JCPenney's Johnson Is Out, Ullman Is Back. Now What?

What happens next at JCPenney (NYSE:JCP), after the 1,100-store chain fired CEO Ron Johnson on Monday (April 8) and replaced him with the CEO that Johnson replaced, Mike Ullman? The retailer isn't saying. But one thing is certain: The chain won't just be turning the clock back to the day Ullman departed in 2011. Many of the internal changes Johnson instituted at JCPenney are effectively irreversible, including remodeling all the chain's stores and replacing much of the chain's IT capability. That money is already spent.

Johnson had already reversed many of his decisions that were the most unpopular with shoppers—including his elimination of sales, discount pricing (including "mark up to mark down") and coupons. There's no chance those policies will return under Ullman.

Other Johnson initiatives are more likely to survive under new management. The shops-within-the-store modeled on existing Sephora boutiques? Very likely to survive, especially since Ullman actually created them during his previous tenure as JCPenney CEO.

Remember that? You probably don't, because from the way Johnson talked about the Sephora in-store shops a year ago, you'd think they were an undiscovered gem that no one at JCPenney had noticed until Johnson realized how much more business they were doing per square foot than anything else in the chain.

In fact, Ullman ran Sephora in the late 1990s and launched that chain's specialty store and E-Commerce initiatives. Think it's even slightly likely that he didn't know exactly how much those Sephora boutiques were making? We don't either.

Ullman also kept a close watch on IT when he ran JCPenney the first time around, green-lighting tests of item-level RFID tagging for inventory control, development of giant kiosks to put the chain's website inventory in front of in-store customers, and early work on the kind of in-aisle POS that the retailer is rolling out to all stores this month. Much of that work was done skunkworks-style, possibly because internal development is easy to squeeze into a budget than a separate line item for an outside vendor to do the work.

So why is it that, back in 2011, Johnson was viewed as a high-tech retailing whiz kid while Ullman was shown the door to make room for him? Largely, we suspect, it's because of money—the money that Ullman couldn't convince JCPenney's board to spend on the chain, including IT and store improvements.

And Johnson's reputation as the founding genius of Apple's retail chain is exactly what opened the corporate wallet for a complete data-center overhaul, chain-wide store remodelings and in-store IT ranging from mobile POS to RFID-based checkout.

Now, of course, Ullman is the beneficiary of all that spending. Or at least he may be, depending on how far along each project is.

In-aisle POS? That's a done deal. The data-center overhaul? That's not so certain.In-aisle POS? That's a done deal. JCPenney is already reportedly running 25 percent of its transactions on the mobile devices. Besides, it's hard to imagine how JCPenney would approach Apple about getting its money back on all those card-sled-equipped iPods: "Hello, Tim? It's us, Penney's. If you let us return these tens of thousands of iPods for a refund, we promise not to ask for our money back on Ron Johnson. Deal?"

The data-center overhaul? That's not so certain. Six weeks ago, Johnson told an earnings call that "partnering closely with Oracle (NASDAQ:ORCL), we are in the middle of a complete overhaul of our finance, merchandising, planning, allocation and store systems, so that we can compete with most modern systems in our industry."

That sounds like the project is too far along to stop. But wait—that was just after Johnson told analysts, "We exit the year with a vision to completely overhaul our IT platform." Visions are easy to abandon. If those 500 legacy systems that COO Mike Kramer was trying to replace haven't yet been ripped out, the board may decide it's cheaper to buy out the Oracle contracts than to pour more money down the hole. After all, Ullman got by with the old mainframes before, right?

What about the villages of shops-within-the-store? Johnson's grand plan of completely redesigning every JCPenney store is probably too expensive to move forward on. But the chain has already installed some additional shops, including Levi's and Joe Fresh, and has signed deals with other brands. If the new additions bring in the kind of sales that Sephora has for the chain, they're probably worth keeping, even to the chain's once-burned-twice-shy board.

The simplified organizational structure that's supposed to save the chain $900 million a year in expenses? That's almost certainly going to remain. So is anything else that actually cut dollars from the retailer's cost structure. (There's no way to know now whether that includes the associate sales commissions that Johnson abolished early on. But we will know within the next few months: If commissions return, that means they were ultimately cheaper after all.)

What almost certainly won't remain is the very healthy IT capital-expense budget that Johnson talked the board out of. Ullman couldn't get that kind of money before, and he's certainly not going to get it now that the chain is in such dire straits.

And in that respect, JCPenney will be trying to turn the clock back to 2011 after all.

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