J.C. Penney’s new CEO faces challenges

Associated Press

NEW YORK

J.C. Penney’s newly tapped CEO has a big challenge ahead of him: The troubled chain is showing signs of improvement after racking up billions in losses but still hasn’t figured out how to get shoppers back into its department stores.

Penney said Monday that Marvin Ellison, a 30-year retail veteran and executive vice president of stores at Home Depot, will become its CEO next August. Ellison will be the first black CEO in the company’s 112-year history.

Ellison succeeds Canfield native Mike Ullman, the former CEO who came out of retirement last year to take the helm again. His job was to stabilize the business after the ouster of Ron Johnson, a former Apple executive who tried unsuccessfully to reinvent the beleaguered chain by getting rid of sales and some basic merchandise. That led to billions in profit and sales losses.

The losses — which have amounted to a total of $3.16 billion in 11 of the past 12 quarters — have slowed significantly under Ullman’s leadership. But the company still is in the red, and analysts say Ellison’s challenge will be to fix the fundamental problems that caused Penney to lose customers in the first place.

They say the retailer doesn’t have merchandise that sets it apart from rivals such as Macy’s and H&M. Its stores are drab and unexciting. And its website doesn’t offer the selection and services that shoppers like.

WHAT WENT WRONG

Penney is looking to Ellison, 49, to help right the ship. Ellison spent 12 years with Home Depot and before that, 15 years at Target. He has been credited with his expertise in store operations and logistics but lacks experience in fashion.

Ellison, who will also join Penney’s board, takes on the role of president in November before becoming CEO next year. At that time, Ullman will become executive chairman of the board, serving for a year.

Analysts say it’s rare for a management-transition period to last nearly a year, but Walter Loeb, a New York-based retail consultant, said the time is needed. “I think [Ellison] is an excellent leader ... but he needs time to learn the fashion business,” Loeb said.

Ellison follows Ullman, who was CEO for seven years before Johnson was brought in to modernize the stores. Customers didn’t like Johnson’s changes, and Ullman was brought back in April 2013.

Ullman began restoring sales and basic merchandise that the company ditched under Johnson’s tenure — discontinuing some of the trendy new brands such as William Rast and Joe by Joseph Abboud and bringing back store labels.

Under Ullman, Penney has recorded three-straight quarters of increases in sales at established stores. Still, those increases haven’t outweighed last year’s drastic declines.

FIXING THE PROBLEM

Penney has worked on fixing its problems. Last week, it unveiled a strategy that it said would boost sales by $2.55 billion over next three years by improving the productivity of its stores’ home department, expanding e-commerce and sprucing up key areas such as jewelry, shoes and handbags.

Penney sees the opportunity for an additional $1 billion in sales from continued market-share growth.

That would bring the chain’s annual revenue to $14.5 billion by fiscal 2017. Still, that’s well below the $17.3 billion it generated before sales went into a freefall under Johnson.

The company also has focused on cutting costs. Earlier this year, it cut 2,000 jobs and shuttered 33 stores. But the company didn’t announce any more store closures last week as analysts expected.