The last time J.C. Penney (OTC:JCPN.Q) tried to have an unconventional executive succeed Myron Ullman as CEO, the retailer nearly went bankrupt. That means come Aug. 1 when Marvin Ellison assumes the top executive role at the department store chain, he'll be closely watched to see if he can avoid a similar outcome.
Slow and steady wins the race
J.C. Penney has largely bounced back from the debacle that was the tenure of former CEO Ron Johnson (Ullman's successor, and subsequently his predecessor), a period marked by collapsing sales and customers fleeing to the competition. After the retailer ousted the former Apple executive and Target alum, reversing many of the strategies he implemented, sales started to recover.
Last year they rose more than 3% to $12.3 billion, while comparable-store sales were 4% higher. They continued their climb in the first quarter of 2015, rising 2% and 3.4%, respectively.
Ultimately, that is the task laid before Ellison: keep the retailer on this same sure and steady path to growth. And J.C. Penney has carefully choreographed the transition from Ullman to Ellison to highlight for investors the nature of the stability it seeks.
Ellison was appointed president of J.C. Penney effective last Nov. 1, with Ullman maintaining the CEO role. When Ellison takes that position, Ullman will be elevated to executive chairman for a one-year term, suggesting the nearly two-year transition period is intended to give investors confidence there won't be any abrupt upheavals as occurred when Johnson assumed the CEO's role.
If I had a hammer
With nearly three decades of retail experience, Ellison certainly seems up to the job. He served in a variety of capacities at Target for 15 years before joining Home Depot (NYSE:HD) in 2002, where he was most recently executive vice president of U.S. stores, making him the senior operations leader for the big-box retailer's approximately 2,000 stores.
Yet therein lies the risk, too. When Johnson was brought into the retailer, he had no practical clothing store experience. He might have been a wizard at creating and developing the Apple retail experience, but his attempt to overlay that ethos on an otherwise stodgy, old-line department store failed miserably.
Ellison also comes to J.C. Penney with little softlines background. His expertise is in operations, the nuts and bolts of running stores. In essence, making sure the trains run on time.
But several other retailers have also favored executives with an operational background rather than whether hemlines will be longer or shorter this year. For example, Target's Brian Cornell came from PepsiCo (NASDAQ:PEP), where he oversaw the beverage giant's food and snacks business in the Americas., And prior to taking the top spot at Gap (NYSE:GPS), Art Peck was senior vice president of strategy and operations, leading many of its e-commerce innovations. Ellison also has extensive knowledge of and experience with similar programs to enhance the customer online experience at Home Depot.
At the time of his hiring by J.C. Penney, Ellison said, "I will be focused on positioning the company to compete in a rapidly changing retail environment for the benefit of our customers, shareholders, suppliers and associates. I am confident that we have the customer proposition, the brand, and the talent to make JCPenney successful over the long term."
The future is online
Not coincidentally, J.C. Penney has been placing renewed focus on such initiatives recently, and perhaps these efforts are already paying dividends. Internet sales surged 13% last year to $1.2 billion, and first-quarter sales growth at jcp.com accelerated from the fourth, even exceeding the retailer's own internal expectations.
In addition to increasing customer conversions, or the number of customers who actually buy something once they've visited the website, the company's ship-to-store efforts are resulting in more trips by customers to its brick-and-mortar locations. J.C. Penney found that customers who buy online and pick up the merchandise in the store will buy additional merchandise 20% of the time.
It could be that Ellison's appointment will again be an instance in which J.C. Penney confounds Wall Street.
Fool me once
While many analysts praised the executive's deft ability at cutting costs and increasing employee productivity while at Home Depot, they were somewhat skeptical with the selection of an operations man, and not someone with practical retail merchandising experience.
Of course they've continuously had J.C. Penney behind the eight ball since its turnaround began, and the department store has surprised them time and again. Sales are rising, customers are returning, and profitability is attainable, all things analysts were doubtful would happen.
The extreme turbulence of Ron Johnson's relatively brief reign was replaced by a more staid, workmanlike approach to the business under Ullman. Keeping the waters calm and simply executing on the plan could be the biggest achievement Marvin Ellison makes on J.C. Penney's road to recovery.