Tuesday, April 9, 2013

The J.C. Penney CEO Shuffle ... Out With the New ... In With the Old

J.C. Penney has fired its new 'all-star' CEO that it hired from Apple not long ago. That's not surprising.

It has replaced him with his old predecessor. That is surprising.

Warren Buffett once said something to the effect that if a 'bad' company and a 'good' CEO are joined, it's likely that the reputation of the company will remain unchanged while that of the manager will be ruined. And that's what has happened at J.C. Penney. The only twist in the story is that the prior 'bad' CEO has been rehired to fix that for which he was fired in the first place. Ah, such is life.

What's Old Is New At J.C. Penney has the story:

"The timing was surprising; the event itself less so. Given the drubbing J.C. Penney's shares and market share took during now-former Chief Executive Ron Johnson's brief tenure, it is understandable the retailer's board wanted to change direction. His departure was announced late on Monday.

But in giving former CEO Myron Ullman back his old job, the board may merely have succeeded in convincing investors the company lacks a compass.

Mr. Johnson's ambitious attempt to overhaul Penney didn't work out like he said it would. The decision to eschew sales and promotions in favor of everyday low prices turned off the store's discount-minded customer base while his "stores within a store"—branded in-store shops—have yet to bear fruit.

But it is important to remember that the J.C. Penney that Mr. Johnson joined in 2011—the one Mr. Ullman presided over for seven years—really was in need of repair. There was a reason that Penney's shares jumped 17.5% on the day in June 2011 the retailer announced Mr. Johnson would take over.

The company's aggressive discount habit had not only cut into pricing power, it had also lowered the retailer's status in consumers' eyes. Thread-worn looking stores didn't make matters any better. Then, as now, rivals like Macy's were taking away Penney's business.

There might be more reason to cheer if it seemed like Mr. Ullman was coming back to Penney with a detailed plan. But the only one he announced within Penney's news release Monday was to "immediately engage with the Company's customers, team members, vendors and shareholders, to understand their needs, views and insights."

That sounds like another round of soul searching for Penney. Frustrated shareholders will want more than that."

See also Penney CEO Out, Old Boss Back In for an analysis of just how tough a job it will be for the new old CEO, or anybody else for that matter, to successfully lead the conversion of the J.C. Penney of today into a viable retailer of tomorrow. Talk about a challenge!

Summing Up

J.C. Penney has been in deep trouble for some time now, and its sales have fallen dramatically.

One thing a business can't do without is customers.

And it doesn't look like the confidence of Penney's investors, employees or customers will improve much any time soon with Monday's firing of new CEO Ron Johnson and the rehiring of old CEO Myron Ullman.

The company is probably in even deeper trouble now, and the Board of Directors appears to be flailing about without a clue as to what to do.

Somebody definitely needs to step up and take charge before it's too late. But it's highly doubtful that Ullman will be up to getting the job done.

In any event, let's wish him, the employees and Penney's Board of Directors good luck as they try to make lemonade out of a bunch of lemons.

But in the end, of course, of course, customers will decide Penney's fate. That's how free markets work.

Thanks. Bob.

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