Marvin Ellison meet J.C. Penney

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Marvin Ellison, the New leader of J.C. Penney, has his work cut out for him, but who is he and can he do the job?

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J.C. Penney has been experiencing severe turmoil for the last few years as sales have declined and customers have largely fled, but all of this bad luck could change when Marvin Ellison steps into his new role as CEO of the embattled company. Ellison is considered an extremely clever manager of daily operations, and he’s successfully led much larger corporations — including divisions of Home Depot and Target — but he lacks experience selling apparel and fashion accessories, exactly the merchandise for which J.C. Penney is best known. Only time will tell whether Ellison is the best man for the job, but analysts call him an inspired and unconventional choice for the chain. With the current pressure to turn the company around riding on his shoulders, he’ll no doubt try to deliver his best possible performance.

A repeat of Ellison’s Home Depot turnaround?

The J.C. Penney board of directors is hoping Ellison will come up with another stunning turnaround for a once-successful company now in decline. Ellison was brought on as the Vice President of U.S. Stores at Home Depot, a company he has received credit for bringing back from the brink of dissolution. Home Depot’s sales had declined sharply, and Ellison drew up a policy of simplifying employee’s tasks so that they would have more time to help customers. It turns out that this change in policy was exactly what Home Depot needed to make a comeback, and business analysts credit Ellison with having a truly astute perception of the problem when others could not see it clearly.

The position of Home Depot’s Vice President of U.S. Stores is Ellison’s current job title, and he was on the shortlist to become the company’s next CEO when Frank Blake recently stepped down from the role. Ellison did not receive the CEO spot when it became available in August 2014, and he tendered his resignation a few months later in October. He will be working alongside J.C. Penney’s current interim CEO Mike Ullman for the next several months, until Ellison officially takes over the role in August 2015. Analysts have praised Ullman’s performance as acting CEO since he took over from ousted chief Ron Johnston, whom many blame for J.C. Penney’s current problems. Ullman has successfully stemmed the bleeding and reversed the company’s $3 billion in losses since 2013, but he never intended to stay in the position permanently.

The problems plaguing J.C. Penney

Ron Johnston stepped into the role of CEO of J.C. Penney when the company had been a clothing retailer for over 100 years. He attempted to steer the department store chain in a new, modern direction, appealing to younger shoppers with more money to spend. His strategy of doing away with sales and coupons left long-time customers wondering what had happened with the store they thought they knew. His belief was that charging exactly the prices necessary to meet the yearly sales quota would ease customers’ minds. He thought they would appreciate paying the same prices throughout the year instead of spending time clipping coupons and scheduling shopping trips to coincide with store sales. The strategy backfired, and J.C. Penney lost customers by the thousands, hemorrhaging around $3 billion in two years.

So far, Ullman has been able to raise the cash J.C. Penney needed to stay in business, and he’s reversed the poor decisions made by the former CEO. The company is positioned to increase sales by $2 billion by 2017, though stock investors say it isn’t enough to return the value of shares on the stock exchange to their former levels. J.C. Penney’s current sales projections are in doubt as stock shares have deflated by 23 percent in just three days due to revised sales predictions. At a conference in New York, Ullman laid out his plans for the coming changes, also talking for a while about the newly hired CEO. Later in the conference, a speaker revealed that the recent sales slump has J.C. Penney’s growth rate down from a mid-single-digit percentage to the low single digits.

Will Ellison’s expertise be enough to save the company?

Rick Snyder, an investment analyst at New York’s Maxim Group LLC, thinks J.C. Penney’s three-year forecast is “overly optimistic,” and he has lowered his rating of the company’s stock. Although Ullman has managed to avoid bankruptcy for the company, shoppers have yet to return and have in fact continued their exodus to competing department stores. Competitors such as Forever 21 offer similar inexpensive clothing, and J.C. Penney lacks the funds to invest in store renovations and advertising to draw new crowds. Investment analyst Michael Binetti said that Ellison’s undeniable abilities as a store operator will help, but his lack of understanding of apparel styles and fashion is a major drawback. Ellison will have to rely on people he doesn’t know very well to be able to appeal to clothing shoppers’ tastes, and he will likely have to outsource many of these decisions to people he doesn’t know at all. Binetti lowered his rating of J.C. Penney’s shares before Ellison was announced as the next CEO.

Ellison’s first initiative as CEO will be to expand women’s purse and shoe sales to women who already shop at the retailer, a strategy that doesn’t require additional advertising or renovation. His instinct as an operations manager is to reallocate space within the store to make 30 percent more room for women’s footwear and to put a new focus on the store’s purse department by 2015. His explanation for these changes is that people have always thought of J.C. Penney as a clothing retailer and ignored the store’s shoes and accessories, shopping at other stores for these items after buying clothes at J.C. Penney. The opportunity to sell shoes and accessories has always been there, he said, but no one has tapped into it.

At the conference, Ullman mentioned the other top executives who will be taking over new roles, including a new CFO and new heads of marketing and commerce. He said that shoppers want to have a great experience when they go to a store, and Marvin Ellison proved he knows how to make them feel that way at Home Depot.

James Vrionis

James Vrionis knows Technology and is Based in the Palm Desert Area. Contact him at jvrionis@investcorrectly.com

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