Hedge fund manager Ackman says mistakes made in JCPenney turnaround

Fri Apr 5, 2013 12:02pm EDT
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By Svea Herbst-Bayliss and Katya Wachtel

BOSTON, April 5 (Reuters) - Hedge fund manager William Ackman is turning up the heat on the man he handpicked to turn around struggling retailer JCPenney.

The "criticism is deserved," Ackman said on Friday of Ron Johnson, the former Apple executive who has been tasked with overhauling the staid retail chain and who has come under fire as the stock price has plummeted 27.6 percent in the first quarter.

While Ackman has long been a public cheerleader for Johnson, often saying that he was a doing a great job, he tempered his normally upbeat comments on Friday at an investment conference sponsored by Thomson Reuters in Boston.

Speaking bluntly, Ackman, who sits on the JC Penney board and whose $12 billion Pershing Square Capital Management is the company's largest shareholder, said big mistakes have been made remaking the 110 year-old retail brand.

JC Penney traditionally drew in customers with big sales and coupons but Johnson has been criticized for eliminating those in favor of every day low prices. The new strategy has alienated the retailer's traditional customer base and has yet to resonate with new shoppers.

There was "too much change too quickly without adequate testing," Ackman said, adding that while Johnson faces a tough challenge in fixing the company's cost structure and changing the merchandise, so far the execution "has been something very close to a disaster."

Ackman has come under criticism for investments in retailers in the past, including bets on Target and book seller Borders a few years ago. Currently Pershing Square is sitting on roughly $500 million in paper losses in JC Penney. Still, Ackman said that the retailing business can be very lucrative if done right.

"If you get a retailer fixed and you can replicate it, it's about the best way to make money," he said.   Continued...