What's the root word in convenience? Convene.

Hmm.

Right. People are going to convene more as the world becomes more convenient. And that's, you know, my, my hope. It's my belief.

And

we'll see how it goes.

The book is Shop Different. It's all about how retail revealed Apple's genius. Ron Johnson, shopsdifferent.com is the website. Go find the book now. Go buy it now while it's coming out. Buy it today. Shop Different, find it at Amazon, wherever, HarperCollins book. Thanks, Ron Johnson, for joining us today.

Pleasure is mine. Thank you, Bill.

Thanks again, everyone, to you and to all of our listeners, viewers. My book's out now also, Busy Is Broken. It's all about how not to be the bottleneck as your company grows, how to have a great life, how your sacrifice to grow your business is probably misplaced and actually hurting not just your life but your business. How to step back, have a better life and a better business. That's Busy Is Broken. Go to busyisbroken.com, go to Amazon, wherever you get your books, it's available everywhere. Audiobook, paperback, etc. Kindle, e-reader, Apple Books, like all that. You'll find it everywhere. busyisbroken.com. Thanks again, Ron. Thanks again, Wanda. Thanks again, Verne Harnish, for creating the whole Scaling Up framework that has been at the base of my business for years. Thanks again to you all for watching, for listening. Until next time. Bye. Keep scaling.