If The Wall Street Journal is accurate, J.C. Penney (NYSE: JPC) has hired turnaround firm AlixPartners to help it “identify cost savings and manage cash flow.” In other words, the battered retailer’s management, led by new and former CEO Myron E. (Mike) Ullman III, cannot create and execute a plan of its own. At a company that has gotten more negative press than any other large public corporation this year, except for maybe Apple Inc. (NASDAQ: AAPL), the new development will appropriately get it more.
The plan is all the more appalling because the J.C. Penney board signaled that Ullman’s past experience would bring it out of the nosedive created by defrocked CEO Ron Johnson. The AlixPartners move means that Ullman almost immediately decided he does not have that ability. J.C. Penney no longer runs itself. That will be left to outsiders.
The decision comes on the back of a year in which J.C. Penney’s sales dropped by about 20% on a larger drop in same-store sales. Internet sales, critical to the future of any large retailer, fell more than a third. The retailer’s cash position may not be large enough for it to make it through a potential turnaround, so financial institutions that will bolster the J.C. Penney balance sheet via loans will take quite a risk.
More than any other factor in the AlixPartners decision, it is the sign that J.C. Penney management does not have the ability to quickly pick which costs its should shed. Obviously, based on same-store sales, many of its locations must lose substantial amounts of money. Although there are severance and rent costs to close these, could any other decision improve the company’s fortunes? Such a decision would send what could be the most important short-term message to Wall St., that J.C. Penney has admitted it cannot sustain a model that no longer matches demand.
When a company sacrifices the process of charting its own future, it is a signal that it does not have one, at least not as a standalone operation.
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