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JCPenney CEO Ron Johnson Out as JCP-Macy's-Martha Stewart Trial Resumes

Posted by Dale Buss on April 8, 2013 07:12 PM

Ron Johnson has been ousted as CEO of JCPenney as the retailer's board of directors voted on Monday to turn to his predecessor to pull the company out of the death spiral (it lost $4.3 billion in sales last year) on Johnson's watch, rather than give the former Target executive and Apple retail head the extra time he wanted to see his radical vision through to fruition.

Mike Ullman, who had been CEO of JCPenney until 2011, before Johnson, is returning to take the helm again at least for the time being, according to a JCPenney press release:

"The Board of Directors of J.C. Penney Company, Inc. today announced that Myron E. (Mike) Ullman, III has rejoined the Company as Chief Executive Officer, effective immediately. He has also been elected to the Board of Directors. Mr. Ullman is a highly accomplished retail industry executive, who served as CEO of jcpenney until late 2011. He succeeds Ron Johnson, who is stepping down and leaving the Company."

The stock market appreciated the move, which comes on the same day that JCPenney resumed its courtroom clash with Macy's in Manhattan over rights to field the Martha Stewart product lines that Johnson maintained would be crucial to turning around JCPenney's fortunes.

Chairman of the board Thomas Engibous stated of the decision to rehire Ullman to turn around the brand's fortunes, "We are fortunate to have someone with Mike's proven experience and leadership abilities to take the reins at the Company at this important time. He is well-positioned to quickly analyze the situation jcpenney faces and take steps to improve the Company's performance."

Ullman added in JCP's statement, "While jcpenney has faced a difficult period, its legacy as a leader in American retailing is an asset that can be built upon and leveraged.  To that end, my plan is to immediately engage with the Company's customers, team members, vendors and shareholders, to understand their needs, views and insights. With that knowledge, I will work with the leadership team and the Board to develop and clearly articulate a game plan to establish a foundation for future success."

Still, as Bloomberg Businessweek's Diane Brady comments, it was unrealistic to expect Apple's retail guru to sprinkle his fairy dust on Penney—and unrealistic to expect his predecessor to save his former company, especially one that's in "free fall" these days thanks to competition from the web and more agile retailers: "Building an experience around a high-margin tech brand with a cult-like following isn’t the same as selling mom jeans. We now know that. Ditching all those beloved coupons in favor of everyday low prices? Dumb idea. But bringing back Myron “Mike” Ullman III, the man who ran JCP until late 2011, isn’t exactly thinking outside the box. He is, after all, the guy Johnson replaced."

Johnson, ultimately, wasn't able to succeed in applying a radical strategic overhaul to a sector of American retailing that continued to prove stubbornly resistant to it. Johnson was the widely hailed chief of retail operations for Apple, but he simply couldn't cajole or force JCPenney's middle-American customer base to give up the regular price-based promotions (i.e. sales) to which they'd grown accustomed over decades in favor of Johnson's approach based on "everyday low prices" and "Best Price Fridays" on the first and third Fridays of each month.

He also raised eyebrows with the chain's rebranding to jcp (aka JCPenney) a year ago, a holiday campaign that doled out 80 million buttons for Christmas shopping discounts, and spending a fortune revamping stores to accommodate the rollout of dozens of branded store-within-a-store boutiques.

When the moves failed to goose sales, Johnson repeatedly was forced to retreat over the last six months from his new pricing strategy, as sales dwindled by about 25 percent during calendar 2012, forcing the layoff of thousands of employees. And he wasn't able to get new branded boutiques open quickly enough to make the experience of shopping at JCPenney's transformative—the only thing that might have saved his tenure there, although the first quarter launch of boutiques including Joe Mimran's Joe Fresh collection has helped bring customers back into stores.

He never got a chance to introduce the iPads he wanted to introduce this year, Apple style, to digitize the check-out experience and eliminate cashiers and cash registers.

When activist investor Bill Ackman—JCPenney's largest shareholder, who had helped recruit Johnson from Apple—seemed to sour on Johnson's progress lately, the die was likely cast. The 110-year-old company has a "great brand" but peaked decades ago and has been "dying slowly," Ackman said at a conference on Friday, according to the Los Angeles Times. He added that Johnson was "working very aggressively with his team" to pull off "one of the most difficult kinds of business turnarounds."

But, Ackman allowed tht Johnson had made "some very big mistakes," among them a lack of testing some of his sweeping concepts before enacting them. "The impact has been," Ackman said, "something very close to a disaster." (Reuters noted that Ackman made his comments wearing JCP socks to show his brand loyalty.)

While Johnson's ouster was in the works before being approved by JCP's board on Monday, as the Wall Street Journal reported, JCPenney execs still have quite a mess on their hands with the Macy's-Martha case.

The game of chicken over Martha Stewart—or, shall we say, coq au vin?—between Macy's and JCPenney resumed Monday in a Manhattan courtroom after the two companies couldn't settle their differences even when the judge gave them a couple of weeks for arbitration. Johnson's insistence on moving further into the rollout of Martha merchandise, which popped up on JCP.com, created a new arguing point for lawyers, raising the stakes against the company. 

As testimony and media reporting of exchanges among trial principals have made clear, JCPenney has stayed aggressive in rolling out Marthawares online even though it can't do a full-blown introduction of her store-within-a-store concept until it wins the trial. That's why, Macy's told the judge Monday, it has caught JCPenney selling Martha Stewart-branded products that violated JCPenney's agreement not to sell certain items until the two chains' competing claims are worked out. Macy's discovered that JCPenney was selling party products on its website under the MarthaCelebrations brand and asked a judge to block the sales.

"Is this plastic or glass?" New York State Supreme Court Justice Jeffrey Oing asked a lawyer for Stewart's company, who said that the items in question—plastic champagne flutes and acrylic pitchers—were "disposable" and probably didn't fall into Macy's exclusive categories, according to coverage of the trial proceedings today by the Wall Street Journal.

Discovering the items were plastic by a Macy's lawyer, the lawyer for Martha Stewart Living Omnimedia—which, of course, is allied with JCPenney in these proceedings as it seeks to bust the Martha Stewart brand outside the confines of its supplier agreement with Macy's—reportedly harrumphed, "I don't know why we need to interrupt the trial" with a dispute over the flutes.

smattering of MarthaHome branded items have now joined JCPenney's home lineup because the items, in JCP and Stewart's view, aren't involved in the suit over JCPenney's MarthaHome collection. The Stewart-branded goods now available at JCP.com include MarthaCelebrations party items, whose plastic flutes—Stewart's lawyers argued—are disposable and therefore don't step on Macy's toes.

But JCP.com is also now selling hard goods under the MarthaDecor banner including MarthaLighting, MarthaRugs, MarthaMirrors, and MarthaWindow treatments; plus MarthaCrafts, a series of DIY materials including paint, stencils and yarn. Still to come: the first MarthaPantry collection of packaged-goods including pasta and cupcake mix, due to launch next month.

The three companies weren't able to find a way to smooth their dispute even after a month off following the first phase of the trial, which featured testimony that was at various times eloquent and peevish, and often very personal about the relationships among the three CEOs involved. And as we noted on March 28th, JCP is pushing ahead with a revamped home section including Stewart, Michael Graves, Sir Terence Conran and Jonathan Adler — a who's who of home lifestyle brands among whom Stewart, as she testified in the Macy's trial last month, is eager to be the star. Macy's, meanwhile, must be relishing this latest twist in its ongoing battle with JCP.

Your thoughts? Post them below.

Comments

Sandra Ohnoyoudidnt United States says:

That last picture says it all -- they may be made of wool, but Martha's got balls.

April 8, 2013 08:02 PM #

Slow hand United States says:

Jcp is not apple...
What works for one brand can't work for another, what was he thinking? Really...

April 9, 2013 07:24 AM #

McSorley33 United States says:

I actually think his plan would eventually work very well at making JCPenney competitive again but the complete lack of modernization of JCPenney in the previous 50 years made the job just to large and requiring too much time to implement.   The boutique idea is how people shop now rather than grazing across acres of rack space.

April 10, 2013 05:10 PM #

babylonjoe United States says:

Martha Stewart junk is all trash.

April 9, 2013 07:21 PM #

Venture Scrapitalist United States says:

The scuttlebutt is that Ullman is being brought in to dress up the company for a sale. Who knows, but it's going to be hard to turn around the brand from Johnson's anti-sales, anti-customer strategies.

April 9, 2013 11:54 PM #

Janine Quinichett United States says:

Glad Ron Johnson is gone.........maybe, now we can get our Sale on!

April 11, 2013 01:05 AM #

Comments are closed

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