Ron Johnson has taken a blow to the ribs from one of his strongest supporters.
This story first appeared in the April 8, 2013 issue of WWD. Subscribe Today.
The chief executive officer of J.C. Penney Co. Inc. on Friday was harshly and publicly criticized by William Ackman, the retailer’s largest shareholder, who installed Johnson as ceo in 2011 with free rein to reinvent the ailing department store.
Johnson has been criticized by analysts and industry observers — including former Penney’s chairman Allen Questrom — for his overhaul of the chain, which alienated many customers by eliminating coupons, saw sales slide by 24.8 percent last year and pushed the retailer deep into the red.
Now Ackman has piled on. Speaking at a Boston investor conference sponsored by Reuters on Friday, the investor said the ceo should take some heat. The “criticism is deserved,” Ackman said, according to Reuters’ coverage of the conference.
Ackman also noted Penney’s had seen “too much change too quickly without adequate testing” and that the execution of the reinvention “has been something very close to a disaster.”
Johnson, whose job is seen in jeopardy by many observers, might not be able to hold on if he loses the support of Ackman, who did not respond to a request to comment for this article. Penney’s declined to comment.
Ackman sits on the company’s board and his Pershing Square Capital Management owns 17.8 percent of Penney’s stock. Already his partner in the investment, Vornado Realty Trust has backed down, selling 10 million shares of the company last month. The real estate firm continues to own 13.4 million shares of Penney’s, or 6.1 percent of those outstanding.
“If he’s losing Ackman, I think his days are numbered,” said Rosemary Sisson, high-yield debt strategist at Lazard Capital Markets. “That obviously was the key there, his support for Johnson. Everybody’s been tossing that around, ‘How long can he stay in the job?’ The publicity has just been overwhelming, kind of everywhere you look at it, it’s been bad.”
Penney’s stock has fallen 51 percent since Johnson joined in November 2011. But on Friday Wall Street seemed to cheer Ackman’s comments, sending Penney’s stock up 2.5 percent to $15.45, leaving it with a market capitalization of just $3.4 billion.
One source with close ties to the company said Johnson was facing increasing dissent in the ranks as well.
“The merchants are starting to revolt,” the source said. “You’re starting to get people in the organization who are starting to challenge him.”
Ackman’s criticisms echo many of the ones Questrom has made for months and represent a significant shift in tone. As WWD reported last week, Johnson reached out to Questrom to have him visit the Penney’s prototype store in Dallas and Questrom is said to have been impressed. But now the criticism is coming from Ackman, who has appeared on TV repeatedly to tout the company’s dramatic reinvention.
In November, for instance, Ackman took to the airwaves to drum up support for Johnson’s efforts to remake Penney’s as a specialty department store housing shops-in-shop devoted to individual brands.
“Ron has gone to launch the fastest-growing specialty retailer of all time, which is what we call ‘New JCP,’” the investor said on CNBC — which is more or less a direct feed into the Wall Street crowd Ackman knows so well. He added that Johnson was “winding down the old JCP and using the cash flow from the old JCP to fund the growth of this [new] business.”
But Penney’s has continued to miss key targets and the overall business has not been strong enough to fund the transition, as initially anticipated.
The retailer expanded its bank agreement in February so it could borrow up to $2.25 billion. That gave it some additional breathing room and executives have also talked about selling off the firm’s headquarters in Plano, Tex., but the market still senses increased risk. Factor CIT, among others, was said to have imposed a 1 percent surcharge on vendors shipping goods to the chain.
Johnson’s plans for Penney’s created a lot of buzz and excitement early on, particularly given his success as head of the groundbreaking Apple retail business. But his efforts at Penney’s seem to have been star crossed from the start.
His first big deal was to bring Martha Stewart-branded home shops to Penney’s. Macy’s Inc., however, has an exclusive agreement with Martha Stewart Living Omnimedia Inc. for certain home goods and challenged the arrangement in court.
After some high-profile testimony from Stewart, Johnson and Macy’s chief Terry Lundgren, the court sent the parties off to mediation to work out a solution themselves. So far, no resolution has been reached and the trial is set to resume today in lower Manhattan.