J.C. Penney (NYSE:JCP) is looking to its former CEO to revive the retailer after a risky turnaround strategy backfired and led to massive losses and steep sales declines. But it may be too late to save the struggling retailer.
After only 17 months at the helm, the company's board ousted its CEO, the former Apple (NASDAQ:AAPL) and Target (NYSE:TGT) executive, Ron Johnson. In a statement, JCP said late Monday, that it has rehired Johnson's predecessor, Mike Ullman, who was CEO of the department store chain for seven years until November 2011.
The announcement came after a series of calls for Johnson's resignation, as various contingencies lost faith in the aggressive overhaul that included getting rid of most discounts in favor of everyday low prices, bringing in new brands and removing check out counters failed.
Johnson's removal marks a dramatic fall for the executive who came to Penney with much fanfare. Johnson's hiring brought along high expectations about the man who made Apple's stores fun and cool places to shop. Prior to that, Johnson was the driving force behind Target's successful "cheap chic" strategy by bringing in products by upscale designers at discount-store prices. The hopes were that Johnson would be able to bring the same success to JCP.
However, Johnson's strategy at JCP led to spiraling sales and large losses. The initial positive response ended quickly, after customers didn't react favorably to his changes. Johnson revised his strategy several times in an attempt to bring back shoppers with little success. The plan failed and now worries are mounting about the company's future.
Penney's stock price fell in pre-market April 9, when news about the removal of Johnson was released. The stock, which had closed at $15.87 in the regular session, initially climbed nearly 13% in after-hours trading. But as happy as investors were about the ousting of Johnson, investors didn't appear impressed with his replacement. After Penney announced Ullman would take over, the stock reversed course falling some 11 % from its regular closing price, to $14.10.
Penney amassed nearly a billion dollars in losses and its revenue fell almost 25% from the previous year to $12.98 billion.
Johnson's goal was to reinvent Penney's business into a trendy place to shop in a bid to attract younger, wealthier shoppers. But the result was the opposite as once-loyal customers strayed from the store chain and the chain was not able to attract new shoppers to replace them.
Initially, Wall Street supported Johnson's ideas but as Johnson's plans unraveled, Penney's stock lost more than 60 percent of its value.
Now Penney and its investors are facing an uncertain future. The viability of the 1,100-store chain is in question. This specific issue is added to the sector-wide concerns, painting a clouded forecast for JCP. In general, retailers are navigating the difficult economic environment, reduced consumer income, wavering consumer confidence and the ongoing increase in online competition. This event could be the watershed event that determines JCP's future. Investor's will likely question their confidence in Ullman and his ability to reverse the course in time to save this legendary retailer. Unfortunately, inventors are likely asking if it's too late.