J.C. Penney (JCP) CEO Marvin Ellison has abruptly resigned to take the reins of Lowe’s (LOW), plunging the troubled department store chain into a new crisis.
Ellison, who had been a senior executive at Lowe’s competitor The Home Depot (HD) until he became president of Penney in 2014, will start at Lowe’s on July 2 the company said on Tuesday. As for Penney, it said it has created an “Office of the CEO” to lead the company while it searches for a new chief executive.
His departure sent Penney’s shares plunging 8% in premarket trading to all-time lows as the move reignited concerns about Penney’s ability to have more consistent growth. Last week, Penney reported first-quarter comparable sales growth of only 0.2% and incredulously blamed weather for much of the shortfall. Wall Street was not convinced by the excuse, all the more since rivals Macy’s (M) and Kohl’s (KSS) reported far better results for the period.
During his time as Penney CEO, Ellison managed to improve Penney’s balance sheet by reducing its significant debt load and by modernizing its e-commerce somewhat. But many initiatives, notably new apparel lines fell flat and Penney had trouble planning inventory needs, prompting it for instance last year to sell much merchandise at clearance prices and decimating gross margins. The brightest spot at Penney continues to be the Sephora beauty shops, an initiative that predated Ellison’s arrival by eight years.
Ellison, who was groomed by former Penney CEO Mike Ullman before taking the reins himself in 2015, borrowed heavily from his playbook from Home Depot, bringing back the sale of appliances to Penney two years ago after 33 years. But that move hardly reignited Penney’s business. Penney’s apparel business languished, and there was churn in the c-suite more recently, with the head of tech and the chief merchant. Ellison also oversaw the closing of 140 stores and several rounds of layoffs.
To be fair, Ellison had the unenviable task of trying to rebuild Penney in the wake of the catastrophic effort to remake the chain as a hipper retailer under Ron Johnson six years ago. Penney, which operates in many declining malls, never came close to that level of revenue again despite the potential to win some market share from the ongoing sales implosion at mall neighbor Sears.
“This is arguably the most challenging and competitive retail market that we have seen in over 50 years,” Ellison told analysts last week on the Penney earnings call.
At Home Depot, Ellison was in charge of U.S. stores and had been seen as a leading contender to become CEO to replace Frank Blake, but Craig Menear ultimately got the job in 2014. Lowe’s should be an easier fix for Ellison. While it has underperformed Home Depot for years under former CEO Robert Niblock, it is at least growing consistently and is not crippled by debt. Lowe’s also named Rick Dreiling, the executive who oversaw Dollar General’s massive growth, as chairman.
As for Penney, it will be a tough battle to find a CEO willing to take on a retailer facing such tough odds. In 2013, at the moment of its deepest crisis, Penney resorted to bringing back Ullman, who had been CEO earlier, to replace his replacement.