Lowe's New CEO Gets Dream Job After Missing Out at Home Depot
Bloomberg
May 22, 2018
Four years ago, Marvin Ellison lost out on the top job at Home Depot Inc. Now, after a lackluster tenure at struggling department-store chain J.C. Penney Co., he will get a chance to run a home-improvement retailer.
Ellison, 53, was appointed chief executive of Lowe’s Cos., the arch rival of his former employer, on Tuesday. His main challenge: finding a way to revive the perennial No. 2 in the home-improvement industry, whose results have paled in comparison to Home Depot.
While Ellison failed to turn around J.C. Penney, many of his initiatives, including making stores more efficient and improving customer service, mirror what Lowe’s activist investor D.E. Shaw has called for. Shaw began pushing for changes this year, including a new CEO, and the retailer obliged in March with long-serving chief Robert Niblock, 55, announcing his retirement.
Lowe’s investors initially welcomed the appointment of Ellison, who’s spent 12 years in leadership roles at Home Depot, but the stock pared its gains and was trading down 0.7 percent to $86.77 at 11:07 a.m. in New York. The timing of the announcement, right before the company’s first-quarter earnings report on Wednesday, raised concerns that results might be below estimates, according to Seema Shah, an analyst for Bloomberg Intelligence.
At J.C. Penney, the abrupt resignation of Ellison sent the stock down to another historic intraday low of $2.28. J.C. Penney was already struggling when he took over, and the stock lost another 70 percent during his tenure, in spite of his efforts to lower expenses and drive sales of big-ticket items like appliances.
Ellison will step down from J.C. Penney on June 1 and four top executives will share the day-to-day operations until a new chief executive is appointed. He is leaving a company that just posted disappointing results and cut its forecast, a sign that the chain is not benefiting from recent improving consumer trends in the U.S.
“It’s hard to construct today’s news as a positive development,” Chuck Grom, an analyst for Gordon Haskett, said in a research note. And it’s “pretty evident” that J.C. Penney was unaware of Ellison’s plans as of late last week, when the company reported earnings and the CEO was active in discussing long-term strategy, he said.
Lowe’s lured Ellison away with sign-on awards valued at $6 million and a bonus structure that could pay him many millions more. He will take the CEO job on July 2.
“Lowe’s has the opportunity to improve,” David Schick, director of research for Consumer Edge Research, said in a note. “Simply put, the Marvin Ellison hire grows the probability this works.”
At J.C. Penney, Ellison made several changes, including pushing the retailer to improve its online experience and supply chain. Those are also two areas that the activist investor said needed be addressed at Lowe’s. Ellison also added appliances to its offerings, revamped the store’s hair salons and did brand partnerships with celebrities, like former NFL Star and talk show host Michael Strahan.
The new strategies haven’t dramatically improved results. The company recently cut its profit forecast, blaming cool weather for weighing down sales. And this was especially troubling, considering the woes of competitors Sears Holdings Corp. and Bon-Ton Stores Inc., according to Shah, the Bloomberg Intelligence analyst.
“He has had trouble improving same-store sales, despite the decline of Sears and Bon-Ton,” Shah said. “I am concerned about dealing with competition as tough as Home Depot.”