Last updated: April 5, 2013 8:59 pm

Ackman attacks JC Penney chief he picked

Shoppers walk past a JC Penney store©Bloomberg

Hedge fund manager Bill Ackman's top tip was JC Penney, but the stock has since fallen in value by 37 per cent.

Bill Ackman, the hedge fund manager who is JC Penney’s biggest shareholder, has hit out at the chief executive he installed at the US department store, saying a fall in sales he had overseen was “very close to a disaster”.

JC Penney’s sales fell by a quarter to $13bn in the year to February 2 after chief executive Ron Johnson, who helped create Apple’s stores, introduced a turnround plan that alienated customers and investors.

Mr Ackman, whose Pershing Square Capital owns nearly 18 per cent of the retailer, said on Friday that criticism of Mr Johnson was “deserved”.

“The impact [of his initiatives] has been, on a consolidated basis, something very close to a disaster,” Mr Ackman said. “No business can survive the trend here. [Mr Johnson] is working very aggressively with his team to fix the mistakes that have been made.”

Mr Johnson, who unveiled his turnround plan in January 2012, has acknowledged that JC Penney’s marketing failed and has reversed a landmark decision to drop discounts and coupons in favour of consistently low prices.

Speaking at a Thomson Reuters investment conference, Mr Ackman said: “One of the big mistakes was perhaps too much change too quickly, without adequate testing what the impact would be.”

JC Penney declined to comment.

The retailer’s network of 1,100 stores had become tired and cluttered. When Mr Johnson’s appointment was announced in the middle of 2011 many investors regarded him as a saviour who would bring Apple’s magic touch.

As he unveiled the company’s latest quarterly results last month he remained upbeat, insisting that his plans were on track and that shoppers would welcome new merchandise from brands including Joe Fresh.

Mr Ackman took his stake in JC Penney in alliance with Vornado Realty Trust. Vornado last month cut its JC Penney stake in half to about 6 per cent, further undermining Wall Street faith in the company.

“The buck stops with him,” the hedge fund manager said of Mr Johnson. “He’s CEO of the company. If it’s failing under his watch he deserves – and the board deserves – responsibility for that.”

Mr Ackman is a JC Penney board member. He said he had told his own investors: “JC Penney is the highest risk and highest reward investment in the portfolio.”

In a regulatory filing this week, JC Penney revealed that all its senior executives – including Mr Johnson – were denied performance-related bonuses last year. Bonus payouts were tied to its operating profits but JC Penney reported a $1.3bn operating loss.

Its shares rose 3 per cent to $15.53 on Friday, outpacing the wider market.

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