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The Motley Fool's Worst CEO of the Year Is...

By Sean Williams - Dec 12, 2013 at 10:05AM

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After sifting through thousands of companies, this now-former CEO, who oversaw perhaps the ugliest retail quarter in history and allowed his company to lose nearly $1 billion last year, stands atop the heap as the worst of the worst.

It's that time of the year again, folks! It's time to dust off the cyber awards and crown five CEOs with the dubious honor of being the worst of the worst in 2013.

Unlike last year, when we held several rounds of public voting after I picked eight of the best and worst CEOs, I wanted to do something different this year. So instead of picking who thought should be in each category for 2013, I reached out to as many of my Motley Fool colleagues as possible and aggregated their answers into one list. The result is a considerably more balanced list representing a wider swath of views and likely a more accurate portrayal of the worst CEOs of the year than I could have come up with by myself.

Over the previous four weeks we've looked at some of the worst of the worst when it comes to corporate leaders in 2013. These include:

Today, though, it's time to crown the absolute worst CEO of the year -- and let's just say that the consensus among my fellow Fools was practically overwhelming as to who should sit atop this year's list of worst CEOs. So without further ado, now-former J.C. Penney (JCPN.Q) CEO Ron Johnson, come on down!

Source: Fortune Live Media, Flickr.

Why Ron Johnson?
Ron Johnson's slightly more than yearlong tenure as CEO of department store J.C. Penney's was tragic in every sense of the term. But what's truly remarkable is just how astronomically bad Johnson failed given how successful he was at his two previous ventures.

At Target (TGT -25.12%) in the 1990s, Johnson was able to hit a bull's-eye and dramatically boost sales by introducing reasonably priced brand-name and designer merchandise. Johnson followed that up by heading Apple's store division and growing the company into the 300-plus store juggernaut that it is today. It simply wouldn't be fair if I didn't note that investor expectations surrounding Johnson's acceptance of the CEO position at Penney's were already astronomically high, making his ability to live up to these lofty expectations tough. But some of his key decisions simply left many of Penney's faithful customers out in the cold.

Perhaps nothing proved more damaging than Johnson's attempt to back Penney's away from being a discount retailer and instead project an "everyday price" to consumers. The move works for certain retailers, but the core customer for Penney's has always been a cost-conscious discount and coupon seeker. Remove the coupons and Penney's essentially alienated its core customer.

Penney's results following this move cascaded lower faster than I've ever seen a retailer lose sales (short of a licensing dispute) and culminated in what I consider to be the ugliest year-over-year retail quarter in history! That particular quarter in question (its fourth quarter, reported in February 2013) featured a 28.4% revenue decline, a 31.7% plummet in same-store sales, and a net loss that ballooned more than 600% to $552 million. Simply put, we may never see a retail quarter this bad again as long as we shall live.

But that wasn't the end of it for Johnson. In similar fashion to what he did at Target two decades prior, he attempted to mold Penney's product lineup by introducing new designers and creating stores-within-a-store. In essence, Johnson really, really wanted to become Macy's (M -11.15%). In fact, his vision for Penney's was so similar to Macy's that the two companies feuded for months over the rights to sell Martha Stewart Living OmniMedia (MSO.DL) products in its stores. Penney's did eventually drop its bid for the line, but it simply demonstrates how similar a path these two companies were on.

The problem with trying to emulate Macy's (without flat out telling everyone you want to try to emulate Macy's) is that the core Penney's customer doesn't want to shop at Macy's. That's why they came to J.C. Penney, for a good bargain at a sub-Macy's price point! Johnson, though, appeared to think he could dictate the purchasing habits of consumers by introducing brands as he saw fit and removing the coupons and discounts that drove consumers into the store in the first place.

The end result was a big boost in business for department stores like Macy's and Dillard's (DDS -7.72%), which also drive their customer traffic by discounting and deal with a somewhat similar price point. In Macy's most recent quarter, it reported a 3.5% increase in same-store sales -- a genuine indicator of retail health that excludes stores opened and closed within the past year -- while Dillard's reported a more modest 1% increase in comparable sales. By contrast, Penney's only recently ended a 23-month streak of year-over-year same-store sales declines.

As perhaps the final jab to Johnson's abysmal tenure as CEO, the Penney's board chose, in April, to fire him and replace him with (drumroll, please...) Mike Ullman, whom Johnson replaced. In other words, Johnson made things so bad for Penney's business and investors that its board of directors chose to rehire Ullman and hope for a time when things were just bad instead of really bad!

Don't feel sorry for Johnson or his management team, either, because according to research conducted by Bloomberg into Penney's SEC filings, the company spent $170 million (including salaries, stock warrants, and severance packages) in assembling this now-laughing stock of Wall Street group of leaders. 

All told, there's no question in my mind why my Foolish cohorts and I selected Ron Johnson as the clear worst CEO of the year.

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Stocks Mentioned

J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
Target Corporation Stock Quote
Target Corporation
$161.21 (-25.12%) $-54.07
Macy's, Inc. Stock Quote
Macy's, Inc.
$18.93 (-11.15%) $-2.38
Dillard's, Inc. Stock Quote
Dillard's, Inc.
$298.90 (-7.72%) $-24.99
Martha Stewart Living Omnimedia, Inc. Stock Quote
Martha Stewart Living Omnimedia, Inc.

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