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JC Penney's New Role Model Is Home Depot

Home Depot, Inc. The NYSE:HD, J.C. Penney Company, Inc. Holding Company NYSE:JCP - How Marvin Ellison Used The Home Depot Model To Transform JC Penney

The once struggling department store J C Penney Company Inc JCP 2.14% is now expected to post a $1 billion profit this year — the first time doing so since 2012.

So, What Happened?

According to Bloomberg Gadfly's Shelly Banjo, the first step of JC Penney's turnaround was "anchoring" investor expectations. This is exactly what its CEO Marvin Ellison did when he told investors not to count on a return to 2007 levels when it notched $19 billion in annual revenue. Rather, investors can expect to see growth through new initiatives, including beauty products, appliances and home goods.

Banjo added Ellison's strategy and turnaround plan is based on a similar strategy he helped oversee at his prior employer, Home Depot Inc HD 0.3%, where he spent 12 years and most recently served as head of its U.S. stores.

Banjo stated that Ellison helped forge "one of the most successful turnaround projects in retail history" at Home Depot after it was "battered" by the 2008 financial crisis.

"It completely transformed its business by halting store expansion, shedding unprofitable businesses and focusing on growth areas such as private brands and e-commerce," Banjo wrote.

Ellison is not only sticking with the same macro strategy, but he is implementing micro-strategies as well. For instance, Ellison wants employees to spend 60 percent of their time helping customers rather than the current 40 percent devoted to customer service.

Ellison oversaw the exact same plan at Home Depot and even used the same title in a presentation — "Path to 60/40."

Bottom line, imitation is not only the sincerest form of flattery, but in this case, "it also happens to be a smart strategy."

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