Johnson out as CEO of J.C. Penney; Ullman back

New York -- After a controversial 17-month stint, Ron Johnson is out as CEO of J.C. Penney. The company’s board said on Monday that Johnson will be replaced by Myron E. Ullman III, who had been CEO at Penney for seven years until Johnson took over in late 2011. Ullman has also been elected to the board of directors.

The decision of the Penney board to replace Johnson with his embattled predecessor brought biting criticism from some retail investors and corporate governance experts. Many analysts blamed Ullman for creating the problems that Johnson was brought in to correct. In a statement, the board said it chose Ullman because he was well-positioned to move quickly and improve sales.

Johnson’s departure was not all that unexpected given the chain’s mounting losses and sales declines. But it was still a stunning reversal of fortune for the former golden boy of Apple, who left the tech giant amid great fanfare for the top job at Penney.

Johnson’s brief tenure at the department store chain was marked by what many industry analysts felt were strategic missteps, from his decision to jettison sales and coupons to his pact with Martha Stewart, which embroiled Penney in its ongoing legal mess with Macy’s. But more than anything, it was the chain’s declining fortunes that did him in.

Penney reported a net loss of $985 million for fiscal year 2012 — its first full year under Johnson — compared to a $152 million loss the year before. Annual revenue dropped 25% to $13 billion. The crucial fourth quarter was a disaster: The company’s net loss widened to $552 million from $87 million a year earlier and revenue fell 28.4% to $3.8 billion. Same-store sales plummeted 31.7% and Internet sales fell 34.4%.

In recent weeks, criticism of Johnson’s performance had reached not only a crescendo, but an apparent tipping point as investors and the Penney board started to lose faith. On Friday, William Ackman, whose Pershing Square Capital Management is the chain’s largest investor and the man who personally recruited Johnson to Penney, publicly criticized the chief executive. Speaking at an investor conference in Boston, Ackman said Penney’s has seen “too much change too quickly without adequate testing” and that Johnson’s reinvention of Penney had been “very close to a disaster.”

In early March, Vornado Realty Trust, formerly the retailer’s second-biggest shareholder, sold off nearly half its stake in the company.

When Johnson, the former SVP of retail at Apple, took the reins in November 2011, Penney was struggling with a dowdy, outdated image and declining sales. In January 2012, Johnson unveiled a bold and ambitious strategy to transform Penney from a traditional department store into a huge specialty store made up of some 100 branded shops, with wide aisles and a town square-styled area in the middle of the space. 

He also rolled out a new pricing format, replacing the chain’s blizzard of sales and coupons with a three-tiered strategy that promised permanently lowered prices on all items, month-long sales on select goods and periodic clearance events throughout the year. But customers didn’t go for it and the number of customers visiting the stores — and sales — plunged. Johnson subsequently tweaked the pricing strategy and, most recently, announced the return of regular sales and coupons.

Johnson had been hopeful that sales would improve this year as he rolled out more in-store branded boutiques and the new merchandise hit the shelves. But his efforts were bringing mixed results. Over the past weekend, the chain’s highly touted new home shops were void of shoppers, the Dallas Morning News reported.

Comments

Johnson did not know his customer base or product line

Mr. Johnson simply did not know his customer base at Penney and chose to abandon them in favor of a hipper customer base that did not exist for his store. Furthermore, his sleeker Apple Store idea that works so well for a corporation with just a few essential products with a high-tech cache was ill-applied to what is essentially a clothing store for average folks. His idea of creating a marketplace environment was never well-realized. What customers experienced was not hip, but an empty clothing store with much less inventory to look at in an environment where the lighting was not properly redesigned from the old display layout, so what inventory was there was difficult to see. Experienced staff were replaced with youngsters who knew and cared nothing about their product, and who were dressed like they may have been shoppers themselves. The absence of staff on the floor and other customers made being at JCP feel like being in a sequel to a George Romero movie. Mr. Ullman is the right choice. He knows his customers, and he will have a window of opportunity to set things right. Target did not become popular because of its hip ads; it became popular because of the essential high quality of its products and ubiquitous staff presence. Mr. Ullman should provide high quality product to the customers he knows, because even though they may be as dowdy as the old Penney's, they can spot quality and choice in spite of the most clever ad campaign.

JCP Board Fails.

I feel the recent event of letting go current JCP CEO Johnson was a huge mistake by JCPs board. In the past year Johnson and JCP has turned a once dated, depressed, fashion-less, department store into a modern, fashionable, breath of fresh-air in a country full of anchor-store mall embarrassments. Employees of JCP had even evolved to become effective, friendly and excited for the future of the department giant.
In the past year I had made it a point to visit as many JCP sites as possible and all were impressive, clean, modern and exciting to shop at.
With this recent change, I am very worried this positive momentum will shift and JCP will fall to the likes of Bon-Ton and Sears.
I feel confident that if the board stuck with Johnson, in 4 years time it would have been a progressive and dominating force in the Department store place