Gun Fight at the O.K. Corral: Texas Style

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\"ACKMAN_COWBOY_Final\"I know, I know – the real shootout took place in Tombstone, Arizona in 1881 and defined the dynamics playing out in the “Wild West.” But I will take liberties with the analogy for this article. In the real gunfight, the outlaws were Billy Claiborne, Ike and Billy Clanton, and Tom and Frank McLaury. On the other side, the good guys were the three Earp brothers — Marshal Virgil, Assistant Town Marshal, Morgan; and temporary lawman, Wyatt. They were assisted by good friend, Doc Holliday.

To make a long story short, the shootout lasted 30 seconds. The McLaurys were gunned down, as was Billy Clanton, while his brother Ike and Billy Claiborne high-tailed it “out of Dodge,” so to speak. The good guys were wounded, except for Wyatt Earp who came out unharmed.

Well, while there was no 30-second shootout between the board members of JC Penney; it was brief. And, while Bill “Billy Claiborne” Ackman didn’t get gunned down, he did high-tail it out of Texas. Ackman, CEO of Pershing Square hedge fund, the largest JCP shareholder and widely known activist investor, took the first shot, firing an “open” letter to the board, and specifically targeting Chairman Thomas Engibous. Ackman accused the board, in no uncertain terms, that they were shirking their duties. His beef? The board was dragging their feet to find a replacement for current CEO, Mike Ullman.

Ackman went on to further chastise Ullman for not informing him about hiring Debra Berman as CMO, (sniping about her former marketing position at Kraft, that “…the skills and experience one learns from marketing lunch meats and American cheese don’t logically transfer to marketing to JCP’s customer base..”). And he criticized Ullman’s poor performance in turning the business around.

But Ackman’s straightest shot was aimed at chairman Engibous, calling for his resignation. This kind of direct shot was not surprising, given Ackman’s track record of airing his activism publicly (let’s remember his attack on Target and Herbalife and its supporters). He obviously does this to use the media as leverage to force transparency, and as a means to recruit additional “guns” for his battles. I also believe his ego is so big that just winning isn’t enough for him. He wants the other side to be losers, and he wants the whole world to know that he won and they lost.

Well, it didn’t quite work out this time did it Bill?

Also, as a financial activist, the corporations Ackman intends to shake up are like private “clubs” that he may want to join, but the members keep black-balling him. His solution? He just buys the club. So, that means he can come and go as he pleases, but the members still don’t have to like him. And I suspect they do not. They probably don’t invite him in for “afternoon tea,” and most likely try to keep him “out of the loop” altogether, hoping that he just stays out of their way. So, big egos, big power, exclusionary clubs, and billionaires that refuse to be snubbed, is a story that did not end well. There was a winner and there was a loser; and the world witnessed the “gun fight” with the last man standing and the last man pushing up daisies.

Enter the Wyatt Earp of Retailing

However, while all the chastising, criticisms, name-calling, public ranting, and resignation-calling was enormously disruptive, it was suddenly marginalized by the emergence of a new gun into the shootout, none other than giant retail icon and former “serial” turnaround artist, Allen Questrom, who Ackman had reached out to as his recommended replacement for Engibous.

Well, if there was ever a genuine Wyatt Earp of retailing, that would be Allen Questrom. Not only is Questrom among one of the very few CEOs who has come out unscathed by the daily shootouts in the world of retail, he has arguably had a flawless record of success, not the least of which was the previous turnaround of JC Penney under his tenure as CEO from 2000 to 2004. Prior to JCP, he was CEO at Federated Department Stores, Neiman-Marcus, and turnaround-CEO at Barney’s.

Wow was all I could say upon learning about that major move by Ackman. And a double ‘wow’ was an understatement when Ackman was quoted: “Allen Questrom has agreed to return as chairman of the board and assist in a turnaround as long as we hire a CEO that he supports.” When queried by the press, Questrom did acknowledge that while he “…did not want to come back,” he believed JC Penney was salvageable and that he would consider the chairmanship if they could recruit the “…right CEO and a CEO that would be comfortable with him.” And the “right” CEO, according to Questrom and further defined by Ackman in his letter to the board, is one who has department store and CEO experience, strong operational skills and a successful public company record.

And just who might that be?

Enter Doc Holliday

Well, in keeping with the analogy, and as one of the names widely spread around, I took liberty in dubbing him, Ken “Doc Holliday” Hicks, as a potential new CEO . Currently CEO of Footlocker, he successfully led that business to new heights over the past couple years from $4.9 billion in sales (but in decline) when he took over in 2009, to $6.1 billion in 2012. Ken Hicks not only had department store experience with 11 years as a senior merchant at May Co., but of more relevance, he was with JC Penney for seven years before leaving for Footlocker. So he was working for Allen Questrom for two of Questrom’s “turnaround” years, and achieved the title of president and chief merchandising officer before departing.

Without a doubt, Hicks has all of the qualifications as outlined by Questrom and Ackman, and more importantly, given their past relationship, Hicks would likely be a CEO who would be comfortable with Questrom as Chairman.

And why would Ken Hicks leave the very successful, lucrative, and rewarding leadership position of a business that he has turned around and can likely grow to another much higher level (projecting longer term sales of $7.5 billion)? Furthermore, why would he leave to go back to the mess that JC Penney is now struggling to get out of; indeed, perhaps the biggest turnaround challenge in the history of retail?

Well, perhaps because it is such a mess, and a gigantic challenge. And maybe that’s why Questrom was interested in the Chairman’s role. Regardless of any enormous financial incentives, maybe both of these “gun-slingers” still have former JCP friends and feel connected to the company enough to want to save it (i.e., Wyatt and Doc protecting Tombstone from the bad guys).

Will The Real Wyatt Earp Please Stand UpWith bullets ricocheting from every direction, one had to wonder where current (and former) CEO Mike Ullman was. I presumed and hoped he was hunkered down, dodging the bullets, and doing his job which is what the board asked him to do.) He was to stabilize the business while they searched for a new CEO. At that point, any sane person would have to have wondered why he chose tocome out of retirement to save Tombstone.

And I must say, as I’ve said before, Ullman was the perfect choice, a decision that Ackman had to be a part of, along with the rest of the board. Having been CEO prior to Ron Johnson for the better part of a decade, he certainly had the experience to calm the internal chaos, stabilize the financial situation, re-connect and solidify vendor relations, re-position the merchandising strategy, including the re-entry of a couple of their vaunted private brands, and generally to get the entire operation on a more positive trajectory.

And, that is exactly what Ullman is doing. The poor Q2 results notwithstanding, as reported in the JCP August 20th conference call, his comments certainly indicated that he and his team had a very clear understanding (on both a strategic and tactical level), of what the issues and challenges are, and how they intend to address them. And, he realistically cautioned that the turnaround is a slow and complex process. There was some indication that post-Holiday results may begin to show some “sprouts” so to speak.

As I recall the real Wyatt Earp, while he was one of the fastest “draws in the West,” like Sun Tzu (author of The Art of War), he knew and understood the battlefield and all the warriors involved before he opened fire.

So, Wyatt Earp, Sun Tzu or whoever you want to compare Mike Ullman with, he’s not firing blindly, he is methodically doing what he does best, running a retail business, with the added complexity of turning it around.

Ackman and His Ilk Should go Back to What They do BestIronically, Ackman had patience for a year as Ron Johnson attempted to achieve his vision. But, with Ullman only a few months into a historically complex turnaround, hardly enough time to get the enormously wounded ship’s engines to begin working again, the activist came “gunning” for him.

It occurred to me that many of these young hedge fund tycoons who become billionaires, seem to get bored just trading paper and looking at numbers all day. I think that’s when the likes of Bill Ackman, along with Eddie Lampert and many others, say to themselves, “if I’m smart enough to make all of this money, I can certainly run a retail business.”

I say go back to the boredom of trading paper and looking at numbers all day long. That is what you do best. And, it appears that Ackman is doing just that as he begins to sell his shares, with a big loss I might add.

As they say out West: “Know when to hold ‘em and when to fold ‘em.”



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