When Myron “Mike” Ullman 3rd rejoined J.C. Penney Co. Inc. as chief executive officer last April, he quickly drew up a laundry list of 30 things that needed fixing.
“Two-thirds of those things have been fixed,” Ullman said, giving a progress report on Penney’s turnaround after 200 days on the job.
This story first appeared in the October 29, 2013 issue of WWD. Subscribe Today.
“Penney’s had 400 days going in one direction. Now we’ve had 200 days going the other direction. If we had two things and we couldn’t fix them, we’d be in trouble. We have 30 things wrong. They can all be fixed, and we have the time to fix them.”
Shoring up the financing; restoring coupons, price promoting and the confidence of the vendor and financial community; bringing core private brands such as St. John’s Bay and Ambrielle back to their rightful front-and-center status; wooing back customers who had abandoned Penney’s for other stores, and even bringing back the old logo have all been part of Ullman’s agenda.
He said Penney’s e-commerce business is coming back, too, after dropping $500 million in volume, and depicted Penney’s home store as a fixer-upper work-in-progress. When the company brought back St. John’s Bay (which his predecessor at Penney’s had dropped), “the customers just went wild,” Ullman said. Ambrielle is expected to be restored in February.
Ullman left as ceo in 2011 as the company started to lose ground and was replaced by former Apple Inc. retail chief Ron Johnson. Johnson quickly developed and executed a reinvention strategy that was provocative, astronomically expensive and misguided. It nearly destroyed the company by turning off a large portion of the customer base and incurring huge losses.
In April, Ullman was asked to come back, and he did. “I wasn’t given much notice,” he said.
At the summit, he presented a point of view that Penney’s is more than salvageable and that morale at the company is good and “probably better than it should be,” he quipped.
He said there was no reason the company can’t get back to its traditional margin performance, and reiterated a projection that “we expect to come out with a third quarter with a positive comp.” He also conveyed a realistic point of view that the department store chain has a long recovery road ahead.
“Turnarounds are all about leadership,” Ullman said. “Not just with the leader. It’s also the team. When I came back I was very encouraged to find the core team still there,” he said, citing the top merchants, store executives, and planning and allocation leaders as still on the job. “We haven’t lost a key executive in the last five months.
“But to be forthright, we have a strong team only one layer deep. The bench strength is difficult.”
He also said he found the marketing team had been decimated and the planning and development group that was building the home store was struggling.
“We haven’t had a bad day since of finding things to fix.”
Yet fixing the business doesn’t mean discarding all the things that his predecessor put in place. “We are keeping things that are working and going forward with them. There was quite a bit of investment in the stores, with visual clarity, quality of the store environment has improved. Customer service has never been better. Some things we learned and are going forward with them.”
Still, during Johnson’s short-lived tenure, “There was way too much spotlight on the ‘attractions’ at that point, not so much on core customers and brands,” said Ullman, pointing to exclusive, but smaller, brands like Sephora, Liz Claiborne and MNG by Mango. So for the 200 days, “We have been editing out things the customer told us were not relevant.”
“It’s fair to say there was a fair amount of customer desertion,” Ullman said. “We probably lost 20 million households and probably attracted 10 million households that hadn’t visited J.C. Penney regularly. The net was down about 10 million households. We are gradually earning them back.”
After Ullman returned, Penney’s took the dramatic step of issuing an apology to customers. In the ad, the company acknowledged mistakes, said it was correcting them and asked customers to take another look at the store.
“Customers liked the apology, but they said, ‘Enough apology,’” Ullman noted. “‘Give us St. John Bay. Give us Sephora.’ Her patience was wearing thin in terms of not finding what she wanted. We see our customer as having too little time, too little money and two little kids.”
In the fourth quarter of 2012, sales were down 32 percent, yet traffic was only down 17 percent, which further fueled Ullman’s optimism. “Theoretically, [the customer] was in the store in many cases, but we just didn’t have enough of what she wanted.”
Ullman also said he’s brought transparency to the business and that communications with investors, banks and vendors are critical. About once a month, the company sends out an update on its liquidity. “We give all the information to the market, to give the straight story on where we are. The analysts that follow the company understand where we are and are very well informed where the metrics are,” said the ceo.
Penney’s is expected to be vociferous with price promotions, couponing and doorbusters this holiday. “We want to be aggressive. We want to win more than our fair share, we gave up more than our fair share,” said Ullman, who has been involved in eight turnarounds on three continents during his career, including running Macy’s as chairman and ceo during its bankruptcy. Penney’s stores will be open on the evening of Thanksgiving Day for the first time, starting at 8 p.m., just like Macy’s. Ullman said that decision was prompted by a group of associates called “the warriors,” a grass roots group that wants to fight back. “They really have been organizing our associates around winning.…They don’t want to give up anything.”
On the e-commerce operation, Ullman said Penney’s now-defunct big book catalogue business gave the company a big head start online. “We dramatically got to $1.5 billion pretty rapidly. Everyone else was in the $300 [million] or $400 million range.” Then the business stayed flat for four or five years, and under Johnson’s strategy, lost a lot of ground because he put in separate store and online assortments, according to Ullman. “It was not an omnichannel assortment. We dropped $500 million in one year, and we are rapidly growing that back. We will get it back. It’s just one of those 30 things which are broken.”
The home store is another big project. He said renovating and rejuvenating the home store was a good idea, but that there were issues with the way Johnson handled it. “Five hundred stores were renovated with a very high level of visual clarity. In some cases the merchandising approach was less productive than it needed to be. While it looked spectacular, it was very hard to shop. In some cases, the merchandise was too modern and the aesthetic didn’t resonate with customers.”
He said it would take another three or four months to get the home store aligned with “traditional customer expectations” and that it is starting to improve, doing very well online but difficult in the stores due to the way the assortment was organized.
Last week, Penney’s and Martha Stewart took a big stride toward resolving their legal dispute with Macy’s. They revised their partnership agreement so that it narrows the product assortment over a shorter period of time, through June 2017, versus 2021. Macy’s Inc. in 2011 claimed that Martha Stewart Living Omnimedia Inc. violated its deal to sell exclusive home goods by partnering with Penney’s. “I am pleased to say the [Martha Stewart] goods are selling,” Ullman said. “Our biggest concentration will be in window coverings.”