Bloomberg News

J.C. Penney Falls After Francis Leaves Amid Strategy Flop

June 19, 2012

J.C. Penney Says CEO to Run Marketing as Francis Leaves

Ron Johnson developed discount chain Target’s “cheap chic” persona before moving to Apple, where he created the world’s most profitable stores. Photographer: Brian Kersey/Getty Images

J.C. Penney Co. (JCP:US) fell the most in a month after announcing president Michael Francis was leaving in the wake of a marketing strategy that flopped with shoppers.

J.C. Penney dropped 8.5 percent to $22.25 at the close in New York, the biggest decline since May 16, when the company reported first-quarter earnings.

The retailer said in a statement yesterday that Francis stepped down after joining the Plano, Texas-based company in October. The company didn’t give a reason for his exit.

Chief Executive Officer Ron Johnson, who is taking over marketing and merchandising, is trying to remake the retailer’s image and overhaul its pricing strategy.

“The bottom line is, the marketing strategy wasn’t working,” said Bill Ackman, whose hedge fund, Pershing Square Capital Management LP, is the company’s largest shareholder. “Ron decided that he really needed to take over the marketing and advertising.”

Ackman said he’s “very comfortable” having Johnson handle the CEO and marketing functions.

“The company is not changing its strategy,” he said. “I 100 percent believe in the strategy of this company. The problem was, the pricing message wasn’t conveyed to the customer properly.”

Francis was serving as marketing chief at Target Corp. (TGT:US) when Johnson hired him away.

Artistic Approach

He had a “very artistic and streamlined approach to marketing, but it wasn’t getting the message across,” Lizabeth Dunn, an analyst with Macquarie Group in New York said yesterday in a telephone interview. “It seemed as though that was a philosophical difference with Michael Francis and the rest of the management team.”

Johnson developed discount chain Target’s “cheap chic” persona before moving to Apple, where he created the world’s most profitable stores. Now he’s trying to wean J.C. Penney’s middle-market customers from a steady diet of coupons and almost constant discounting.

In January, Johnson unveiled his four-year plan to transform J.C. Penney into America’s favorite store. In a presentation to investors and suppliers, he described a department store built around a so-called town square, with as many as 100 boutiques carrying items made by well-known brands specifically for J.C. Penney. The first store-within-a-store he announced will sell home goods by Martha Stewart.

Aggressive Discounts

Johnson also has sought to quickly replace J.C. Penney’s relatively high-list prices -- which it aggressively discounted -- with lower everyday “fair and square” pricing.

The company introduced brightly colored, themed monthly catalogs in February, and the current edition features photos of fathers romping with their children.

“Some of the advertising scared off the core customer, clearly, or at least it didn’t reach the customer,” Ackman said

The changes have yet to bear fruit. The department-store chain, with 1,100 U.S. stores, had a $163 million loss in the first three months of 2012 as revenue (JCP:US) slid 20 percent, the biggest quarterly decline in more than seven years. Sales at stores open more than a year fell an average of 19 percent. The number of people coming into J.C. Penney stores dropped by 10 percent, and the number of those who bought something fell, too, by 5 percent.

“The transition has been tougher than we anticipated,” Johnson said during a May 15 presentation to investors.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • JCP
    (JC Penney Co Inc)
    • $9.38 USD
    • 0.15
    • 1.6%
  • TGT
    (Target Corp)
    • $61.38 USD
    • 0.28
    • 0.46%
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