It's back to the future for troubled retailer J.C. Penney, which announced late Monday that CEO Ron Johnson would be replaced on an interim basis by Mike Ullman, the retailer's former chief executive.
Johnson, 54, was hired in late 2011 from Apple, where he led that company's highly successful retail store chain. But his plans to reinvigorate Penney from staid retail dinosaur into a fashion-forward, hipper brand stumbled early when he decided that the chain would abandon sales and coupons for an everyday-low-price strategy -- alienating long-time customers.
His last few months were marked by slumping holiday sales, a battle with rival Macy's about home fashion maven Martha Stewart and increasing shareholder unrest about Penney's slumping stock price.
J.C Penney shares sank 44% last year -- Johnson's first full year as CEO -- and had slumped another 25% through last week. Word of his departure pushed the stock up 9% in after-hours trading. But that was before news that Ullman -- CEO from 2004 to 2011 -- was returning. The stock was down 6% to $15.25 in later after-hours trading.
In a Monday filing, the retailer said Johnson was "stepping down" and was being replaced by Ullman, 66, effective immediately.
Hedge fund manager Bill Ackman, a Penney director and the company's largest shareholder, recruited Johnson from Apple. But Ackman had been increasingly critical of Johnson's strategy, saying he had made critical moves without adequately testing their potential.
Ullman is not viewed as a long-term replacement. He has no employment contract but will be paid $1 million a year. It's unclear what will happen to key executives that Johnson hired after becoming CEO in October 2011.
In a company filing released last week, it was revealed that Johnson's pay package at the beleaguered company had plunged 96%.
Johnson received a 2011 stock grant worth $52.7 million when he was hired to reinvigorate the retailer. But he received just $1.9 million in his first full year at the company.
J.C. Penney is in a protracted legal fight with Macy's and its CEO, Terry Lundgren, about selling goods under Martha Stewart's brand. Earlier Monday, attorneys for the squabbling chains were in court for mediation after three weeks of testimony from witnesses, including the domestic diva herself, Johnson and Lundgren.
In February, the company reported an adjusted fourth-quarter loss of $427 million, or $1.95 a share, far below Wall Street estimates. For the full year, Penney lost $985 million, or $4.49 a share.
In last week's proxy filing, the company's board acknowledged tough times.
"The company underwent tremendous change as we began shifting our business model from a promotional department store to a specialty department store," Penney said in its proxy. "Fiscal 2012 was tougher than expected."
Penney had said its turnaround strategy under Johnson was a multi-year process. But now, it appears it will be searching for a new CEO with a different turnaround strategy.
Retail guru Kathy Gersch of Kotter International says, "The patience ran out, and the money ran out" for Johnson's strategies.
Johnson's decision on everyday pricing was misguided, strategists say.
"This was one large test that failed, and we all learned something in retail we already knew, that the consumer is ultimately in control of this process, and you can't disregard her," says Ellis Verdi, president of ad agency Devito/Verdi.
Now, the struggling retailer needs to work on re-establishing consumer value, a strategy to which it has begun returning. But it remains in a tough spot, Verdi says.
"J.C. Penney at its best is still not great," Verdi says. "That's the bigger issue. It's still an old brand."
Who will eventually step in long term?
Retail analyst Jennifer Black won't venture a guess, but says it's likely Penney will seek a seasoned veteran with big store management expertise.
"These big box stores aren't the same as these smaller Apple Stores," Black says.
The company will "look for somebody who has experience in running a big box store that's multifaceted with all these different kinds of departments."
Contributing: Oliver St. John
Ron Johnson was hired in 2011 from Apple. He implemented an everyday-low-price strategy.
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