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Tuesday, Jun 19, 2012 12:45 AM UTC

J.C. Penney says President Francis is leaving

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Topics: From the Wires,

NEW YORK (AP) — In the latest sign of turbulent times at J.C. Penney Co., the mid-price department store chain said Michael Francis, the former Target Corp. executive brought in to help redefine the brand, is leaving the company.

In a terse statement issued late Monday, the department store operator gave no reason for the abrupt departure of Francis, who had been on the job for a little over eight months. As president, Francis was responsible for the marketing of a controversial new pricing plan that aims to get rid of hundreds of sales events. He also oversaw merchandising and product development.

Shares fell nearly 6 percent in after-hours trading.

Penney said that Ron Johnson, the former Apple executive and new CEO, will assume direct responsibility and oversight of the company’s marketing and merchandising functions.

The surprise move comes as the department store chain is scrambling to reverse a sharp drop in customer counts and plummeting sales after Johnson’s new pricing strategy ended up turning off customers, who are accustomed to coupons and big markdowns. The plan was implemented Feb. 1.

Since announcing abysmal first-quarter results last month, Penney has been making changes to its advertising and marketing to better explain the three-tier pricing strategy that entails everyday low prices that are 40 percent lower than a year ago; monthlong sales that are deeper and are on select items; and clearance sale events or “Best Price Friday” sales.

The company has also been backpedaling as well. It added five “Best Price Friday” sales throughout the year, including one on the Friday before Memorial Day weekend. That’s in addition to the Best Price Friday sales, which are held on the first and third Friday of every month. The company is also resurrecting the word “sales” in its advertising, a word that was taboo under Johnson’s original plan

“Everything we’ve done hasn’t been perfect … We haven’t communicated our pricing change in a way that customers understand yet,” Johnson said in an address to investors at the Piper Jaffray Consumer Conference, held earlier this month. “It’s just been kind of confusing.”

Still, analysts were surprised by the sudden departure of Francis, who injected a quirky, whimsical style in Penney’s advertising even though critics said it didn’t properly spell out the new pricing strategy.

In one TV spot, a dog continuously jumps through a hula hoop that a young girl is holding. The text reads: “No more jumping through hoops. No coupon clipping. No door busting. Just great prices from the start.” The company also came out with a stylish monthly magazine that highlighted key items for sale.

“What they were doing hasn’t worked. (Francis) is the fall guy,” said Walter Loeb, New York-based retail consultant.

But Loeb said ultimately, people have to look at Johnson, who directed the pricing plan. He believes the plan is out of touch with shoppers’ current mindset.

In an interview with The Associated Press in late January, Johnson said he didn’t believe shoppers would be turned off by the sea of big markdowns in the store.

“I wouldn’t assume they like the (old) pricing strategy. I think they’re insulted by it,” he said in the interview.

Brian Sozzi, NBG Productions analyst, noted that Francis’s sudden departure underscores the big mistakes the company has made in articulating the new image and policies.

“Since Ron Johnson was unlikely to fire himself due to early turnaround missteps, he appears to have decided to swing the axe over the head of the person he hand-picked as president,” Sozzi said.

Penney, based in Plano, Texas, said Francis is unavailable for comment.

Francis is among a number of big-name executives Johnson has brought in to help transform everything about the retailer, from the brands it carries to the store experience. The riskiest move, however, is the elimination of hundreds of sales events in favor of more predictable low prices.

Penney reported last month a bigger-than-expected loss for the first quarter. Revenue also dropped 20 percent as customer traffic slipped 10 percent. Meanwhile, revenue at stores open at least a year — a comparison used to measure a retailer’s health —dropped 18.9 percent.

Investors were spooked by Monday’s announcement. Shares of J.C. Penney Co., which closed down more than 2 percent at $24.33, fell nearly 6 percent more in after-hours trading Monday on the news.

After Johnson laid out his vision for the new pricing strategy to analysts at the end of January, shares soared, peaking at $43.13 on Feb. 9. But they have lost almost half of their value since then.

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Sarah Skidmore contributed to this report from Portland, Ore.

More Anne D'innocenzio.

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