Ron's Gone: JCP CEO Dismissed After 17 Months

4/9/2013
Shortly after the markets closed Monday evening, J.C. Penney announced that beleaguered CEO Ron Johnson is leaving the company, just 17 months into the retailer's controversial and closely watched, but as of yet unsuccessful, three-year plan to revive its ailing business. Former JCP CEO Mike Ullman, whom Johnson had replaced, is rejoining the company as interim CEO, according to news reports.

In recent months, the Plano, Texas-based department store chain has dominated headlines but for all the wrong reasons. The retailer trimmed 2,200 employees from payroll and announced delays to its massive RFID rollout. It posted a stunning $552 million loss for the fourth quarter of 2012. JCP's stock price and sales have plummeted as its core discount- and coupon-loving middle-class shoppers in Middle America failed to embrace the company's shift toward everyday low prices. And Johnson seemed proud of the fact that the retailer didn't beta test these big initiatives prior to launch, an approach the former Apple executive learned while running the tech giant's retail operations.

But some of Johnson's ideas might prove to be key to JCP's future. He has pushed for transitioning the store format to a collection of curated shops, many of which feature products such as Mango apparel and Joe Fresh fashions that cater to a younger target audience. Forbes cites Hedgeye Risk Management retail analyst Brian McGough who believes Johnson’s dismissal is "definitely ill-timed" given that not enough time has passed to determine if the shop-in-shop strategy would bear fruit.

Johnson’s brief and stormy tenure with JCP seems to be characterized by hubris, according to some news reports. His big mistake, according to Forbes reporter Dale Buss, was assuming he understood consumer psychology and knew shoppers better than they know themselves. Johnson should have gotten "to know J.C. Penney shoppers a bit before he decided to treat them all like eager iPhone buyers who are so enamored of the merchandise that they don’t pay any attention to price," Buss writes. "After training for eventual hubris by making a winner out of Apple's retail operations, Johnson thought he could simply sprinkle some of his Jobsian pixie dust on Penney and transform the whole company."

"His plan made sense, but the order in which he executed those changes was all wrong. ... Unfortunately he threw the good customers out with the bad, all before introducing compelling new merchandise," according to Forbes writer Laura Heller, who agrees that Johnson's "biggest mistake was likely one of hubris."

JCP investors and analysts for months have been calling for change. In early March Columbia University marketing professor and former Sears Canada CEO Mark Cohen told CNBC, "I guess the question is whether you'd like to see the company go under in the short, medium or longer term. This is a crisis that needs prompt and aggressive remediation because without it, [JCP]'s liquidity is going to disappear, and it could very well disappear as a viable enterprise."

But the question remains whether Ullman is the right man to lead the company again. Stocks were down 9.8 percent Tuesday morning to $14.31, following a brief rally when Johnson’s ouster was announced Monday night and signaling doubts that Ullman can guide the retailer through the difficult days ahead.

Because JCP has invested significant resources in Johnson’s turnaround efforts, the company is expected to continue that course, at least for the short term. "I don't think they can walk away from the strategy because they've dramatically reduced inventory," Macquarie Capital's Liz Dunn told CNBC. "They can't commit more capital to building that inventory back up, and I think they've made commitments to some of these new brands, who've opened shops and committed their own capital. So I think they need to, in some way, proceed forward with the shops.

"I don't think they're going to get back the $4 billion in losses, in lost sales that happened in 2012, but I do think we'll see some return to positive comps and probably a strategy that keeps them as a going concern for the foreseeable future," she added.

Johnson leaves JCP with just $148,924 in severance pay.

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