J.C. Penney's Latest Challenge: CEO to Exit - Kirk Palmer & Associates

BUSINESS / RETAIL

J.C. Penney’s Latest Challenge:
CEO to Exit
Marvin Ellison was seen as a savior of J.C. Penney but left for greener
pastures.
By David Moin on May 23, 2018

There’s a leadership issue at J.C. Penney Co. Inc. and it’s put the
retailer’s turnaround efforts in jeopardy.

On Tuesday, J.C. Penney disclosed that Marvin Ellison, its chief
executive officer for the last three years, is joining Lowe’s as ceo
on June 1, taking the job at the Mooresville, N.C.-based home
improvement chain formerly held by Robert Niblock.

Last November, the retailer fired its chief merchant John Tighe
— he’s now president of Peerless Clothing — and in February it
named Joe McFarland executive vice president and chief
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customer officer, a role that includes
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                                       responsibility for
                                 J.C. Penney’s Challenges Mount as CEO Leaves for Greener Pastures – WWD

merchandising as well as leading store operations. At the same
time, Jodie Johnson was named head of merchandising for
women’s, beauty and family footwear, and James Starke was
promoted to head of merchandising for men’s, children’s, home
and jewelry, both reporting to McFarland.

Sources said J.C. Penney needs to find a ceo with merchant
experience, possibly from the department store or discount
store sectors, specifically with skills in soft lines — which has
been a weak spot for Penney’s. Apparel improvements are
critical for the store’s long-term survival. The consensus is that
J.C. Penney will most likely tap someone from outside the
company to be its next ceo, as it did with Ellison, who joined
from Home Depot.

Among the retailers who could be considered for the ceo job are
Brendan Hoffman, who currently runs the Vince brand and
formerly ran Lord & Taylor and Bon-Ton; Mark Tritton,
executive vice president and chief merchandising officer at
Target; Bill Brand, former president and chief marketing officer
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of HSN, who left the company after
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                                    its merger with QVC; Judith
                                J.C. Penney’s Challenges Mount as CEO Leaves for Greener Pastures – WWD

McKenna, president and ceo of Walmart International; Shelley
Broader, Chico’s ceo and president; Joel Anderson, president
and ceo of Five Below, and Duncan Mac Naughton, president of
Family Dollar Stores.

Others that could also be contacted but seen more as long shots
are Calvin McDonald, president and ceo of Sephora USA; Gary
Muto, president and ceo of Ascena Brands; Mary Dillon, ceo of
Ulta Beauty; Tony Spring, Bloomingdale’s chairman and ceo;
Jane Elfers, ceo of The Children’s Place who also once ran Lord
& Taylor; Jim Gold, president and chief merchandising officer at
the Neiman Marcus Group, and Liz Rodbell, who left as
president of Lord & Taylor in April after also running Hudson’s
Bay.

Ken Hicks, a former J.C. Penney president and chief
merchandising officer who turned around Foot Locker, would
have been a good candidate, though he recently became ceo at
Academy Sports in Houston.

In many cases, those qualified to run J.C. Penney are handcuffed
by non-compete contracts and/or would require big
compensation packages to vacate positions from more secure
retail operations.

Department store companies are increasingly looking outside
the box to bolster their top executive ranks, tapping key
executives from pharmacies, consumer products, specialty
chains, tech firms and vendors to inject new thinking and boost
bench strength.

Among those seeking to reinvent department stores are Helena
Foulkes, ceo of the Hudson’s Bay Co. and former president of
CVS Pharmacy; Geoffroy van Raemdonck, ceo of the Neiman
Marcus Group and formerly Ralph Lauren’s group president for
Europe, Middle East and Africa and earlier a Louis Vuitton
regional president, and Michelle Gass, who became ceo of Kohl’s
Corp. this month and earlier spent 16 years in senior roles at
Starbucks.

Ellison himself headed Home Depot’s U.S. store operations
before joining J.C. Penney as ceo-designee in October 2014 and
later succeeding Myron “Mike” Ullman 3rd as chairman and ceo
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in August 2015. His decision to leave
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                                        Penney’s for Lowe’s was a
                                  J.C. Penney’s Challenges Mount as CEO Leaves for Greener Pastures – WWD

shock to the retailer’s suppliers and increases skepticism over
the retailer’s turnaround bid. On Tuesday, J.C. Penney’s stock
dropped 6 percent, or 15 cents, to $2.35.

“I had no idea this was happening,” said one vendor source. “It’s
terrible. Now we will have to reexamine our business with
Penney’s, look at what kind of leadership they bring in, and see
what direction the company takes.”

Ellison stepped down as chairman but will remain a J.C. Penney
director and its ceo through June 1. The board elected its lead
independent director Ronald W. Tysoe as chairman. Tysoe was a
director of a number of companies over the last two decades,
and served as vice chairman of finance and real estate at Macy’s
Inc., when it was called Federated Department Stores Inc., from
1990 to 2006. For the first seven of those years, he also served as
chief financial officer there. He joined J.C. Penney’s board in
2013.

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On Tuesday, J.C. Penney created an office of the ceo, which will
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be comprised of cfo Jeff Davis, chief customer officer
McFarland, chief information officer and chief digital officer
Therace Risch, and executive vice president of supply chain
Mike Robbins. They will share equal responsibility for J.C.
Penney’s day-to-day operations until a new ceo is found, the
company said. The executives were all recruited to Penney’s by
Ellison.

A search committee has been formed to find Ellison’s successor,
but no search firm was disclosed. In a Securities and Exchange
Commission filing, J.C. Penney indicated that there was no
dispute with Ellison, suggesting that he decided to leave
because of the Lowe’s opening.

“This is Marvin’s dream job. Lowe’s is a huge opportunity, six,
seven times bigger than J.C. Penney,” said a retail source. “He’s
spent a huge amount of his career in home goods, ran the Home
Depot stores but didn’t get the top job there so he came to
Penney’s. But he’s more comfortable in hard goods.”

Tysoe credited Ellison for “many significant contributions” to
J.C. Penney over the past three years. “During his tenure, the
company retired $1.4 billion in debt, renewed and enhanced its
revolving credit facility and has significantly strengthened the
company’s financial position,” Tysoe said.

Ellison fell short on growing the topline, despite bringing in
several new categories including toys and appliances, both
lower margin categories, while pumping up more contemporary
fashion offerings, dresses, special sizes and casual clothes and
narrowing traditional fashion offerings.

For the first quarter of this year, J.C. Penney had a total net sales
decline of 4.3 percent to $2.58 billion and a comp sales gain of
just 0.2 percent. The sales slippage was partly blamed on the
weather and last year’s 141 store closures. J.C. Penney, which
operates about 870 stores, did cut its net losses for the quarter to
$78 million from $187 million in the year-ago period. But
adjusted losses widened to $69 million from an adjusted loss of
$2 million a year ago. The company was profitable in the fourth
quarter of 2017, but had a loss for the year overall.

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The keystone of Ellison’s strategy was to focus on private
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brands, furthering omnichannel shopping, and increasing
revenue per customer. He also accelerated the opening of
Sephora shops inside J.C. Penney stores and the re-branding of
Penney’s salons to InStyle, two tactics started by Ullman.

Despite the efforts, J.C. Penney’s volume has been stuck hovering in
the $12 billion range, while competitors such as Macy’s and Kohl’s
are experiencing sales growth and signs of better rebounds.

Regarding the new office of the ceo, Tysoe said Ellison
assembled “a strong leadership team that will continue to serve
the company in an elevated capacity to ensure the entire
organization remains focused on our customer and improving
results.”

“Marvin is leaving behind a good team of people in the office of
the chairman to sustain the business until they find a new
leader. It’s a solid office of the chairman with executives with
skills that complement each others,” observed Elaine Hughes,
founder and ceo of E.A. Hughes executive search. “There’s a
good 50-50 chance the new ceo comes from outside the industry
and it’s a person who knows they’re not in line to be the next
chairman or ceo of the company they are with.”

In a statement, Ellison said, “It has been a tremendous honor
leading the company as chairman and ceo, and working
alongside some of the most talented professionals in retail,”
Ellison said. “I want to personally thank the entire J.C. Penney
team for their loyalty and hard work over the years. Their
warrior spirit is unmatched, and I have the utmost confidence
that J.C. Penney has the talent and expertise to achieve
sustainable, long-term growth.”

“Marvin is a motivator. He’s very people-oriented and is very
likable. He’s a charismatic leader, but at the end of the day the
business wasn’t there,” observed Kirk Palmer, ceo of Kirk Palmer
Associates executive search. “He’s now moving into a role where
he’s very well suited. It plays to his strengths.” Palmer believes
J.C. Penney would benefit from a broad-based executive with
softlines in his/her background, someone strong on the front
end, in merchandising, marketing and brand positioning.

Walter Loeb, a former retail analyst and now consultant, said, “I think the
departure of Marvin Ellison was overdue. He is a terrific home
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furnishings person. His experience atJ.C.
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                                          Penney’s    will serve
                                                   Challenges    him
                                                              Mount    well Leaves
                                                                    as CEO  at     for Greener Pastures – WWD
Lowe’s. In my opinion, he was not qualified to run a fashion business,
which is the historic essence of J.C. Penney.”
Loeb said the retailer needs a merchant now more than it does a ceo.
“The people running the company are not merchants. The lack of
merchants is hurting the company and its future outlook. What J.C.
Penney needs now desperately is a merchant who will pull together the
fashion aspect of the company. Fashion is still what’s [topmost] on the
customers’ minds.”