Department store chain J.C. Penney Co Inc is bringing in the man who oversaw Apple Inc's wildly successful foray into bricks and mortar stores as its new chief executive, news that sent Penney shares up 17 percent.

Ron Johnson, Apple's senior vice president of retail, will take the reins from Penney CEO Myron Ullman on November 1, Penney said on Tuesday. Ullman, who has been CEO since 2004, will become executive chairman of the board.

The shake-up at J.C. Penney comes months after billionaire investor William Ackman's Pershing Square Capital Management became the retailer's largest shareholder.

In October, Pershing bought 16.5 percent of Penney shares and Ackman faulted Penney for lagging rivals such as Macy's Inc and Kohls Corp . He joined Penney's board in February.

The board seems to think that traditional retail is not the answer to Penney's problems, Morningstar analyst Paul Swinand told Reuters. You expect someone like Ackman to shake things up.

Penney's market value rose more than $1 billion on the announcement, with its shares adding $5.22 to $35.33. Apple shares were up 1.4 percent.

Penney suffered dramatic sales declines during the recession as its shoppers, more exposed to the weak economy than those of rivals such as Macy's, pulled back. Sales are recovering but are still well below 2008 levels.

Penney has made strides in e-commerce, but analysts said hiring an Apple executive was a way for the retailer to speed up the process of integrating Web sales and physical stores.

Johnson joined Apple in January 2000 and has overseen the opening of 300 of the computer maker's popular stores, developing a new avenue for Apple to market its hot-selling iPod music players, iPad tablet and Mac computers.

Brian Sozzi, analyst at Wall Street Strategies, said that the experience Johnson brings from both Apple and an earlier stint at Target Corp should help Penney differentiate and update itself in shoppers' minds.

They are trying to become a cheap chic retailer and not just the 'mom' brand, Sozzi said.

Penney shares had fallen 26.6 percent from a yearly high in mid-May to Monday's closing price.

LOSS FOR APPLE

Johnson's departure was seen as a coup for Penney but a loss for Apple.

It's one of the best retailers in the world and he has an enormous part building that retail distribution. It's going to be a loss, but I expect the bench is deep there, said Channing Smith, Co-Manager of the Capital Advisors Growth Fund, which owns Apple shares.

An Apple spokeswoman said the company is actively recruiting for his replacement.

Before Apple, Johnson spent 15 years at discounter Target, the original cheap chic retailer, as vice president of merchandise.

Penney in recent years has tried to remake itself as a more fashionable retailer with more exclusive lines, such as Liz Claiborne clothing, and stores-within-its-stores for cosmetics seller Sephora and Spain's fast-fashion chain Mango.

It is phasing out its catalog business in favor of its website and has touted its technology to allow shopping via smart phones.

But Penney shoppers remain price conscious, and investors and analysts have worried about shoppers' ability to pay more for clothing with cotton prices jumping. Penney's same-store sales in May fell short of Wall Street forecasts.

In February, Penney gave Ackman a new spot on the board, along with Steven Roth, chairman of Vornado Realty Trust , which bought shares at the same time Pershing Square did, and is Penney's third-largest shareholder.

Penney operates 1,100 department stores across the United States.

(Reporting by Phil Wahba, additional reporting by Poornima Gupta in San Francisco and Brad Dorfman in Chicago. Editing by Dave Zimmerman and Gerald E. McCormick)

Retail