J.C. Penney Seeks Home Depot Treatment Under Ellison

Marvin Ellison helped turn around Home Depot Inc. in the last decade. Now he’ll try to repeat that feat at J.C. Penney Co.

The department-store chain, struggling to emerge from $3 billion in losses in the past 3 1/2 years, yesterday named Ellison its next president and chief executive officer. He’ll leave his job running Home Depot’s U.S. store operations to join J.C. Penney on Nov. 1 and take the reins from CEO Mike Ullman on Aug. 1, the Plano, Texas-based company said in a statement.

At Home Depot, Ellison was responsible for trying to make the chain’s massive stores easier for customers to navigate after service deteriorated under former CEO Bob Nardelli. Ellison, 49, focused on simplifying tasks for workers to free up more time to assist customers. The strategy paid off as sales rebounded, helping the company’s stock almost triple in the past four years.

“He deserves a lot of credit,” said David Schick, an analyst at Stifel Financial Corp. who has covered Home Depot since 1999. “One of the key things where Home Depot had lost their way was the in-store experience. Marvin was critical to bringing it back.”

J.C. Penney rose 1 percent to $7.16 at the close in New York. The stock advanced as much as 5.3 percent yesterday after the announcement of Ellison’s hire, then closed down as the broader market retreated. The shares have tumbled 22 percent this year.

Home Depot

Ellison, whose current title is executive vice president of U.S. stores, was in the running to replace Home Depot CEO Frank Blake, according to a person familiar with the situation. That job went to Craig Menear, a long-time merchandising executive at the world’s largest home-improvement chain, in August. Ellison then notified Home Depot of his resignation on Oct. 10.

At J.C. Penney, Ellison will become one of only a handful of black CEOs at top U.S. corporations. Among the top 200 companies in the Standard & Poor’s 500 Index, only American Express Co., Delphi Automotive Plc, McDonald’s Corp., Merck & Co. and Xerox Corp. were headed by black leaders last year, according to executive recruiter Spencer Stuart. Darden Restaurant Inc. CEO Clarence Otis, another black leader of an S&P 500 company, will step down later this year.

Ellison also will join J.C. Penney’s board, adding to his seat at FedEx Corp. He came to Home Depot in 2002 after 15 years in various roles within operations at Target Corp.

Reverend Jesse Jackson, who has been lobbying companies such as Apple Inc. and Facebook Inc. to add more minority workers to their boards and in their offices, said there is an “opportunity deficit” in corporate America.

‘Very Slow’

“It’s very slow,” Jackson said in an interview yesterday before a panel discussion in Detroit on racial opportunities in the automotive industry. “The numbers should look more like America. I have been shopping at J.C. Penney since I was 6.”

Ellison will have an annual salary of $1.3 million, plus a yearly performance bonus that can reach three times his base pay, J.C. Penney said in a filing today. He’ll also get a $4.1 million signing bonus and $15 million in restricted stock in 2015 that vests over a three-year period.

At Home Depot, Ellison led a U.S. division with about 2,000 stores, about twice as many as J.C. Penney, that accounted for more than 200 million square feet. He’ll inherit a more-than-century-old retailer that is still working to undo the damage wrought by former CEO Ron Johnson’s failed attempt to turn the department-store chain into a destination for younger, wealthier shoppers.

Plunging Sales

Ullman, who had been CEO before Johnson, returned to the company’s helm in April 2013 amid plunging sales and dwindling cash. He stabilized the chain by raising more than $3 billion in cash through stock and debt offerings while wiping away many of Johnson’s changes. All along, Ullman, 67, said that he’d only be in the position in the short term and that the company was looking for his replacement.

“Ullman really stepped in to stop the bleeding and get the company back into a stable position,” said Mary Ross-Gilbert, a managing director at Imperial Capital LLC in Los Angeles. “He’s done a very good job of getting the company where it needs to be.”

Ullman’s strategy has included reinstating discounting and reviving several of J.C. Penney’s private labels in a bid to reconnect with long-time customers. Sales have gained in the past two quarters, and profit margins have widened for three straight quarters.

Not Impressed

Investors want more. The stock was little changed this year heading into the company’s presentation to analysts last week, when Ullman and his executive team spent more three hours at an auditorium in New York laying out a plan to boost sales by about $2 billion in the next three years.

The retailer then wrapped up the proceedings by saying slowing revenue last month had led it to cut its forecast for same-store sales growth in this quarter to a low-single-digit percentage rate. The company had previously projected a mid-single-digit gain.

The shares sank 23 percent in three days as analysts raised doubts about how J.C. Penney will meet those sales projections.

’Overly Optimistic’

“The company delivered what we believe to be an overly optimistic outlook for the next three years,” Rick Snyder, an analyst at Maxim Group LLC in New York, said in a note to clients last week in which he cut his rating on J.C. Penney’s shares to sell.

Visits to J.C. Penney’s stores are in decline, competition for cheap apparel has increased from the likes of Forever 21 Inc. and it doesn’t have much money to invest in advertising or store renovations, said Michael Binetti, an analyst at UBS AG in New York.

“An effective store operator helps, but J.C. Penney needs merchant and product talent” to boost store visits, Binetti wrote in a note to clients. He cut J.C. Penney’s shares to sell before Ellison’s hiring was announced.

The retailer laid out four initiatives to drive sales growth last week. The easiest to accomplish will be selling more shoes and handbags to women who already buy apparel from J.C. Penney, Ullman said in an interview after the presentation. The company will expand the square footage dedicated to women’s footwear by 30 percent and revamp the purse departments in all of its stores by next year.

’Better Job’

“We’ve always had the issue of being very strong in apparel and less strong in accessories,” Ullman said. Women buy clothing at J.C. Penney and then go somewhere else for shoes and bags, so “there’s got to be an opportunity for us if we do a better job in those categories.”

Ullman also highlighted that the company has revamped its executive ranks, including bringing in a new chief financial officer and heads of e-commerce and marketing. Less than a week later, he added a new CEO to the list.

“If you think about where the retail industry is today, customers have to feel like they have a great experience in the store,” Schick said. “That’s what Marvin did at Home Depot.”

(Updates with closing share price in fifth paragraph.)
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