JC Penney CEO: It may get worse before it gets better

July 18, 2012, 4:45 PM UTC

Ron Johnson

FORTUNE — Ron Johnson’s experience building and running Apple’s (AAPL) formidable retail operation was formative. It taught him to think differently and to stick to his convictions even in the face of adversity.

Now Johnson is applying these lessons to the challenging task of turning around JC Penney (JCP), the struggling retailer where Johnson is CEO.

“We’re in a marathon here,” Johnson said during an interview at Fortune’s Brainstorm Tech conference in Aspen, Colorado. “We are going to stick to our plan.”

Johnson admitted that not everything has gone according to plan since he became CEO in November. The company angered many consumers when it moved away from its strategy of offering coupons and discounts. Its marketing plan misfired. Traffic to stores declined and sales dropped sharply.

MORE: Full transcript and video from this interview 

But Johnson said he will stick to his core plan to win customers back by offering competitive prices every day. “We want every day to be a great day to shop,” he said. After customers get used to the new pricing, he added, JC Penney will “have a business based on integrity.”

Johnson also highlighted some of the improvements he is making in the stores. He announced that JC Penney had scrapped an outdated technology infrastructure and replaced it with an Oracle-based system. The new technology will allow the company to improve the in-store experience with mobile checkouts, self checkouts and tags based on RFID instead of bar codes, which would speed up purchases.

Johnson said that JC Penney would begin launching mini-stores within thousands of its retail outlets in order to offer more compelling shopping experiences intended to bring customers back. But he said the transformation of JC Penney, like any other turnaround, will not happen overnight, and that the company may lose more sales before it starts growing again.

“We are going to treat it like a start up,” Johnson said. “The only question is what size will the startup be.” He declined to say how much the company could afford to downsize, but said his board is squarely behind his plan. “We are going to get to the right level,” he said.

He later added: “Apple went through much tougher years than we are going through this year at Penney’s. Transformation takes time.”

Facing an audience that largely believes that online retail will obliterate physical stores, Johnson took a contrarian view. He said he is bullish on physical retailing, and predicted that online retailing, just like catalog shopping a few decades ago, will eventually reach a plateau. He said different categories of retailing will level off at different points, and that “the physical store will have a permanent place.” If he had to choose between a bricks and mortar retailer and an online only merchant, Johnson said, “I take a physical retailer in a heartbeat.”

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