Magic Johnson's captivating customer service

The NBA great builds a retail empire in the inner city.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)

Helping businesses save cities
The government's Emerging 200 program aims to boost job growth by training inner-city entrepreneurs to expand their businesses. Here's how it's playing out in 5 cities.
Are you cutting back on spending due to rising energy prices?
  • Yes
  • No

LOS ANGELES (Fortune Small Business) -- As an NBA Hall of Famer, Earvin "Magic" Johnson faced down such giants as Larry Bird and Julius Erving. Diagnosed with HIV in 1991, Johnson has fought off full-blown AIDS for the past 18 years. Now, as a coffee shop proprietor, he's fighting his latest battle against...scones.

"My customers in urban America are so skeptical, we have to win them over," he says -- and the skepticism extends to exotic pastries. "So in my Starbucks, we serve sweet potato pie."

Sixteen years after retiring from pro basketball, Johnson is finding almost as much success as a small business owner as he did on the court. Magic Johnson Enterprises, a private Los Angeles-based company, has 35 employees and assets of more than $700 million. It works with local entrepreneurs to open franchises in inner-city neighborhoods across the U.S., and has signed a unique deal with Starbucks (SBUX, Fortune 500) that allows MJE to open franchises and split the revenue fifty-fifty.

Now Johnson is advising big-box stores such as Best Buy (BBY, Fortune 500) on how to crack urban markets once the economy allows the stores to expand again. The key, he says, is paying attention to customers. When Johnson makes public appearances -- as he does about 100 times a year -- he isn't just signing autographs. He also gives his office phone number to any customer who complains to him personally, even if the problem is a dearth of sugar packets. If the problem persists, he wants to know about it.

"Minorities appreciate that, because we are used to corporations coming in, opening up their building, but then disrespecting us with their service," Johnson says. "If you don't engage us, we're going to cut you off our list."

He found that out the hard way. One of his first franchises was an NBA store that lost $200,000 before it closed. The reason? Johnson picked the inventory based on his own preferences rather than the customers'. Another early venture, a movie theater near L.A.'s gang-ridden Crenshaw district, seemed doomed to failure until Magic sat down with the gang leaders and asked for their respect. It worked. The theater is now one of the highest earners in the AMC chain.

Johnson is on to something, says Dominique Hanssens, chair of the marketing department at UCLA's Anderson School of Management. Selling sweet potato pie instead of scones, he says, "shows customers that you're trying to figure out how to serve them in new ways." By targeting a less affluent market, Johnson benefits from less competition, greater loyalty and, paradoxically, more revenue in the long run.

"The lifetime value of his customers can be quite high, even if they don't bring in as much money in the short term," Hanssens says. "Everybody loses business in a recession. But it's better if your existing customers stay with you and just spend a little less."  To top of page

To write a note to the editor about this article, click here.

QMy dream is to launch my own business someday. Now that it's time to choose a major, I'm debating if I should major in entrepreneurial studies or major in engineering to acquire a set of skills first. Is majoring in entrepreneurship a good choice? More
Get Answer
- Spate, Orange, Calif.

More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.