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Michael Francis Exits J.C. Penney

The development comes just eight months after the executive joined Penney's from Target Corp. and adds fuel to concerns over the retailer's daring reinvention.

Michael Francis, J.C. Penney Co. Inc.’s president and flashy image maker, has abruptly left the company.

This story first appeared in the June 19, 2012 issue of WWD.  Subscribe Today.

The stirring development comes just eight months after Francis joined Penney’s from Target Corp., and adds fuel to concerns over Penney’s daring reinvention and the aggressive tactics that Francis was orchestrating along with chief executive officer Ron Johnson. The departure of Francis, Penney’s second-in-command, comes after steep losses at the retailer.

On Monday, Penney’s issued a brief announcement about Francis’ exit, with a statement from Johnson that simply read: “We thank Michael for his hard work at J.C. Penney and wish him the best in his future endeavors.”

No further explanation was provided and Penney’s did not return calls seeking comment.

Penney’s said Johnson will assume direct responsibility and oversight of the company’s marketing and merchandising functions.

In after-hours trading, Penney’s shares fell 5.5 percent to $23, following the announcement, which was made after the closing bell.

While any company undergoing sharp repositioning would expect to see declines, the last quarter was worse than either Johnson or investors expected. Penney’s logged a $163 million first-quarter loss and an 18.9 percent decline in same-store sales. Despite the disappointing quarterly report, Johnson maintained that the retailer’s transformation is “way ahead of schedule” and improving its fashion offerings.

Subsequently, at Penney’s annual meeting, Johnson said the retailer would be going “in the wilderness” for about a year as it reinvents in a bid to capture market share, and acknowledged the company was going through tough times. “We are in the middle of a very important and a very challenging year of transformation,” he told the audience at company headquarters in Plano, Tex. “It is not easy. It’s been a really hard time for all of us here.”

Francis was one of the first key hires Johnson made when he was named Penney’s ceo. Having been credited with devising Target’s innovative marketing campaigns, his joining Penney’s was seen as a coup and he helped Johnson develop a new logo for Penney’s as well as an upbeat, cheerful brand message revolving around the “fair and square” price message and aimed at turning the retailer into America’s favorite department store. But Wall Street has been less than forgiving of Johnson’s turnaround plan.

RELATED STORY: Johnson Talks Challenges at J.C. Penney Meeting >>

“He’s the fall guy,” said retail analyst Walter Loeb of Francis’ exit. “It indicates that J.C. Penney needs to stimulate customers with more hard-hitting advertising and that second-quarter sales will be very disappointing.”

“Michael Francis was Johnson’s best hire, but now he’s the sacrificial lamb,” said one retail headhunter, who noted that Francis was considered the whiz kid of marketing at Target. “He’s got all the creative buttons. He is the easiest one to attack. He turned the image of Target around and did a phenomenal job. But Target was a marketing success before it was a product success.”

“Maybe Johnson gave Francis too much responsibility,” said another source. “He had merchandising, marketing, planning, allocation, product development and sourcing. Where did he have all that experience? He’s never done anything other than marketing.”

Francis received a $12 million signing bonus for joining Penney’s, plus a $1.2 million-a-year base salary and 1 million restricted stock units on Nov. 16. It is believed he will have to return some of that now that he’s left.

Other industry sources commended Johnson for making sweeping changes at Penney’s, particularly the cleaned-up approach to product presentation across channels. They also agreed that Penney’s was overly promotional historically, and had to break the high-low, price-cutting addiction.

However, Penney’s took on too much too soon, they added, noting that it was drastic to entirely eliminate coupons and hundreds of sales in favor of an unorthodox blend of everyday low pricing, monthly values and Friday clearance days. All the changes have been hard for consumers to absorb, though Penney’s has adapted by restoring some sales and altering its pricing communications.

“Johnson has made two critical mistakes,” said a source. “He went public with what he had to do,” raising Wall Street expectations too high and too soon. “The second mistake is that they put the customer on cold turkey [by eliminating coupons and sales] and haven’t found a new customer to replace that one. He did too much too soon without testing. [Limited Brands Inc. ceo] Les Wexner used to say, ‘I walked slowly so I could run fast.’ Wexner tested and tested. This has been like asking a fat person to lose 100 pounds in a week by going from a steady diet of quarter-pounders to eating kale every day.”

“Francis was expected to be instrumental in recruiting brands into the store as the company reimagines the department store experience,” wrote Charles Grom, an analyst at Deutsche Bank, in a research note Monday. “Clearly, the announcement of his leaving the company will surprise many, considering Mr. Francis was on stage in New York City presenting just five weeks ago in conjunction with the company’s very disappointing [first-quarter 2012 earnings per share] release and dividend elimination.

“We also find it somewhat concerning that this occurs just a few months after former chief financial officer Michael Dastugue left the company on April 13, only to be replaced by Ken Hannah on May 3. While J.C. Penney has added some talent to its management team of late, the lack of continuity within the C-Suite has to be a concern considering the company is only at the outset of its turnaround effort. Said differently, we’re afraid the environment in Plano has become ‘Ron’s way or the highway,’ which is never a good culture for a company trying to find itself.”

Some recent optimism came from William Ackman, founder and ceo of Pershing Square Capital Management and owner of about 18 percent of Penney’s shares. In a CNBC interview, Ackman said that Penney’s same-store sales have likely “hit bottom” and that the company should “start to see real progress early next year.”

He emphasized that the company had to change the image of its brand and the experience in the store before it can attract the best vendors, but it couldn’t do that due to what was an extremely promotional environment at the retailer. He did, though, indicate that the retailers in the first quarter focused primarily on brand communication and not on price and that the strategy was being adapted in the second quarter.

Ackman called the changes a “difficult transition,” adding that consumers will start to see change in August when new product starts to hit the sales floors.