OESTERREICHER TO STEP DOWN AS PENNEY’S CHAIRMAN, CEO
Byline: Rusty Williamson
DALLAS — The executive shakeup at embattled J.C. Penney Co. reached the pinnacle Thursday when the retirement of James E. Oesterreicher, chairman and chief executive officer, was announced.
Two weeks before facing shareholders at the company’s annual meeting, Oesterreicher informed Penney’s board of directors that he will leave the chain as soon as a successor is found, and that a search is already under way.
In an interview, Oesterreicher said the search should be complete by yearend and that both external and internal candidates are being considered for the job. Leading the list of insiders is Vanessa Castagna, chief operating officer and executive vice president of stores, merchandising, e-commerce and catalog.
She joined Penney’s last August from Wal-Mart Stores Inc., and her presence has been strongly felt through several executive and merchandising changes that she has triggered. In January, she launched a new merchandising agenda aimed at shedding a lot of the slow sellers in the stores and attempting to spotlight trendier goods. Stores are being remodeled to some extent with new boutique concepts, wider aisles and improved high-tech lighting. Part of the plan involves a more centralized approach to trying to get goods on the selling floors faster so the company is more competitive, while stripping local store merchants of most of their buying responsibility.
In another important change, Penney’s last month named DDB Worldwide as its new advertising agency to roll out a new brand-driven ad campaign for fall that focuses on women who shop Penney’s.
Other high-level executives caught in the shakeup include Marilee Cumming, former president of merchandising who left the company in April, and Chuck Foughty, former president of women’s, who became vice president and director of store environment. He was replaced by Liz Sweney, a former Kellwood executive, while Cumming’s former post is still unfilled.
Last year, Penney’s broke its long tradition of promoting from within and named Stephen Farley senior vice president and chief marketing officer for stores and catalog, a new post. He came from Payless Shoesource.
Oesterreicher, a 36-year Penney’s veteran who began his career as a management trainee in Lansing, Mich., in 1964, will turn 59 on May 22, a full year short of Penney’s historical retirement age of 60.
His early departure has long been anticipated in light of Penney’s half-decade sales slump, protracted consumer identity crisis and increasing market share erosion to more nimble department store, mass merchant and discount competitors, particularly Target, Wal-Mart, Kohl’s, May Department Stores and Federated Department Stores.
Since being named chairman and ceo in 1997, Oesterreicher has come under increasing fire from shareholders and Wall Street analysts to turn things around at the 1,140-unit chain.
Ironically, his retirement was disclosed on the same day that the company reported a 3.4 percent comp-store sales gain in April, with apparel one of the top performers. Catalog sales, though, decreased 6 percent.
There was more good news. Penney’s fledgling e-tail business continued to sizzle, beating plan with sales of $14 million in April and $47 million for the quarter, against $2 million and $6 million in the respective prior-year periods.
“Now is the time to move to a new generation of leadership at J.C. Penney,” said Oesterreicher. “This is not an early retirement, because I don’t plan to leave until my successor is in place. With a company this size, you have to work constantly on a succession plan. I felt that this was not too early to start the process.”
Asked if he had any regrets, Oesterreicher deadpanned, “I would like to have had that positive sales gain we reported this morning about two years ago.”
When queried on the chain’s sales outlook for the rest of the year, Oesterreicher said, “We’ve been fairly open about the fact that we have a lot of work to do. There is an enormous amount of things going on at Penney’s, and we think it will be the third or fourth quarter of this year before the results are completely visible.”
He called the chairman and ceo post at Penney’s one of the most attractive in the retail industry but one that will be tough to fill, in light of some other major retail searches under way. Sears, Roebuck is seeking a new ceo to succeed Arthur Martinez, and Kmart is reportedly on the prowl for a successor to its ceo, Floyd Hall.
Although the company’s profit performance and comp-store gains have been disappointing, it did grow in revenues. “We will hit $33 billion in sales this year, up from $22 billion when I took over,” Oesterreicher noted. However, most of the revenue gain is from the Eckerd drugstore chain acquisition in 1997. Last year, Eckerd had revenues of over $12 billion and increased comp-store sales by over 10 percent. Penney’s stores and catalog posted $19 billion in revenues last year, a 0.8 percent decline from the prior year. Also, the highly rated jcpenney.com Web site had sales of $102 million in 1999, up from $15 million in 1998.
Oesterreicher contended that Penney’s has “the premier position in the retail Internet world and a $12 billion drugstore chain with incredible merchandising synergies linked to our department stores and catalog.
He also said, “We’ve made some significant moves internationally with growth in Brazil and a new store in Mexico. And we’ve worked really hard over the last three or four years to focus our portfolio business.”
He cited Penney’s announcement this week that it will sell its profitable and growing direct-marketing business that some speculate could garner $2.5 billion and Penney’s recent sale of its credit-card operations, among other cost-cutting measures.
“My view is that the biggest issue for retailers is having what customers want to buy, whether medium-, high- or low-price range. If you don’t have what they want to buy, then it doesn’t matter about those other issues. If you’re good at what you do, your market share increases.”
Asked what he considered his best accomplishment at Penney’s, he responded, “My greatest contribution? I’d like to leave that for others to determine.”
On the New York Stock Exchange Thursday, Penney’s stock closed at 17 7/16, up 1 9/16, a 9.8 percent gain. In the 52-weeks, the stock has been as high as 54 7/16 and as low as 12 7/8.
Standard & Poor’s lowered its long-term ratings on Penney’s and its Funding Corp. subsidiary on Thursday, reflecting “continued poor performance at the department stores in 1999, a year when some turnaround was anticipated. Moreover, S&P believes that J.C. Penney will continue to struggle to regain its competitive position in department store retailing, despite efforts to improve operations and to add managerial strength.” The long-term ratings both slipped from BBB+ to BBB.