After a year-long search, J.C. Penney JCP finally named a new CEO on Monday: Marvin Ellison, the executive in charge of Home Depot’s HD U.S. stores.
Ellison, an operations and logistics expert overseeing a fleet of almost 2,000 stores, will start on November 1, as president, when he begins a nine-month apprenticeship under the tutelage of Penney veteran CEO Mike Ullman. Ellison will then take sole control of the reins in August 2015. (Ullman, who was CEO from 2004 to 2011 only to return in April 2013 to save the company after Ron Johnson nearly killed Penney with his plan to make it trendier, will then stay on for a year as Executive Chairman.)
The changing of the guard is being announced at a time Penney’s financial situation has stabilized after losing billions in sales, and business has begun to recover, albeit slowly. Indeed, Wall Street still has its doubts about Penney’s turnaround: the stock tanked 20% in the two days after the retailer lowered its sales forecast last week at its analyst day. In a sign of how far from recovery Penney still is, the company only expects sales to hit $14.5 billion in 2 years, well below where they were when Johnson became CEO three years ago.
Still, Ellison, who had been seen as a candidate for the top job at Home Depot this year but got passed over, is well regarded and shares rose when his appointment was announced.
“Marvin is going to be a success at J.C. Penney. He was hugely successful at Home Depot. You always wish that you never lose talented people, but you always know that if you have a great team that that's a possibility,” Home Depot CEO Frank Blake told Fortune.
UBS analyst Michael Binetti called Ellison, who before Home Depot had worked for 15 years at Target TGT in operations, a “credible hire” in a research note. But Binetti, who cut his price target on Penney’s stock, nonetheless said the appointment doesn’t fix Penney’s deep problems. In particular, he was disappointed by Penney’s presentation to Wall Street last week, saying the retailer hadn’t presented enough merchandise newness to prove it can win back the market share it has lost in the last three years.
Here are a few of the big tasks Ellison will have to tackle to help Penney not only recover to where it was in 2011 but modernize itself.
1) Get more shoppers into stores.
Even though sales are rising again, thanks to the return in the last year of in-house brands like St. John’s Bay that long time customers loved, Penney is still struggling to get people into its stores to shop, raising concerns that it has lost many of its shoppers for good. (E-commerce growth explains the discrepancy.) The rate of traffic declines has slowed but there’s no way around it: a retailer with 1,060 stores needs shoppers to come in.
Analysts at Sterne Agee praised Ellison's in-store experience and said it could be of help. “While Mike Ullman has done a respectable job stabilizing JCP, it's become readily apparent that a new vision is necessary to transform the company and fix its largest problem--deteriorating traffic," the analysts said in a note.
2) Get up to speed on merchandising, pronto
While Ellison’s operational bona fides are unquestioned, many retail experts Fortune spoke to raised concerns about his Ellison’s inexperience when it comes to the choice of assortment of products in stores, especially with respect to apparel, which is Penney’s bread and butter. To that end, he’ll have to rely on Penney’s merchants and perhaps bring in some people of his own.”Hopefully, he will come up with new ideas to rejuvenate the company but he lacks merchandising experience,” said retail analyst Walter Loeb. “He will have to surround him with the right people at the company.”
3) Close underperforming stores
Though Ullman told reporters last week he had no plans to carry out a wholesale campaign of store closings saying that by and large, current stores contribute to its revenue and profit. Still, many in the industry wonder how Penney can afford to have roughly the same size fleet as it did 8 years ago with only two-thirds the revenue. So analysts say Ellison will have to close stores, particularly in so-called C-malls, emporia that generate lackluster sales per square feet.
“It is imperative to keep closing weak, underperforming stores, and get rid of the dogs in the C-malls,” said Ron Friedman, a partner at accounting firm Marcum LLP.
4) Making and keeping jcp.com relevant
Last week, J.C. Penney executive Mike Rodgers detailed his plan in an exclusive Fortune interview to return the company to e-commerce dominance. Penney will be offering ship-from-store and pick up in store for online orders next year, helping it narrow a huge tech gap with the like of Macy’s
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and Wal-Mart Stores
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. But those companies keep pushing their e-commerce firepower and Penney, despite being handcuffed by $5.3 billion in debt, has no choice but to compete. Rodgers said he thinks e-commerce can eventually account for 20% of sales (vs. about 10% now), but that means make e-commerce a top priority.
5) Get out from under Ullman’s shadow
While Ullman is widely credited with saving Penney last year, he is also seen as someone too entrenched in Penney. In fact, many analysts say he has been useful in getting Penney to stop bleeding, but largely did that by bringing it back to where it was in 2011: a stagnating department store devoid of new ideas and on the verge of obsolescence. One retail expert, a former senior executive at a major national chain, said the long handover, to be followed by Ullman hovering around until 2016, meant it might take time for Ellison to enact his own ideas. But it is imperative he get out from under Ullman’s shadow ASAP, this expert, who didn’t want to be identified, said.
