The debacle at J.C. Penney exposes a glaring inefficiency in how the market values corporate chieftains. When the struggling retailer hired Apple whiz Ron Johnson in 2011, the company’s equity value spiked by more than $1 billion. On Monday evening, news of his departure added $350 million. The return of Michael Ullman - the man Mr. Johnson replaced - swiftly erased some $700 million. Such big swings make no sense.
Less than two years ago, Mr. Johnson was given a savior’s welcome. William A. Ackman, a board member and hedge fund manager whose Pershing Square Capital Management is J.C. Penney’s biggest shareholder, championed the recruitment and touted Johnson’s retail success at Apple and Target. Apple, in particular, always looked a shaky comparison. J.C. Penney lacks the desirable products, focus and brand image of the iPhone and iPad maker.
As it turns out, J.C. Penney’s shares are trading at less than half the price they were when Mr. Johnson took over. A year and a half isn’t long enough to forge a major turnaround. Even Mr. Ackman, though, realized things weren’t going well. He bluntly acknowledged the problems at a conference last week.
Even if Mr. Johnson’s ideas had been the right ones, big organizations with entrenched people and cultures are hard to turn around. That made the market exuberance for his arrival excessive. By the same token, the large discount applied to Mr. Ullman’s second attempt is probably overdone.
Part of the rap against Mr. Johnson is he tried to do too much, changing sale policies and alienating traditional customers. In that sense, a blast from the past might not be so bad. Although Mr. Ullman’s seven-year tenure cost J.C. Penney 15 percent of its value - as Mr. Ackman liked to point out - the pressure from online rivals, the intervening recession and the more dramatic decline under Mr. Johnson make that record look less bad.
J.C. Penney, now a $3.1 billion company, has struggled to keep up in a challenged industry. That may be where Mr. Ullman can help. If anything, the fickle market has provided him with one advantage over Mr. Johnson: low expectations
Richard Beales is assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
