PRICING & MARKETING PLAN IMPLEMENTATION Required Reading/Resources ( See Attached) Reingold, J., Jones, M., & Kramer, S. (2014). How to fail in business while really, really trying. Fortune, 169 (5), 80. Lublin, J. S., & Mattioli, D. (2013, Apr 09). Pe
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20180606034731penney_backfires_on_ackman.docxGlazer, Emily; Lublin, Joann S; Mattioli, Dana. Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]10 Apr 2013: B.1.
Abstract
About 100 days after Ron Johnson started as CEO of J.C. Penney Co., hedge-fund manager and board member William Ackman put up a slide at an investor conference that said: "Ron Johnson's record of retailing success makes him the ideal leader to fix JCP." The hedge fund manager recruited Mr. Johnson and was a cheerleader for the executive's plans to turn Penney's stores into sellers of name-brand clothes with few discounts.
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About 100 days after Ron Johnson started as CEO of J.C. Penney Co., hedge-fund manager and board member William Ackman put up a slide at an investor conference that said: "Ron Johnson's record of retailing success makes him the ideal leader to fix JCP."
Less than a year later, the former Apple Inc. retail executive is out, sales continue to plunge and a new management team is preparing to undo some of Mr. Johnson's work.
Myron "Mike" Ullman, who preceded Mr. Johnson as CEO and then retook the corner office Monday, is likely to return to calling the company J.C. Penney and do away with the newly minted "JCP" brand, people familiar with the matter said. Coupons -- which Mr. Johnson's team had derided as drugs -- are on the way back and should be fully in place around Mother's Day, one of the people said.
Meanwhile, other Apple veterans at the top of Penney are likely to follow Mr. Johnson out the door, people familiar with the matter said.
The moves are a blow to Mr. Ackman, who set out to change the retailing world by revamping Penney and now is stuck with a large stake in a broken company run by the man he pushed out.
Penney's shares dropped another 12% Tuesday, pushing his investment further underwater. The stock closed at $13.93. Mr. Ackman paid around $25 a share to build his stake in the company. Mr. Ackman's Pershing Square Capital Management LP owns 18% of Penney, as well as derivatives that further boost his exposure.
The hedge fund manager recruited Mr. Johnson and was a cheerleader for the executive's plans to turn Penney's stores into sellers of name-brand clothes with few discounts. But continuing to support the strategy -- and the CEO -- became untenable in recent weeks, people familiar with the matter said.
Penney's same-store sales, which slid throughout last year, are down more than 10% with a month to go in the company's fiscal first quarter, the people said. That is less than the 18.9% drop in the same period last year, but it was troubling nonetheless.
Concerns about the failure to turn around sales were amplified by the fact that Mr. Johnson never relocated from California when he took the job and frequently wasn't in the trenches at the Plano, Texas, headquarters, where he worked three days a week, people familiar with the matter said.
The board's confidence in Mr. Johnson was already waning. In early March, Steven Roth, a board member and one of the company's biggest shareholders, sold 40% of his company's stake in J.C. Penney. The sale signaled to Mr. Johnson that the board was growing impatient with the slide in sales and profitability, a person familiar with the matter said. From then on, the board began exercising more control over the CEO, the person said.
Mr. Johnson offered to resign about two weeks ago, but the board didn't accept it, saying it wanted to meet first, a person familiar with the matter said.
The change came as the board met Monday without Mr. Johnson in attendance. Mr. Ullman was lined up by the weekend and told he would likely replace Mr. Johnson this week, people familiar with the matter said.
Mr. Johnson and a Penney spokeswoman declined to comment.
Several of Mr. Johnson's top lieutenants are expected to follow the former CEO. The most vulnerable are Mike Kramer, chief operating officer, and Dan Walker, chief talent officer, both Apple veterans, people familiar with the matter said. The department store chain's chief financial officer, Ken Hannah, is expected to stay, the people said.
Messrs. Kramer, Walker and Hannah didn't respond to requests for comment.
Wrenching changes and layoffs over the past year have hurt morale. While many Penney employees were eager for Mr. Johnson to work his Apple magic, they say the environment soured for legacy Penney employees as Mr. Johnson filled out his new team.
Many longtime Penney's employees said they felt that the new hires judged them or felt that they weren't smart. Apple references were constant.
"If people are saying the culture is becoming much more Appley," Mr. Kramer said in an interview in January, "I take that as a compliment."
Mr. Ackman publicly trumpeted the new team and its strategy while disparaging the old Penney, calling it bloated and mismanaged. In the long slide presentation to investors last May, he criticized the headquarters for having been overstaffed with assistants, merchandising staff and managers with few reports.
By contrast, he lauded Mr. Johnson, saying in early 2012 that the former Apple executive's announcement of his plans for Penney would "be the most important day in retail in the last 25 years."
Now, Mr. Ackman is relying on Mr. Ullman to save his investment. The new CEO will have to work fast. Analysts at Credit Suisse said the company has until about Memorial Day to firm up many of its holiday orders.
On Tuesday, credit ratings firm Standard & Poor's warned that Penney's cash flow is declining and could force the company to seek fresh funds.
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Karen Talley contributed to this article.
(See related article: "Corporate News: Retail Industry Short on Stars" -- WSJ April 10, 2013)
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Credit: By Emily Glazer, Joann S. Lublin and Dana Mattioli
Word count: 893
(c) 2013 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.
