The stocks of large, traditional retailers have been in decline for over two years. Almost none have fallen as hard as J.C. Penney Co. Inc. (NYSE: JCP) with its share price off 70% to $2.37. CEO Marvin Ellison has had his job since August 2015. If the board does not replace him with someone in which investors have more confidence, Penney shares will continue to march toward $1.
Over the two year period in question, other retailers like Nordstrom Inc. (NYSE: JWN) and Macy’s Inc. (NYSE: M) have lost a third to a half their market values. The only one which has plunged more than Macy’s is nearly bankrupt Sears Holdings Corp. (NASDAQ: SHLD), the owner of Kmart and Sears, which is off by 74%.
Penney has been through a period of management turmoil which dates back to June 2011 when Ron Johnson, the head of Apple’s (NASDAQ: AAPL) retail operation, was brought in to replace CEO Mike Ullman. By April 2013, Johnson’s plans had so deeply wounded the company that he was fired and Ullman took back the reigns. It was no wonder. Same-store sales in the last quarter of 2012 had dropped over 30%.
Ellison was as odd a pick as Johnson from the start. He had been head of U.S. stores for Home Depot (NYSE: HD), a large national retailer which could not be more unlike Penney than almost any other. However, the board took the chance that the executive from a successful company could bring the tactics of that success with him. It has not worked.
In Ellison’s defense, Penney has not disintegrated as it did under Johnson. However, it has not turned around at all. Based on Penney’s forecast for the balance of the year, it is heading into a flat spin now. No troubled large retailer can afford that during the critical fourth quarter of this year. Therefore, Penney has already put itself in a nearly untenable position.
Among the two things company boards do when they are in deep trouble are stay with a CEO because they worry a new leader will take too long to put fresh plans into place. The other is to find a replacement who has radical plans as quickly as possible. Penney needs to to the latter. It needs a leader who will swiftly restructure Penney, via a sharp reduction in its size, an e-commerce alliance with other large retailers, and, perhaps a plan to challenge creditors with bankruptcy. Nothing short of these sorts of actions will do
Even though it has been barely more than two years, Ellison has overstayed his welcome.