Covering a new CEO at J.C. Penney

The news that J.C. Penney replaced CEO Ron Johnson, who tried to remake the retailer into a one-price clothing store, means that activist investors won. And it also means the company is returning to the leadership of former CEO Myron Ullman.

The coverage was mostly complimentary. Here’s the New York Times basic take on the news:

After a troublesome 17-month run, Ron Johnson is out as chief executive of J. C. Penney, and with that, the most closely watched revival effort in retail in recent memory is in danger of disintegrating.

The company’s board said on Monday that Mr. Johnson, who engineered Apple’s retail strategy, is leaving Penney and that Myron E. Ullman III, who had been C.E.O. at the retailer for seven years until Mr. Johnson took over, has returned to the helm.

Talk of Mr. Johnson’s possible departure had been swirling in recent weeks as Penney’s troubles with sales and strategy mounted, and as William A. Ackman, the activist investor and board member who recruited Mr. Johnson to revive Penney’s fortunes, seemed to withdraw support for him late last week.

Still, it is a curious move to go back to Mr. Ullman. Most of the senior employees that he had assembled at Penney either left or were dismissed by Mr. Johnson. And it was dissatisfaction with where Mr. Ullman was taking the company that led Mr. Ackman to look for another leader in the first place. Though profitable, Penney was seen as a mediocre retailer that was losing ground to competitors like Macy’s and Kohl’s.

The Wall Street Journal took the angle of what the returning CEO will likely keep of JC Penney’s new retail strategy and what will likely be replaced in order to make up some of that lost market share:

The mini boutiques with which Mr. Johnson planned to pepper Penney are likely out the door, analysts say. And reestablishing relationships with vendors is probably a priority.

Investor concern remains high: In early trading Tuesday, Penney stock was down about 10%.

Mr. Ullman is likely to take a close look at the company’s biggest transformation project: its home department. The multi-million dollar project includes bringing in fresh merchandise and new stagings.

Mr. Ullman’s stamp isn’t likely to be too heavy handed at the start.

“One thing they can’t do is swing the pendulum back to the way things were under Mr. Ullman because that wasn’t working either,” said Kathy Gersch, co-founder of Kotter International, a leadership consulting firm. “As a management team, they have to take a look at who their customer is and what they want and move in that direction. And that can’t be Ron Johnson’s or Mr. Ullman’s.”

“Perhaps Mr. Ullman can take the best ideas from Mr. Johnson’s regime, such as the specialty shops—but where will the cash come from to execute it—and abandon the worst ideas, such as eliminating discounts and clogging the aisles with gelato stands, and return the company to its former glory,” said Carol Levenson, director of research at Gimme Credit, a corporate bond research firm.

There are also personnel issues that will have to be dealt with. For instance, there has been no word of the fate of Chief Financial Officer Kenneth Hannah, who Mr. Johnson brought in, or other of his top management hires that remain.

Mr. Ullman “is coming in, but he’s not coming back to the same leadership team he had when he left,” given Mr. Johnson having brought in his own people, said Ms. Gersch. “Mike Ullman needs to pull that team together because they have a short period to get things back in order.”

The Bloomberg coverage was the most drastic, saying the retailer may have to sell itself in order to regain its previous place in the market:

J.C. Penney Co. (JCP) made a radical break with tradition by hiring Silicon Valley wunderkind Ron Johnson as chief executive officer. With Johnson gone, the chain may have to pursue even more radical options, such as selling itself.

Ullman faces several tough choices. He’ll have to decide whether to continue Johnson’s strategy of turning the chain into a collection of boutiques or return to a more traditional department-store model. Ullman will also have to consider whether to sell the company or break it up, said Dave Larcker, a corporate governance professor at the Stanford Graduate School of Business in Stanford, California.

“The board is going to have to get much more involved in the strategy of the company,” Larcker said. “People may attack the board, as well, for how this happened. This was a high- profile hire. For it to unravel this quickly is kind of terrifying.”

The Plano, Texas-based chain was so damaged under Johnson that Ullman will struggle to turn it around. On Feb. 27, J.C. Penney reported annual revenue dropped to $13 billion, the lowest since at least 1987. Johnson alienated the company’s core customers by doing away with sales and promotions and only recently began trying to win them back by putting discounts front and center again.

“There is a tremendous amount of cleaning up and rebuilding that has to take place,” Howard Gross, managing director of the retail and fashion practice at executive search firm Boyden in New York, said in a telephone interview.

Johnson’s appointment as CEO in November 2011 was greeted with much anticipation by analysts and investors. After all, he had helped Steve Jobs prove doubters wrong by turning Apple Inc.’s stores into a success with unrivaled sales per square foot. Johnson was expected to work similar feats at J.C. Penney, which was struggling for relevance. The shares surged 17 percent on June 14, 2011, the day Johnson’s hiring was announced, for the biggest gain in more than a decade.

It looks like Ullman doesn’t have the same star power with investors. It’s interesting that the retailer would return to an ousted CEO in order to right itself. It’s likely to be a closely watched story in the next several quarters as the company sorts through strategy, management and what it’s going to look like in the future. I’m sure the press will chronicle each and every move, likely putting different spins on the news.

The next coup will be who gets the first interview with Ullman as he retakes the helm.