December Issue

Tech and Exec Disasters Put J.C. Penney in a Bind

J.C. Penney's moves in the last few years stand as prime examples of how not to manage, how not to implement technology and how not to respond to looming business threats.

December Issue

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For example, Johnson flat-out said that the company had "overspent" on IT, at 2.4 percent of sales. It should be about 1.5 percent, he told Wall Street analysts in 2012. He and hand-picked COO Mike Kramer were publicly incredulous that they found 492 applications running at J.C. Penney. "I can think of no other thing to say about our systems and our IT infrastructure--and I have seen a lot of them. It is a mess," Kramer told Wall Street analysts in 2012.

The customization of those applications was also a problem, in part because it required more IT staffers and a bigger budget to maintain them, Kramer said, adding "that costs money; that is what drives head count." He and Johnson said maintenance took 95 percent of the IT budget and they intended to cut the number of applications to 100.

Simplification is good, but so is a more delicate touch, Finkelstein says. He named Johnson one of the worst CEOs of 2013, for losing billions in sales and profits, watching the stock price drop by half and trying to change radically the relationship between the company and customers without ever testing his theories. Johnson ostentatiously commuted between California and Texas on a company jet, Finkelstein says. "It was obvious he wasn't listening to anything." And the six executive vice presidents Johnson hired seemed to go along, sold on his radical vision for "revolutionizing" the department store, he says.

What's Next?

A year ago, to raise money, J.C. Penney sold 20 of the 240 acres of land around its Dallas-area headquarters campus and entered into a deal to develop the rest. Early this year, the company announced plans to cut 2,000 more jobs. As of August, the company had spent $991 million on restructuring and management transitions since 2011.

In a talk at Stanford University this year, Johnson admitted he and his team "went way too fast," though he stood by his business strategy, saying "I'm a creative person. Here's a company that isn't ubercreative." Johnson didn't respond to emails seeking comment.

dec fea ellison

Incoming president and CEO-designate Marvin Ellison -- a retail exec from Home Depot and Target -- contends that J.C. Penney can be revived.

With Ullman as a lame duck, Buzek says, some on the IT team may be biding their time. "They've got to be thinking, 'Am I willing to put my career on the line suggesting new things?'"

Sales at J.C. Penney have increased a bit. The company reported revenue of $5.6 billion for the first half of 2014, up 5.7 percent compared to the same period last year. Losses were smaller: $172 million in the red for the first half, compared to $586 million last year. Ullman, at the elaborate October show, projected $3.5 billion in new sales in the next three years, from a combination of e-commerce and better merchandising in stores.

Skepticism remains. "They have brought the patient into a state of induced coma," Stephens says. "But that's not going to stop the decline." Ullman, Johnson, Ullman again, and now Ellison-in-waiting--it may not matter. "The same underlying conditions exist: J.C. Penney is an antiquated brand that has been catering to aging clientele," Stephens says. "What does the future look like when you can't attract future shoppers?"

At the start of his tenure, an optimistic Johnson proclaimed, "We are going to become an entirely new class of department store that doesn't exist today." Now the question is whether J.C. Penney will exist tomorrow.

Copyright © 2014 IDG Communications, Inc.

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