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Tide Turns Against Ron Johnson As Ackman Speaks Out

JCPenney CEO Ron Johnson lost support today from one of his most important allies. William Ackman, JCPenney’s largest shareholder, harshly criticized Johnson on Friday at a Boston investor conference sponsored by Reuters. Ackman had a big role in selecting Johnson as CEO and in giving him the flexibility to try his bold ideas.

Johnson has already taken hits in the media for his struggling reinvention of the legacy retailer. Analysts and industry observers have watched him alienate customers by eliminating coupons, causing sales to slide by almost 25% last year and sending the company into a red-ink tailspin.

Speaking at the conference, Ackman said that Johnson is somewhat responsible for the failures and deserves some criticism. He said that Johnson moved too fast, without testing his ideas, and that the execution has been “something very close to a disaster.”

Rumors have been flying that Johnson’s resignation is just around the corner. If he loses the support of Ackman, his days may be numbered.

Ackman sits on the JCPenney board and owns 17.8 percent of the outstanding stock. His partner firm, Vornado Realty Trust, has already started selling Penney’s shares, reducing its holding to 6.1 percent.

Johnson has been hit by overwhelmingly bad publicity in recent months, as high hopes for his turnaround plan shifted to bitter disappointment from investors, analysts, and shoppers. The loss of Ackman may be the final nail in the coffin for the embattled CEO.

Markets responded positively to his comments, with JCPenney stock up 2.5 percent. A similar rally was seen weeks ago on rumors that Johnson would resign. The stock is down 51 percent since Johnson joined in November 2011, and it’s safe to say that the market has turned against him.

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Ackman had previously gone out of his way to support Johnson, including promoting Johnson’s efforts to turn JCPenney into a specialty department store, or Johnson’s “store in store” model. Unfortunately, this strategy and the elimination of discounting seems to have cost them many of JCPenney’s traditional clients.

Unfortunately, even merchandizers have started to turn against Johnson. The company has struggled to bring in Martha Stewart and is embroiled in a lawsuit with Macy’s over their right to do so. Factor CIT and many other firms have added a 1% surcharge on vendors selling to the chain, indicating heightened risk.

Penney’s has missed its internal targets and cash flow has not been strong enough to self-finance the transition. The firm has expanded its line of credit to $2.25 billion. The deal bought them some time and will let them hold on to some valuable real estate, including the company’s Plano, Texas headquarters.