April 8, 2013 10:40 pm

JC Penney chief pays price of sales plunge

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Ron Johnson©Bloomberg

Ron Johnson, the Apple veteran who was recruited to revive JC Penney, was replaced by his predecessor on Monday after presiding over a disastrous fall in sales.

The department store chain said Mike Ullman would return to lead the company immediately. Mr Ullman was chief executive from 2004 until 2011 but the company had begun to stagnate by the end of his reign.

JC Penney shares initially surged as much as 10 per cent in after-hours trading when Mr Johnson’s departure was first reported by CNBC, but they tumbled when Mr Ullman’s return was announced.

At 6.45pm New York time, they were trading 7.8 per cent below where they had stood at the market close.

Bill Ackman, JC Penney’s biggest shareholder and a board member, played a central role in installing Mr Johnson, the former head of retail at Apple, who was tasked with reinventing the retailer.

Many investors hoped he would bring a touch of the tech giant’s success to JC Penney, a stodgy chain suffering from meagre growth and profitability under Mr Ullman.

But soon after Mr Johnson began last February to implement his reform plan – which included simplified pricing, redesigned stores and new marketing – the business began to lose customers and the faith of investors.

Last Friday, Mr Ackman, the head of hedge fund Pershing Square Capital, hit out at Mr Johnson, 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, and Mr Johnson was widely criticised for not testing his ideas before rolling them out across JC Penney’s 1,100 stores.

When asked by the Financial Times what his game plan was for the retailer, Mr Ullman said: “Tomorrow morning the journey begins.” His objectives were “profitable growth”, winning back the customers JC Penney had lost and attracting new shoppers.

Mr Ullman brushed off criticism that JC Penney had stagnated on his watch, noting that he had introduced Sephora and Mango shop-in-shops to its stores, and blaming weak results on sluggish mall traffic and the economic downturn.

I think everybody was hoping for somebody with fresh ideas that they could hang some hope on. But to bring back the old regime, you are getting more of the same

- Stacey Widlitz, SW Retail Advisors

On Mr Ullman’s reappointment, Stacey Widlitz of SW Retail Advisors said: “I think everybody was hoping for somebody with fresh ideas that they could hang some hope on. But to bring back the old regime, you are getting more of the same.”

However, she suggested that Mr Ullman might be only an interim chief executive and noted that it would have been difficult for JC Penney to recruit any other retail executive at short notice.

“Who with a proven track record, leading a company where things are going well, is going to risk that and come in and clear up someone else’s mess?” she said.

Signs of board discontent over Mr Johnson’s performance emerged when Vornado Realty Trust, which invested in JC Penney alongside Mr Ackman and which also had a board seat, cut its stake in half to about 6 per cent last month.

JC Penney said Mr Ullman would rejoin the board and would receive an annual base salary of $1m.

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