Johnson Out, Ullman In, But Questions About JCPenney Remain

In Reports, What's New, Industry News by Jeff Prine

Myron "Mike" Ullman returns as JCPenney CEO

Myron “Mike” Ullman

Plano, TX—For most followers of retail, especially analysts, it was only a matter of time before Ron Johnson, the Apple retail wiz who was brought in to revamp an American retail legend, was shown the door at JCPenney.

The company he arrived at  to transform, instead had seen a 25% drop in sales in 2012 alone, its stock value halved, some 19,000 employees dismissed and longtime customers alienated.

Yet Johnson was still backed by William Ackman, the activist investor with hedge fund Pershing Square Capital, JCPenney’s largest shareholder and the man who apparently hand-picked Johnson for the job.

All that ended last week, however, when Ackman admitted to an investors group: “One of the big mistakes was perhaps too much change too quickly without adequate testing on what the impact would be.” He then went on to call Johnson’s tenure at JCPenney “very close to a disaster.”

While Johnson, his “Fair and Square” pricing strategy and his shops-concept will continue to be debated, Johnson’s departure creates even more questions about what’s next for JCPenney.

Even as they clamored for his firing, analysts were also jumped upon the decision to bring back Myron “Mike” Ullman as chief executive, the position he held from 2004 until 2011. Ullman also had been criticized in the past; Ackman even said Ullman “chronically mismanaged” JCPenney.

But any past reservations about Ullman appeared to have vanished Monday night following Johnson’s exit and Ullman’s return.

“We are fortunate to have someone with Mike’s proven experience and leadership abilities to take the reins at the company at this important time,” said Thomas Engibous, chairman of JCPenney’s board. “He is well-positioned to quickly analyze the situation JCPenney faces and take steps to improve the company’s performance.”

To Sell Off Assets?

Indeed, Ullman has an impressive track record in retail. Prior to joining JCPenney as chief executive in 2004, he served as group managing director of LVMH from 1999 to 2002. He also was chief executive of DFS Group Ltd. from 1995 to 1999, and chief executive at R. H. Macy & Co., Inc. from 1992 to 1995.

Speculation is that Ullman, a known entity might smooth things over with disgruntled vendors and employees and move to win back shoppers who apparently left for other retailers.

“Ullman makes sense in the interim, given the urgent cash situation. Ullman is also a known partner to the vendors,” UBS analyst Michael Binetti said today.

Nonetheless, efforts to woo back consumers may come at a price.

“Ullman inherits a customer base that, in our view, feels it has been betrayed, and he will be virtually powerless to prevent JCP from burning a substantial amount of cash in 2013,” said Alex Fuhrman, analyst at PiperJaffray.

The need for cash was resurrected rumors that JCPenney may be seeking a buyout. Already Apollo Global Management LLC and Leonard Green & Partners LP have been mentioned as potential suitors.

“The faster Ackman and group sell JCP’s valuable assets to someone else, the more value they will capture,” said George Bradt, managing director of PrimeGenesis, an executive consulting firm. “The longer they stay distracted with sure-to-fail ideas like fixing the business or taking it private, the less value will be left when JCP finally ceases to exist.”

Commenting on the situation, Ullman released his own statement: “While JCPenney has faced a difficult period, its legacy as a leader in American retailing is an asset that can be built upon and leveraged. To that end, my plan is to immediately engage with the company’s customers, team members, vendors and shareholders, to understand their needs, views and insights. With that knowledge, I will work with the leadership team and the board to develop and clearly articulate a game plan to establish a foundation for future success.”


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