Oct 13, 2014 9:31 AM
JC Penney names Ellison as its next CEO
The Associated Press
NEW YORK (AP) J.C. Penney's newly tapped CEO has a big challenge ahead of him: The beleaguered chain has shown signs of improvement after racking up billions in losses, but it still hasn't figured out how to lure shoppers back into its department stores.
Penney said Monday that Marvin Ellison, a 30-year retail veteran and executive vice president of stores at Home Depot Inc., will become CEO next August.
Ellison succeeds Mike Ullman, a former CEO who came out of retirement to take the top job at Penney's last year. His mission was to stabilize the business following the ouster of Ron Johnson, a former Apple executive who unsuccessfully tried to revive the 112-year-old chain by getting rid of sales and some popular brands. That led to billions in profit and sales losses.
The losses have slowed under Ullman's leadership, but analysts say Ellison's challenge will be to fix the fundamental problems that caused Penney to lose customers in the first place.
They say the retailer doesn't carry the latest trendy looks that rivals like Macy's and H&M do. Its stores are drab and unexciting. And its web site doesn't offer the selection and services that shoppers like.
"While bringing in a credible new CEO has some benefits, J.C. Penney's customers are leaving the store," said Michael Binetti, an analyst at UBS in a note to clients Monday.
WHAT WENT WRONG
Penney is looking to Ellison, 49, to help right the ship but it won't be right away. Ellison, who also will join Penney's board, takes on the role of president in November before taking the CEO title next year. At that time, Mike Ullman will become executive chairman of the board at that time, serving for a year.
Ullman was CEO for seven years before Johnson was brought in to modernize the stores. But customers didn't like Johnson's changes, and Ullman was brought back to in April 2013. He began restoring sales and basic merchandise that the company ditched under Johnson's tenure discontinuing some of the trendy new brands like William Rast and Joe by Joseph Abboud and bringing back store labels.
Under Ullman, Penney has recorded three straight quarters of increases in sales at established stores. Still, those increases haven't outweighed last year's drastic declines.
In the latest fiscal year that ended Feb. 1, Penney recorded a loss of $1.39 billion, while revenue dropped 8.7 percent to $11.86 billion. And last week, Penney warned investors at its analysts' meeting that its key revenue measure last month were weaker than expected, and cut its outlook for sales at established stores for the current quarter.
Analysts say Ellison, who has been with Home Depot for 12 years after holding a number of positions at Target for 15 years, will have to figure out Penney's place in a fiercely competitive retailing environment, they say.
"Competition for cheap apparel has increased significantly and J.C. Penney's product is largely undifferentiated," said Binetti, the UBS analyst.
FIXING THE PROBLEM
Penney has being working on fixing its problems. Last week, Penney unveiled a strategy that it said would boost sales by $2.55 billion over next three years by improving the productivity of its stores' home department, expanding e-commerce and sprucing up key areas like jewelry, shoes and handbags.
Penney sees the opportunity for an additional $1 billion in sales from continued market-share growth. That would bring the chain's annual revenue to $14.5 billion by fiscal 2017. Still, that's well below the $17.3 billion it generated before sales went into a freefall under Johnson.
The company also has focused on cutting costs. Earlier this year, it cut 2,000 jobs and shuttered 33 stores. But the company didn't announce any more store closures last week as analysts expected.
Ullman said in a statement that he looks forward to working closely with Ellison and the rest of the team in the coming months to ensure a "smooth transition and a successful future for J.C. Penney."
J.C. Penney's shares are up 24 cents, or more than 3 percent, at $7.36. J.C. Penney shares have lost 80 percent of their value since early 2012 when investor enthusiasm was high over Johnson's turnaround strategy.
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