JC Penney

There’s a leadership issue at J.C. Penney Co. Inc. and it’s put the retailer’s turnaround efforts in jeopardy.

On Tuesday, J.C. Penney disclosed that Marvin Ellison, its chief executive officer for the last three years, is joining Lowe’s as ceo on June 1, taking the job at the Mooresville, N.C.-based home improvement chain formerly held by Robert Niblock.

Last November, the retailer fired its chief merchant John Tighe — he’s now president of Peerless Clothing — and in February it named Joe McFarland executive vice president and chief customer officer, a role that includes responsibility for merchandising as well as leading store operations. At the same time, Jodie Johnson was named head of merchandising for women’s, beauty and family footwear, and James Starke was promoted to head of merchandising for men’s, children’s, home and jewelry, both reporting to McFarland.

Marvin Ellison 

Sources said J.C. Penney needs to find a ceo with merchant experience, possibly from the department store or discount store sectors, specifically with skills in soft lines — which has been a weak spot for Penney’s. Apparel improvements are critical for the store’s long-term survival. The consensus is that J.C. Penney will most likely tap someone from outside the company to be its next ceo, as it did with Ellison, who joined from Home Depot.

Among the retailers who could be considered for the ceo job are Brendan Hoffman, who currently runs the Vince brand and formerly ran Lord & Taylor and Bon-Ton; Mark Tritton, executive vice president and chief merchandising officer at Target; Bill Brand, former president and chief marketing officer of HSN, who left the company after its merger with QVC; Judith McKenna, president and ceo of Walmart International; Shelley Broader, Chico’s ceo and president; Joel Anderson, president and ceo of Five Below, and Duncan Mac Naughton, president of Family Dollar Stores.

Others that could also be contacted but seen more as long shots are Calvin McDonald, president and ceo of Sephora USA; Gary Muto, president and ceo of Ascena Brands; Mary Dillon, ceo of Ulta Beauty; Tony Spring, Bloomingdale’s chairman and ceo; Jane Elfers, ceo of The Children’s Place who also once ran Lord & Taylor; Jim Gold, president and chief merchandising officer at the Neiman Marcus Group, and Liz Rodbell, who left as president of Lord & Taylor in April after also running Hudson’s Bay.

Ken Hicks, a former J.C. Penney president and chief merchandising officer who turned around Foot Locker, would have been a good candidate, though he recently became ceo at Academy Sports in Houston.

In many cases, those qualified to run J.C. Penney are handcuffed by non-compete contracts and/or would require big compensation packages to vacate positions from more secure retail operations.

Department store companies are increasingly looking outside the box to bolster their top executive ranks, tapping key executives from pharmacies, consumer products, specialty chains, tech firms and vendors to inject new thinking and boost bench strength.

Among those seeking to reinvent department stores are Helena Foulkes, ceo of the Hudson’s Bay Co. and former president of CVS Pharmacy; Geoffroy van Raemdonck, ceo of the Neiman Marcus Group and formerly Ralph Lauren’s group president for Europe, Middle East and Africa and earlier a Louis Vuitton regional president, and Michelle Gass, who became ceo of Kohl’s Corp. this month and earlier spent 16 years in senior roles at Starbucks.

Ellison himself headed Home Depot’s U.S. store operations before joining J.C. Penney as ceo-designee in October 2014 and later succeeding Myron “Mike” Ullman 3rd as chairman and ceo in August 2015. His decision to leave Penney’s for Lowe’s was a shock to the retailer’s suppliers and increases skepticism over the retailer’s turnaround bid. On Tuesday, J.C. Penney’s stock dropped 6 percent, or 15 cents, to $2.35.

“I had no idea this was happening,” said one vendor source. “It’s terrible. Now we will have to reexamine our business with Penney’s, look at what kind of leadership they bring in, and see what direction the company takes.”

Ellison stepped down as chairman but will remain a J.C. Penney director and its ceo through June 1. The board elected its lead independent director Ronald W. Tysoe as chairman. Tysoe was a director of a number of companies over the last two decades, and served as vice chairman of finance and real estate at Macy’s Inc., when it was called Federated Department Stores Inc., from 1990 to 2006. For the first seven of those years, he also served as chief financial officer there. He joined J.C. Penney’s board in 2013.

Joe McFarland is leading J.C. Penney’s merchandising efforts and store operations. 

On Tuesday, J.C. Penney created an office of the ceo, which will be comprised of cfo Jeff Davis, chief customer officer McFarland, chief information officer and chief digital officer Therace Risch, and executive vice president of supply chain Mike Robbins. They will share equal responsibility for J.C. Penney’s day-to-day operations until a new ceo is found, the company said. The executives were all recruited to Penney’s by Ellison.

A search committee has been formed to find Ellison’s successor, but no search firm was disclosed. In a Securities and Exchange Commission filing, J.C. Penney indicated that there was no dispute with Ellison, suggesting that he decided to leave because of the Lowe’s opening.

“This is Marvin’s dream job. Lowe’s is a huge opportunity, six, seven times bigger than J.C. Penney,” said a retail source. “He’s spent a huge amount of his career in home goods, ran the Home Depot stores but didn’t get the top job there so he came to Penney’s. But he’s more comfortable in hard goods.”

Tysoe credited Ellison for “many significant contributions” to J.C. Penney over the past three years. “During his tenure, the company retired $1.4 billion in debt, renewed and enhanced its revolving credit facility and has significantly strengthened the company’s financial position,” Tysoe said.

Ellison fell short on growing the topline, despite bringing in several new categories including toys and appliances, both lower margin categories, while pumping up more contemporary fashion offerings, dresses, special sizes and casual clothes and narrowing traditional fashion offerings.

For the first quarter of this year, J.C. Penney had a total net sales decline of 4.3 percent to $2.58 billion and a comp sales gain of just 0.2 percent. The sales slippage was partly blamed on the weather and last year’s 141 store closures. J.C. Penney, which operates about 870 stores, did cut its net losses for the quarter to $78 million from $187 million in the year-ago period. But adjusted losses widened to $69 million from an adjusted loss of $2 million a year ago. The company was profitable in the fourth quarter of 2017, but had a loss for the year overall.

The keystone of Ellison’s strategy was to focus on private brands, furthering omnichannel shopping, and increasing revenue per customer. He also accelerated the opening of Sephora shops inside J.C. Penney stores and the re-branding of Penney’s salons to InStyle, two tactics started by Ullman.

Despite the efforts, J.C. Penney’s volume has been stuck hovering in the $12 billion range, while competitors such as Macy’s and Kohl’s are experiencing sales growth and signs of better rebounds. 

Regarding the new office of the ceo, Tysoe said Ellison assembled “a strong leadership team that will continue to serve the company in an elevated capacity to ensure the entire organization remains focused on our customer and improving results.”

“Marvin is leaving behind a good team of people in the office of the chairman to sustain the business until they find a new leader. It’s a solid office of the chairman with executives with skills that complement each others,” observed Elaine Hughes, founder and ceo of E.A. Hughes executive search. “There’s a good 50-50 chance the new ceo comes from outside the industry and it’s a person who knows they’re not in line to be the next chairman or ceo of the company they are with.”

In a statement, Ellison said, “It has been a tremendous honor leading the company as chairman and ceo, and working alongside some of the most talented professionals in retail,” Ellison said. “I want to personally thank the entire J.C. Penney team for their loyalty and hard work over the years. Their warrior spirit is unmatched, and I have the utmost confidence that J.C. Penney has the talent and expertise to achieve sustainable, long-term growth.”

“Marvin is a motivator. He’s very people-oriented and is very likable. He’s a charismatic leader, but at the end of the day the business wasn’t there,” observed Kirk Palmer, ceo of Kirk Palmer Associates executive search. “He’s now moving into a role where he’s very well suited. It plays to his strengths.” Palmer believes J.C. Penney would benefit from a broad-based executive with softlines in his/her background, someone strong on the front end, in merchandising, marketing and brand positioning.

Walter Loeb, a former retail analyst and now consultant, said, “I think the departure of Marvin Ellison was overdue. He is a terrific home furnishings person. His experience at Home Depot will serve him well at Lowe’s. In my opinion, he was not qualified to run a fashion business, which is the historic essence of J.C. Penney.”
Loeb said the retailer needs a merchant now more than it does a ceo. “The people running the company are not merchants. The lack of merchants is hurting the company and its future outlook. What J.C. Penney needs now desperately is a merchant who will pull together the fashion aspect of the company. Fashion is still what’s [topmost] on the customers’ minds.”
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