JC Penney Goes Back To Basics; Ackman To Stay Put

JOShares of JC Penney fell on Tuesday over 12 percent as investors reacted negatively to the news about CEO Ron Johnson resignation and replacement with former JC Penney CEO Myron “Mike” Ullman.

Since the hiring of Ron Johnson in November 2011 from Apple, a soap-opera like drama has been unfolding at JC Penney, one of America’s oldest and well-known retailers.

The series of events leading up to Johnson’s resignation on Monday, which has played out in the public eye for months amid wide criticism, is a lesson for other large retailers and will likely be retold in business schools.

After activist hedge fund investor William Ackman from Pershing Square Capital Management took an 18 percent stake in JC Penney in 2011, he quickly played a heavy role in bringing Ron Johnson aboard to JC Penney headquarters in Plano, Texas, making it clear to investors and shoppers alike that major changes were now underway.

Ron Johnson came aboard as a respected retail executive who carried a high profile corporate resume which boasted the highest level of revenue earned per square feet across Apple’s retail stores along with an impressive corporate retail record at Target.

Johnson was awarded $52.7 million when he joined J. C. Penney and he made a $50 million personal investment in the company.

Johnson immediately changed the corporate environment overnight at JC Penney’s by bringing aboard many tech-oriented Apple executives who worked with him at Apple.

The new corporate norm under Ron Johnson included top executives commuting to work in Plano, Texas by taking corporate jets from California and other locations on the east coast while spending lavishly to remodel their new corporate offices.

Meanwhile, more than 20,000 Penney’s employees under Johnson’s leadership were laid off, as he tried to pay for the Penney’s transformation by lowering costs.

In a controversial move that he later regretted, Johnson decided to change the sales strategy of JC Penney by eliminating the department store’s discount model in favor of adopting the new motto of “everyday low prices.”

The longstanding JC Penney name was reduced to JCP.

For many JC Penney loyal shoppers who liked to shop in the department store because of good values and bargains, Johnson’s sudden transformation of the store’s business model was not well received.

Sales plunged 25 percent during the first year of his plan to reinvent the struggling department store chain.

Johnson quickly made plans to modernize the interior of JCP into a modern marketplace with boutique shops selling designer brands, including Canadian based Joe Fresh, which was aimed at younger shoppers along with Arizona Jeans.

New home boutique shops include popular designers by Jonathan Adler, Martha Stewart and Michael Graves which were only recently opened.

Some of Johnson’s more unusual plans included creating a yoga room where yoga and pilates classes could be offered inside the department store.

YOGAOne of Johnson’s flaws is that he failed to test his new store concepts across mainstream America while the company was burning through their cash pile to revamp stores in Johnson’s image and facing growing criticism from investors and retail analysts for failing to listen to the needs of their loyal customers.

Penney’s same-store sales in 2013 are already down more than 10 percent,  Dow Jones reported on Tuesday.

While attending a Thomson Reuters conference just last week, William Ackman, whose Pershing Square Capital Management fund is JC Penney’s biggest shareholder, said Ron Johnson made “big mistakes” and noted that JC Penney has come “very close to a disaster.”

On Tuesday Reuters reported that Ackman may even be eyeing an exit from his large position at JC Penney.

However, according to a recent NY Post article, Ackman is expected to stay put as JCPenney’s biggest investor, and support the struggling company, sources told The Post.

Newly restored CEO Myron “Mike” Ullman is expected to slow down Johnson’s ambitious remodeling plans and shore up JC Penney’s finances by winning back their loyal customers through offering discounts.

 

 

 

 

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