CEO Daily: Wednesday, February 24
The cover story in the March issue of FORTUNE magazine, which we release this morning online, is Saving Penneys by Phil Wahba. It’s about CEO Marvin Ellison’s effort to rescue the iconic but struggling department store. Every student of business should read it, and then go back and read Jennifer Reingold’s story from two years ago about prior CEO Ron Johnson’s effort to do the same.
Together, they capture the eternal tension in business between inspiration and perspiration, vision and data, strategy and execution.
Johnson, who got the job in June 2011 at the urging of activist Bill Ackman, came from Apple, where he helped build the company’s phenomenally successful retail arm. He fashioned himself as a charismatic leader, bent on radical change, determined to make “JCP” a cool brand. He shared the Steve Jobs phobia of surveys and focus groups – customers “don’t know what they want until you show it to them,” as Jobs famously said. He undertook an aggressive remake of the stores that alienated customers, caused sales to plummet by a third, and left 40,000 out of work. In the spring of 2013, Johnson was ousted by the board, which brought back the previous CEO Mike Ullman.
Ellison is a different sort of leader. He grew up as one of seven children that sang as a gospel group in clothes they bought from JC Penney, and he started as a security guard at Target for $4.35 an hour. He is a living embodiment of the adage that “retail is detail,” walking the store floors and repositioning merchandise to elicit more purchases from existing customers. He requires all his executives to wear JC Penney merchandise on store visits, to better identify with their customers. “We can convince ourselves that our core customers are a more affluent demographic,” he says. “But really, they are not.”
The jury is still out on whether Ellison will get the job done. But his journey, and the last decade’s journey at JC Penney, is a fascinating case study worth following.
Meanwhile, Donald Trump trounced his opponents in the Nevada caucuses, moving one more step closer to the Republican presidential nomination.
Have a great day.
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United Technologies on Monday said a merger with Honeywell could either be blocked outright or would require significant divestitures to win regulatory approval. A day later, Honeywell essentially shrugged off those worries, confirming it has engaged in deal talks with United Tech and adding it doesn't see any big regulatory obstacles. “A combined Honeywell and United Technologies would maintain a strong investment grade rating, and have higher free cash flow,” Honeywell said. Reuters
• Viacom to sell stake in Paramount
Viacom, in charge of the MTV and Nickelodeon channels, announced plans on Tuesday to sell a minority stake in Paramount Pictures – news that sent the company's shares higher. "I have decided to pursue discussions with a select group of potential investors," CEO Philippe Dauman said. There had been calls by a key activist investor to sell a stake of Paramount, so the plans Viacom announced heeds some investors' demands. The company's revenues have slumped over the last three years, so new ideas are likely to be welcomed. Fortune
• Saudi Arabia rules out production cuts
The Saudi oil minister ruled out the prospect of production cuts by the Organization of the Petroleum Exporting Countries, signaling that rock-bottom oil prices won't go away anytime soon. Ali bin Ibrahim Al-Naimi, speaking at an industry conference in Houston, said that cuts to production won't happen because many nations "are not going to deliver." Instead, he seemed more hopeful that the major producers would agree not to add additional barrels. Over time, the high inventory would decline. There had been hopes that OPEC countries and Russia would freeze production, but that doesn't look likely as Iran signaled it wouldn't cooperate. USA Today
• UPS invests in same-day delivery startup
Same-day delivery startup Deliv Inc. is getting a funding boost from an unlikely source: United Parcel Service Inc. The California-based company, which collects goods from brick-and-mortar retailers to bring them to customers' homes nearby, is one of a handful of players aiming to capitalize on the last-minute delivery trend. That is typically the priciest leg of an order's journey. Deliv is set to announce a $28 million funding round, which was led by UPS, on Wednesday. For UPS, the main advantage (beyond the board seat it won) is an opportunity to observe a business model it doesn't yet participate in. The Wall Street Journal (subscription required)
Around the Water Cooler
• Nike co-founder makes big donation
Philip Knight, a co-founder of the iconic Nike brand, has donated $400 million to Stanford University to help fund a new graduate-level leadership program. The donation from Knight is the largest Stanford has ever received and matches the largest gift ever bestowed to a university. Hedge fund magnate John Paulson last year donated the same amount to Harvard's engineering school. Knight earned his MBA from the Stanford Graduate School of Business in 1962, two years before he helped found an athletic brand that would later amass a personal fortune worth some $25.7 billion. Fortune
• Uber's rich enemy in China
Uber's Travis Kalanick admitted last week the company is losing $1 billion a year in China, with most reports attributing the loss to tough competition with local ride-hailing rival, Didi Kuaidi. But as Fortune reports, many outlets failed to mention that the fierce competitor comes with deep pockets and big backers. And that could keep Uber deeply in the red in China for a while. Didi Kuaidi raised $3 billion in September and announced a tie-up with U.S. rival Lyft last year so that Lyft users could use Didi seamlessly in mainland China, and vice versa. Fortune
• Honda's plans for cars to be green
Honda Motor on Wednesday said it aimed for new-energy vehicles to account for two-thirds of its line-up by 2030, from around 5% now, as stringent global emissions regulations prompt automakers to make greener cars. The auto maker said its gas-battery hybrid, plug-in hybrid, battery electric and fuel cell vehicles (FCV) would collectively outnumber its gas-only offerings in less than 15 years’ time. Top rival Toyota also recently set dramatic long-term emissions-related targets. But these goals are challenged by limited infrastructure such as charging stations, while currently low oil prices have supported demand for bigger, petrol-guzzling vehicles. Reuters