There won't be an easy fix for J.C. Penney Co. — if it is even fixable.
As Mike Ullman takes the reins again less than two years after his departure, he faces a herculean task to undo the mess left by his predecessor, Ron Johnson, who was ousted Monday. With the department stores in the middle of a disastrous overhaul that has driven away shoppers, the 66-year-old Ullman has to quickly figure out what parts of Johnson's legacy to keep and what to trash.
The overarching question is whether the century-old retailer can be saved at all. Very few retailers have recovered from sales declines of 25 percent in a single year, which Penney suffered under Johnson's watch. On Tuesday, the retailer's stock price dropped more than 12 percent to a 12-year-low of $13.93 as investors' worries escalated about Penney's future.
"Ullman can't go back to the old ways, but he can't do what Ron Johnson did," said Ron Friedman, head of the retail and consumer products group at Marcum LLP, a national accounting and consulting firm. "I think there will be a combination of the two. But he has to make some quick moves."
Apparently, the company's board of directors felt Ullman, who served as Penney's CEO for seven years and is known for strong relationships with suppliers and calm, steady execution, would be the best choice to secure the company's future right now.
The board's firing of Johnson, the mastermind behind Apple's successful retail stores, who held the Penney job for 17 months, came after a growing chorus of critics called for Johnson's resignation as they lost faith in his aggressive overhaul. The rapid-fire changes included getting rid of coupons and most discounts in favor of everyday low prices, bringing in new brands and remaking its outdated stores. Johnson's goal was to reinvent the stodgy retailer into a mini-mall of hip specialty shops.
Penney's loyal shoppers in search of deals went elsewhere, and the chain didn't attract the younger and more affluent shoppers Johnson coveted. Now the 1,100-store chain is burning through cash.
In the past year, the company lost nearly $1 billion and saw its revenue tumble nearly $4.3 billion to $12.98 billion. Customer traffic dropped 13 percent from the year before.
Burt Flickinger III, president of retail consultancy Strategic Resource Group, said it could take Ullman 18 months to stabilize the business. But overall, he gives the chain a 50-50 chance to survive.
"The odds are declining every day," said Flickinger, noting that rivals like Macy's are taking away market share. "Competitors see blood in the water."
Ullman will also have to find ways to boost employee morale amid severe head-count reductions of nearly 30 percent. As of February, Penney employed 116,000 full- and part-time workers, down from 159,000 a year earlier.
Whatever Ullman ends up doing, analysts expect him to be thoughtful and deliberate in his moves. In a statement released by Penney on Monday, Ullman said he plans to immediately "engage with the company's customers, team members, vendors and shareholders, to understand their needs, view and insights." With that knowledge, he will work with the management team and the board to develop a game plan.
When Ullman left Penney in November 2011, the situation wasn't great. But it also wasn't the crisis it is now. And that makes it that much harder for Ullman to turn business around at Penney. Penney's credit ratings are deep into junk status and the company has lost 67 percent of its stock value since February 2012 when investors bullish on Johnson's grand plans drove the price up around $43.
Moreover, history dictates that the odds are against a sales recovery. Last fall, Credit Suisse surveyed 17 retailers that reported annual declines of anywhere from 15 percent to 25 percent in a single year from 2000 to 2011. Of that group, only four retailers recovered the lost revenue. The rest were either acquired by a private equity company, went bankrupt or merged with another public company.