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From New Guard to Old Guard


Posted on May 3, 2013 by HFN Staff

The Michael Graves ShopThe Michael Graves Shop

By David Gill

The Ron Johnson era is over at J.C. Penney as the retailer brought Myron "Mike" Ullman III back to become CEO, succeeding Johnson.

Johnson took the CEO post in November 2011 after spearheading Apple's retail operation.

Ullman, who was elected to J.C. Penney's board of directors, had served as chairman and CEO from 2004 until Johnson succeeded him, and then served as executive chairman until January 2012.

Johnson had a much-publicized, troublesome 17-month tenure at J.C. Penney. For the fiscal year ending Feb. 2, J.C. Penney's total sales fell 24.8 percent to $13 billion, and same-store sales plummeted by 25.2 percent.

Last month, J.C. Penney dipped into its revolving credit facility to help fund the transformation of its format into shops and boutiques. The company has drawn $850 million from the facility, much of which will be used to pay for the creation of shops in the home department.

The home shops, which had their soft opening last month, shortly before Johnson left, include Michael Graves Design, with cookware, small appliances, kitchen gadgets, dining and entertainment products, decorative accessories and lighting; MarthaCelebrations, featuring candles, balloons, cupcake liners, tableware and party decor designed in collaboration with Martha Stewart; Happy Chic by Jonathan Adler, with bedding, bath accessories, home accents and furniture pieces; and Design by Conran, created in collaboration with Sir Terence Conran and offering living-room and dining-room furniture.

A visit by HFN to two J.C. Penney stores last month indicated that the home shops are going forward. Signs in the store said they would be open during this spring.

The shop concept was one of the two centerpieces in Johnson's broad strategy to remake J.C. Penney into a specialty department store. In January 2012, two months after taking his post, Johnson and Michael Francis, who was named president in October 2011 and put in charge of marketing and merchandising, announced the strategy at a gathering of financial analysts and media in New York City. By 2015, Johnson told the attendees, there would be 100 shops in each J.C. Penney store, covering all of its product categories.

The other centerpiece would be a multi-pronged pricing setup that would replace J.C. Penney's promotional pricing. The retailer would offer three types of prices: Everyday, with consistent everyday low pricing; Month-Long Values, giving shoppers low prices on products they need to buy in that particular month; and Best Price, offering customers the lowest prices on products on the first and third Fridays of each month.

J.C. Penney would also slash the number of its annual promotions from 590 in 2011 to 12, one for each month of the year, with each month's promotion focused on products customers are likely to buy in that month. It would also reduce the number of coupons it would offer. The new pricing strategy went into effect on Feb. 1, 2012.

The year that followed could hardly have been more difficult for J.C. Penney. For the most recent fiscal year, the retailer reported that it had lost $985 million, compared to the $152 million net loss posted for the previous fiscal year. In addition, J.C. Penney wound up in court against one of its main competitors, Macy's. The latter sued both J.C. Penney and Martha Stewart Living Omnimedia over J.C. Penney's deal with MSLO. This called for the creation of MSLO-operated shops and a dedicated website with home merchandise designed by Stewart.

Macy's contended that this deal (which included a $38.5 million investment by J.C. Penney in MSLO) violated its own agreement with MSLO, which granted it exclusivity over certain home categories. As of last month, the two cases were still in court.

Speaking to financial analysts to discuss the fiscal year, Johnson was forced to admit that the company had made "some big mistakes" in its pricing strategy and its marketing. Regarding the company's shoppers, "we learned that she prefers a sale," Johnson said. "At times, she loves a coupon." As a result, he reinstituted both coupons and sales "each and every week as we move forward."

Johnson also said the company's marketing of the changes "didn't connect very well with our customers" during the fiscal year. "We failed to communicate our unique value proposition," he said.

Francis, one of whose responsibilities was marketing, had left J.C. Penney in June. Shortly after Johnson's departure last month, Michael Kramer, chief operating officer, and Daniel Walker, chief talent officer, also left. Both Kramer and Walker had worked with Johnson at Apple. Francis, who was executive vice president and chief marketing officer at Target when he took the J.C. Penney presidency, had worked with Johnson at Target when Johnson was leading that retailer in its strategy to become "Cheap Chic."

Other than the announcement of using part of the credit facility, Ullman had not commented on his plans for J.C. Penney going forward at press time.