By most accounts, Myron “Mike” Ullman has done a good job stopping the bleeding since returning to the CEO’s office at JCPenney in 2013, following the disastrous, short-lived tenure of former chief executive Ron Johnson. How exactly has he done it, though? That’s what we wanted to know during a recent interview and audience Q&A with Ullman at the Dallas Friday Group, a luncheon forum for businesspeople. Although Ullman graciously avoided mentioning Johnson by name during our conversation, he wasn’t shy about assessing the problems caused by the one-time Apple savant. Ullman, who led Plano-based Penney from 2004 to 2012 before making way for Johnson in 2012, was asked whether coming back to the company wasn’t hard and stressful. “No! Hard and stressful is when you’re building something that people don’t like,” he replied. “Satisfying is when you’re fixing some stupid mistakes that somebody else made. So that’s what we’re doing.”
Q: Can you talk about exactly what you’ve been doing—and how it’s going?
MU: The previous administration came in and tried to change the customer proposition—tried to change the assortments, the pricing and so on. As a result, we lost 43,000 associates, the cash we had was down to zero when I came back, and, literally, we were days away from liquidating the company. So it was pretty easy to understand what the job was: get financial stability, get the right team on the bus, get the wrong team off the bus, and focus on what the customer valued. I’m proud to say that after 23 months, the team has done a terrific job of getting us back in business. The customer seems to like us. Fortunately, we have 87 million active customers again—the same number we had in 2011. And we’re no longer burning cash.
What did you do to make that happen?
Probably the most important thing we’ve done is more or less make sure that we have the right leadership and the right strategic objectives for the company. We operate in a very strange part of the retail spectrum. We serve a very diverse [customer segment] that’s very hard-working. They need our $15 average price point to take care of their families. I facetiously say that our customer has too little time, too little money, and two little kids. She needs JCPenney. She’s got $400 to spend on her wardrobe for fall, and she can spend $400 for three or four items at Nordstrom, or for 10 items at Macy’s, or she can shop with us and feel like she has lots of choices. On the other hand, our customers sometimes will shop at Kohl’s, because they can afford the $15 average price point there, the same as at our stores. My view is that we need to get more of those Kohl’s customers to shop at JCPenney. I think we have a very sound proposition to attract customers back and fix the plumbing.
What is the key to sustainable success at Penney’s?
We destroyed a lot of enterprise value, which is why the stock is languishing. In order to get back on top, we need to grow $5 billion in additional sales, on the $12.5 billion or so we have. So the reality is that we have initiatives that we are explaining to the Street—I’ll spare you the details—that basically involve resurrecting some of the things that were destroyed, and growing some businesses that we think are huge opportunities to entertain and attract customers. Sephora is one example; it’s a beauty concept that I brought from LVMH and we put inside JCPenney’s. Now we have some 500 Sephoras inside JCPenney, and there will be another 250. It happens to be the most productive things in the stores. We have five or six things like that. We believe that by 2017, we’ll be back to $1.2 billion EBITDA, and that’s what our program’s about.
How has the Internet affected your business?
Half of our merchandise is private brands. I feel we can balance between the store and the online experience. We’re rebranding our hair salons—we have 850 of them—and you can’t get a haircut online! Sephora as I said is a huge attraction. We’re going to continue to attract people to the stores. There was an Accenture study of millenials last year. It found that 75 percent of them said that if there was a choice between online shopping and shopping in the store, they would go to the store. The reason was, they wanted to touch the merchandise and meet their friends there. In the future the stores will be smaller and fewer. People will buy some online, but for fashion, they’re more likely to go to the store. It’s expensive to play the game, because you have to have it all.
I’ll say my predecessor did something that was somewhat difficult to understand, since he was supposed to be from the technology sector. He felt that the Internet was competing with the store, so he changed all the assortments online … So we dropped half a billion dollars just on that idea. We went from $1.5 billion in Internet sales to $1 billion in one year. So things like that, if you don’t do it well, you deserve to lose.
Why did you even want to come back to Penney’s?
I was so upset watching what happened to the company. I said yes before [they] even asked me. It was easy to want to come back, because I thought it could be saved. I knew the core, strongest people were still there. And the customer needs a JCPenney. I wasn’t sure whether we would declare bankruptcy; I didn’t know. But Goldman Sachs stepped up and gave us a … real estate collateralized loan, and we’ve got the right team on the bus. We made a lot of mistakes, too. I don’t know whether, in the history of retail, if a retailer has ever completely changed the assortment in one year. He probably had 14 different brands, and all but one are gone. Not because we just decided to get rid of them, but the customer voted. They didn’t understand why they were in the store. So we basically had to flush millions and millions of dollars worth of merchandise out.
Has your return been hard and stressful?
No! Hard and stressful is when you’re building something that people don’t like. Satisfying is when you’re fixing some stupid mistakes that somebody else made. So that’s what we’re doing. The customers forgave us pretty quickly. Some took longer than others. Given the fact that we have 87 million active customers again—same as in ’11—people say, so why isn’t your volume the same? Well, some of the businesses that were destroyed are taking longer to put back together … They remodeled 500 of our homes stores. They had to be a perfect square, like Apple. They increased in size, went from traditional merchandise to modern, went from soft goods being dominant to hard goods being dominant—and hard goods are less profitable. So when we reopened the 500 stores—we’d spent $650 million remodeling them—they did less business than before the remodeling. So it just shows you how difficult some of this stuff is to deal with. We’re still doing only about half the home business we were doing when I left. So that’s why the volume is not back yet.
Are there any lessons for other leaders in the Ron Johnson tenure?
I would say the lessons are, “Know your customer.” One thing I’ll say facetiously is, “Don’t let go of buyer No. 1 until you have Buyer No. 2.”
Last October, Penney announced that Marvin Ellison, who was executive vice president of stores at Home Depot, would become Penney’s president and the new CEO, once you step down this coming August. How has the transition gone?
Marvin was the one who pretty much changed the culture at Home Depot. He’s African-American, the son of a sharecropper, he worked every day to make his way, and he’s just a terrific human being. We decided that we’d work together for nine months, give him a chance to get up to speed on the aspects of our business that differ from Home Depot. He did tell me that he already liked it better here, because he said 90 percent of the people that come to Home Depot are mad as hell! [Because they’re trying to figure out how to fix something that’s broken.] We’ve been doing that for the last four or five months, and it’s worked very well. I said, “Why don’t we share the same job. Nobody can tell the difference between what we decide. If I say something stupid, you’ll swear to it; if you say something stupid, I’ll swear to it.” By August 1, I hope to just fade away. But if there’s any need for any extra coaching, I’ll be executive chair for a year and look forward to helping him.
Thinking back over your varied career—including your stints at the helms of LVMH Moet Hennessy Louis Vuitton and Macy’s, during a very rocky time—what are some of the leadership lessons you’ve learned?
I probably learned more in the 22 months getting Macy’s out of bankruptcy than the entire rest of the 45 years I’ve worked. Adversity is a great teacher. I can’t remember anything I’ve learned, to be honest, in business or in life, that hasn’t come through hard knocks, recognizing, trying to figure out how to get to a different place. Of the 20 top people at Macy’s during the bankruptcy, seven became CEOs. They didn’t learn it from me; they learned from the experience. You have a great sense of urgency when you know that 60,000 people are going to lose their jobs if you don’t fix the company.
What’s your take on today’s retail environment in general?
There used to be 65 department store companies. Over the last 40 years, however, there are fewer and fewer and fewer. The ones that are left, most are quite viable. It’s very crowded, because there are so many ways to shop. There’s probably five times more space per capita than there was 20 years ago, and five times more merchandise than there was per capita 20 years ago. It’s up to the customer to decide what they value. The department store is still viable. I think the ones that are going to survive are the ones that provide a seamless experience between the Internet and the store and the home. So I’m pretty optimistic.
