CEO Gaffe of the Week: J.C. Penney


Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I don't think we have any choice other than to examine the now-former CEO of J.C. Penney , Ron Johnson, and perhaps even throw a bone to the newly appointed (and also former CEO) Mike Ullman.

The dunce cap
The Ron Johnson experiment is officially over. Even if they made it into a movie, it still wouldn't be cool. It was, perhaps, the ugliest year-and-a-half tenure I've ever witnessed from a CEO who didn't blatantly blow his or her fiduciary responsibility to shareholders.

It all began with Johnson's attempt to dictate consumer shopping habits, which didn't go over well at all. One of the keys was to wean Penney's faithful shoppers off its deep discounts and instead introduce an everyday-low-price strategy. The system went into effect on Feb. 1, 2012, and Penney's sales sank faster than a concrete-laden kayak thereafter. In the fourth quarter, same-store sales tumbled 31.7%, online revenue dropped 34.4%, and Penney's recorded a nearly $1 billion loss for the year -- essentially the worst quarter in retail history. Penney's has since abandoned that strategy, but whether the customers will come back is yet to be seen.

And while Penney's struggled, its mall-based competitors reaped the rewards. Macy's fourth-quarter results -- which include the all-important Christmas season in which retailers make a good chunk of their profit -- delivered a 3.7% boost in same-store sales, and its EPS easily surpassed its own previously upped expectations. Nordstrom reported even more robust same-store sales growth of 6.3% during the same period, with its Rack segment (the discounted portion that would be the most competitively priced to Penney's) showing 7.1% same-store sales gains.

Johnson's plan also entailed creating a mini-shop setup that offered multiple designer brands under one roof. Even this plan hit a snag. One of Johnson's anchors had involved bringing in products from Martha Stewart Living Omnimedia . While Martha Stewart's reputation may not be pristine, her products are traffic drivers and Penney's would be lucky to get those products in its stores. That plan went awry when Macy's -- which signed a deal with Martha Stewart Living in 2007 -- filed a lawsuit to block the deal. The case is still ongoing and Johnson's mini-shop deal is still floundering in limbo even after his departure.

To the corner, everyone on the board of directors
It may be hard to believe, but it actually gets worse.

Outside of being the laughingstock of Wall Street and slashing Penney's market value in half during his tenure, Johnson got ousted only to have his replacement be none other than Mike Ullman... the former CEO of J.C. Penney that Johnson had replaced. That's right, folks, things have gotten so bad at J.C. Penney that its board of directors would rather you remember the bad times instead of the really, really, really bad times!

Giving Penney's board of directors the benefit of the doubt, I can understand that Ullman's seven-year tenure as CEO of Penney's allowed him to create good rapport with many of its vendors. He also understands what it'll take to at least get some of its previous faithful back into its stores. But did the board not realize that Ullman's previous strategy was at least halfway responsible for the need to bring in Ron Johnson to revitalize the Penney's brand in the first place? I feel like I'm on crazy pills here, and stuck in a repeating time loop.

To top it off, Ullman was noted as saying in an interview shortly after his reappointment as CEO that he "did not yet have a plan" as to how to improve sales, according to Reuters (face-palm).

Unless something positive happens here very quickly, J.C. Penney may not make it through the year.

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.

Can Penney's new CEO turn things around?
J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

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