In its second-largest acquisition, Amazon buys the company for $970 million.
Former CEO Mike Ullman replaces Ron Johnson.
Following a year of dismal sales and continued mounting losses for the company, CEO of department store chain J.C. Penney Co. Inc. Ron Johnson has stepped down, the retailer announced today. Former CEO Mike Ullman is taking his place, effective immediately.
Ullman spent seven years as the retailer’s chairman and CEO until November 2011, when Johnson took the lead while he stayed on as executive chairman through 2012, J.C. Penney says.
Johnson had held executive positions at Target Corp., as vice president of merchandising, and at Apple Inc., as senior vice president of retail.
J.C. Penney declined to provide further comments.
“While J. C. Penney has faced a difficult period, its legacy as a leader in American retailing is an asset that can be built upon and leveraged,” Ullman says. “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.”
J.C. Penney, No. 20 in the Internet Retailer Top 500, booked double-digit losses in 2012. Online and comparable-store sales fall by 32% and 25%, respectively. At J.C. Penney, Johnson instituted a long-term strategy of permanent discounts instead of relying on sales. That strategy allowed the company to cut the number of promotional campaigns it ran in a year from 590 to 12, Johnson said last January when he announced the changes.
J. C. Penney also began a project in 2012 to start opening brand-specific, mini boutiques in stores for manufacturers and designers including Sephora and Martha Stewart. At the time of announcing those changes, Johnson said the retailer’s dramatic decrease in the number of annual promotional campaigns would allow it to focus on updating the in-store shopping experience with initiatives like the mini boutiques.
“Ron Johnson filled many of us with hope that a dying format (mid-line department store) could be reinvented and reinvigorated into 21st century relevancy,” says Paula Rosenblum, an analyst and managing partner at research and advisory firm Retail Systems Research LLC. “However, the company never really had all that much cash in the first place to fund a makeover, so there were many steps he took that were designed to give him the cash to make that happen.”
Johnson tried to generate that cash by reducing the number of promotions and replacing them with the new, low-price strategy, laying off staffers and overhauling the retailer’s technologies into a single product suite from Oracle Corp., Rosenblum says. The technology investment alone would likely take at least 12-18 months to generate any positive returns, she says.
Nor did Johnson execute well, she adds, noting, for example, that the TV commercials and other advertising J.C. Penney put forth to present its new prices to consumers never fully explained the model.
Re-hiring Ullman is the only short-term option available to the company, as it has no time to search for a new CEO before starting an emergency response to halt its losses, Rosenblum says—though she says the effort most likely will be futile. The retailer’s 2012 net loss was $985 million compared with a net loss of $152 million in 2011. E-commerce sales were $1.02 billion, a decline of about 32.0% from about $1.50 billion in 2011.
Unless the company acts now, it will soon hit a large cash problem, she says. “Ullman can, at least, hit the ground running,” she says. “Bottom line, he has to stop the bleeding.”