ld final project edits

RETAIL REVOLUTION

Gary Trinh

RA6007502

Peter Marozzi

RA6027065

Laura Fan

RA6007798

Nguyen Hai Viet

RA6007463

The new CEO reinvented his last

two companies - but is his latest

vision a pipe dream?

Group 10:

Company Background

• 110-year-old Plano, Texas based clothing

retailer

• Founded on the Golden Rule: “Treat

people as you‟d want to be treated.”

• Mainly targets lower-to-middle-class

families

Persons of Interest

Thomas EngibousExecutive Chairman

Previous Texas Instruments CEO

Bill AckmanActivist Investor

CEO of Pershing Square

Capital

Mike UllmanPrevious JCPenney CEO

Served from 2004 - 2011

History

2010

•Bill Ackman acquires 17% stake in company

•JCPenney ends catalog business

2011

•Bill Ackman convinces board to fire Ullman

•Ron Johnson is hired as CEO

2012

•Johnson eliminates sales and coupons

•Company lays off about 10% of its workforce

Cotton (dollars per pound)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Stock Price

$0

$25

$50

$75

$100

$0

$3

$5

$8

$10

Revenue(in billions of dollars)

Clothing Retail(in billions of dollars)

$0

$100

$200

Physical Online

Ron Johnson2000 - 2010

• Worked as the SVP of

Retail under Steve Jobs

• Implemented move from

online only to brick-and-

mortar stores

• Most profitable

retail business

AAPL:$6,000/ft2

JCP:$150/ft2

1990 - 2000

• Worked as the Vice

President of

Merchandising

• Implemented cheap

chic and design trends at

Target

• Stock price

and company

performance

skyrocketed

Thoughts on Leadership• “Internally I think of myself more of a captain. I‟m one of

the teammates … ultimately I just want to lead the

team. So as a captain I get to play. I want to be

involved when they do work, I don‟t want to review work

when it‟s done.”

• “I don‟t just want to run a business… I want

the chance to transform something. I didn‟t

come here to improve Penney, I‟m here to

transform Penney.”

• “This is like we‟re a big $18 billion startup. And we‟re

going to act like a startup in how we make decisions.

We can move as fast as we‟re willing to.”

The Offer• Bill Ackman often worked hard to improve the

performance of companies he invested in by

getting actively involved, including pushing for

CEO and board member changes.

• After years of pushing, Ackman finally got the board to

agree to change JCP‟s CEO.

• Johnson received $50 million worth of JCP stock

with a 6-year restriction. If the stock was below

the price at which he received them, he would get

nothing. Johnson also purchased the same

number of shares with his own money. His future

is their future. Stock up 10% on announcement.

Goal: Become “America‟s Favorite Store”

Customers: Target all classes, instead of just low-income

Timeline: Change all stores immediately and

simultaneously Complete transition within 3

years

Strategy:

• Eliminate coupons and sales

• Give customers a “fair and square deal”

• Create an in-store experience (coffee shops, etc.)

• Uniquely branded store-within-a-store concepts

The Vision

• Massive promotional campaign in

print and TV

• Ellen Degeneres (former employee)

would be national spokesperson

• Prices no longer listed in promotions – prices on items in

store showed „fair and square everyday price‟ next to

MSRP

• New logo intended to modernize company image and

appeal to larger customer base

Marketing

• Closed several of JCP more than

1,000 store locations

• Cut staffing at headquarters by 10%

while eliminating positions at many stores

• Replaced most upper-level executives with hand-picked

set of the best and brightest from across the retail

industry, including top executives from Target, American

Eagle and Abercrombie and Fitch

• Move away from employee commission on sales to

encourage teamwork and collaboration

Organization

Suppliers:

• Eliminated many established brands

• Some suppliers sections unfinished

• Basics (underwear, socks) sales way down

Customers:

• Some prices not relabeled, causing

confusion

• Difficulty finding checkout areas

• Loss of coupons and sales frustrating

Employees:

• Memos and formal communication

eliminated

• Large workforce layoffs

• Sales info no longer shared between stores

Problems

ResultsAfter only a few months, the results of the first quarter

came in.

Negatives:• Overall sales were down 20%

• Customer spending was down 5%

• Same store sales decreased 10%

Positives:• 67% of items bought at regular price vs 1%

before

• Transformation will be 3 years; change takes

time

• Ahead of schedule but still haven‟t

Discussion

• How do you think Johnson could achieve

his vision?

• What do you think contributed to the

decrease in sales?

• What is the difference in the mindset

between a Vice President and a CEO?

• Which kind of thinking does Johnson

display?

Decision

Should the board replace

Johnson or let him follow

through with his vision?

Thank You!