JC Penney's CEO just signaled the end of retail as we know it
- JC Penney's stock price fell by as much as 8% Tuesday morning following the news that CEO Marvin Ellison would be leaving the company to lead home-improvement retailer Lowe's.
- Ellison, who became the CEO of JC Penney in 2015 after a 12-year stint at Home Depot, was tasked with bringing the department store back from the brink of disaster.
- Analysts say his departure could signal a lack of confidence in JC Penney - and in department stores in general - as he jumps ship to a more Amazon-proof business.
JC Penney's stock price dropped by as much as 8% Tuesday morning following the news that CEO Marvin Ellison would be leaving the company to lead home-improvement retailer Lowe's.
Analysts claim that Ellison's sudden departure could signal his lack of confidence in JC Penney and department stores generally as he jumps ship to an area of retail that has been deemed more Amazon-proof.
"Ellison's exit will raise speculation that he is not particularly optimistic about the future prospects of JCPenney and sees the grass as being greener at Lowe's," Neil Saunders of GlobalData Retail said in a note to clients on Tuesday.
Ellison, who became the CEO of JC Penney in 2015 after a 12-year stint at Home Depot, was tasked with bringing the department store back from the brink of disaster. The chain's former CEO, Ron Johnson, tried to make the store more upmarket but alienated core customers in the process, leading it to a $1.42 billion operating loss in 2013 and leaving it drowning in nearly $5 billion of debt.
With Ellison at the helm, JC Penney has undergone a major turnaround and sales have stabilized. The retailer has increased traffic to stores by relaunching appliances to capitalize on Sears' declining sales, expanded its private-label collection, and grown its Sephora pop-ups to more stores.
But the store has been crippled by a heavy debt load and has struggled to find its place in the retail landscape.
"JC Penney hasn't created an experience that solidifies a place in consumers' shopping habits," Kathy Gersh, founder of consultancy firm Kotter International, told Business Insider. "From a consumer standpoint it shares some of the same challenges as Sears, as both have come from being old heritage retailers that were once the only place to shop in a town."
Meanwhile, home-improvement stores have become one of the few spots in retail that are less vulnerable to the threat of Amazon. Amazon's attempt to take over the home-improvement industry with Amazon Local Services (later renamed Amazon Home Services) never took off, as this is considered to be a shopping experience that is harder to replicate online.
Shoppers value the ability to buy home-improvement products in stores and to talk to sales assistants before they do so.
A recent survey done by Bank of America showed that the majority of the 1,000 millennials surveyed "overwhelmingly purchase most or all of their home improvement products in-store," analyst Elizabeth Suzuki said.
64% said Home Depot was their top choice for home-improvement shopping, while 53% preferred Lowe's.
Sinking ship
The news of Ellison's departure comes at a tumultuous time for the department store, which was one of the few retailers to report weaker-than-expected sales during the first quarter of 2018.
"This is arguably the most challenging and competitive retail market that we've seen in over 50 years," Ellison said in a call with investors less than a week ago.
He added: "Retail in the US is a multitrillion-dollar industry, and we believe there could be multiple winners. Those retailers who can offer their customers a value while providing the best in-store and online experience will be winners. And as a company, JCPenney plans to be one of those winners."
But without Ellison at the helm, it finds itself in much weaker position, at least in the short term.
"I don't know if it was a lack of confidence or a moment of opportunity that he couldn't pass up. But certainly, he hasn't finished the job," Gersch said.