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J.C. Penney Co. ended its two-month search for a new CEO on July 27, with the appointment of veteran retailing executive Allen Questrom. He'll give up his reign as president and chief executive officer of luxury retailer Barneys New York to take the post at the struggling Plano (Tex.) department-store chain, effective Sept. 25.
At Penney, Questrom will succeed outgoing CEO James E. Oesterreicher, who announced in May that he would retire later this year, after five years at the helm. He had struggled in recent years to hit upon a winning strategy for Penney's 1,100 department stores, which are being squeezed both by upscale competitors, trendier specialty competitors like Old Navy, and discount rivals such as Target, which offer quality apparel and better values than Penney. In fiscal 1999, Penney posted a 43% drop in net income, to $336 million, on $32.5 billion in revenue. In May, it reported a $118 million first-quarter loss, vs. net income of $167 million in the year-ago period.
Questrom's appointment "is great news for Penney," says analyst Jeffrey M. Feiner of Lehman Brothers. "Allen Questrom is one of the strongest, if not the strongest, department-store executives out there," Feiner says. "He brings very strong credentials, especially in merchandising -- something Penney really needs."
TOUGH JOB. Questrom, whose career spans more than 30 years in the retail industry, also brings turnaround experience. As chairman and CEO of Federated Department Stores from 1990 to 1997, he led the company out of bankruptcy to become the largest department-store chain in the country. Questrom left Federated in 1997, later suing the chain for $47 million in back pay. He claimed he was entitled to additional incentive-based compensation. In February, a judge dismissed the suit.
At Barneys, Questrom, 60, helped the retailer get back on track after it emerged from bankruptcy in January, 1999, with a new strategic plan and capital-spending program. In a prepared statement, Oesterreicher praised Questrom for his accomplishments in leading previous companies from bankruptcy into profitability. "Allen has a superior record of success in the industry," he said. "I am delighted that he will be working with our management and associates, and developing a culture of success that will benefit all of our constituents -- our customers, associates, and, of course our shareholders."
Questrom, who will continue as Barneys chairman until September and will lead the process to select his successor, has his work cut out for him at Penney. He takes over a chain that has struggled for about five years to rebound through numerous restructuring efforts that have included shuttering hundreds of stores, selling some noncore businesses, and overhauling merchandising strategies. The company is bringing in outside talent, most recently former Wal-Mart executive Vanessa Castagna as chief operating officer.
SYNERGY CRISIS? In 1993, Penney's bought Eckerd Drug as a growth engine, but the drugstore chain has fallen on hard times. Facing fierce competition from traditional chains like Walgreens and nimbler online rivals, $12.4 billion Eckerd was forced in January to close 289 of its 2,900 stores. Then in March, the chain's longtime CEO, Francis A. Newman, bolted to an dot-com rival.
Questrom will now have to decide if Penney will continue to hold on to the Eckerd chain, which diverts management time and effort away from the core business. "My question is whether or not [Questrom] will consider a spin-off of Eckerd or try to develop synergy between it and the department stores, which I don't believe is there," says Terry Towner, whose Towner Holdings in Pittsburg, Kan., is a long-time Penney shareholder.
Questrom, who wasn't available for comment, said in a prepared statement: "J.C. Penney is one of the legendary names in American retailing, and I am honored to be part of this great company."
Investors, who have watched Penney's stock lose about two-thirds of its value in the past 12 months, appear to be happy that Questrom is coming on board. In early trading on July 26, Penney was up $2.50, to $17.375. Optimistic about a turnaround, Paine Webber analyst Jeffrey Edelman is now raising his 12-month price target from $20 to $25 a share. "Questrom brings to J.C. Penney a strong background in merchandising and managerial skills, which had been lacking for a long time," he says. "This is a great opportunity for Penney to clean the slate."
If so, Penney might lift itself out of the stock market's bargain basement before too long.
By Stephanie Anderson Forest in Dallas Edited by Douglas Harbrecht
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Copyright 2000, Bloomberg L.P.
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