Posts Tagged 'JCPenney'

JCP: Too early to declare victory

JCP’s CEO recently declared that its (slight) 2016 profit repreesented an historic turnaround. Most RetailWire panelists agreed with my contrary view:

It’s admirable that JCP has stopped bleeding cash but its net earnings in 2016 were just over $1 million (not the EBITDA number, which was higher). So it’s premature to declare an historic victory in light of store closings and soft sales. The slippage in gross margin in 2016 is another area of concern, because competition won’t be any easier in 2017.

With those reservations in mind, Mr. Ellison has had his eye on the ball ever since assuming the CEO chair and continues to focus on the right things — data science, expense controls, driving sales opportunities and weeding out unproductive locations.

Can JCP keep expanding Sephora?

Penney has been aggressive about expanding Sephora shops to its full- and mid-sized stores, even while rebounding from its missteps in 2012-2013. The question posed on RetailWire is whether JCP should expand the concept to its small-town, small-footprint locations. Here’s my take:

I regularly shop a midsized JCP store in Menomonee Falls, Wisconsin. (The home of Kohl’s headquarters…not coincidentally.) Penney built this and other roughly 90,000 square foot locations before the Ron Johnson era, to see if it could operate Kohl’s-sized off-mall stores successfully. This location does contain a Sephora shop, although not as big as the one just installed at a local anchor store in a Simon mall.

I think it’s essential that Penney and Sephora develop a more “curated” version of their collaboration for the many even smaller JCP stores around the country. It’s arguably the most successful part of Penney’s business for the past several years; in many of the smaller communities where these stores are located, Sephora will be the only game in town for shoppers who want more than their local discounter can offer.

JCPenney: “Less bad than most” again

JCP reported 2nd quarter results that were modestly better than other department stores’ sales trends, and measurably better in operating profit compared to their own past standards. This continues to point toward operating improvements but it’s a long way from a true turnaround until the sales trend becomes more robust. Here are some thoughts I posted on a recent RetailWire panel discussion:

Marvin Ellison has noted the sales gains in JCP locations where Sears has closed, and it’s not surprising. Even those Sears stores that are still open are often woefully light on basic inventory, especially in Penney’s sweet spots like sheets, towels, socks and underwear. And the play for Sears’ appliance business is clearcut, even though JCP also has an opportunity to make its own home stores more productive.

But some of the credit for JCP’s modest operating improvements is coming from other initiatives that Mr. Ellison is spearheading — cost reductions, improved supply chain management, better IT managment, and (most important) new merchandising leadership. Given these changes, and the tailwinds coming from Sears and Macy’s store closures, JCP investors probably have a right to expect faster growth after 2016.

Has overpromotion hit a wall?

The topic of whether department stores (and other retailers) are overpromoting is always a provocative one at RetailWire. Here are my recent thoughts on the subject:

JCPenney makes a good cautionary tale about what happens when a promotional department store tries to go “cold turkey” on its sale events. LIke it or not, the customer has been trained to wait for sales for a long time (Gimbels, anyone?) but the difference now seems to be the frequency of margin-busting sale events and extra discounts. JCP’s experience may have scared other retailers away from cleaning up their promotional calendars and risking a volume meltdown.

Certainly retailers like Amazon and Costco drive plenty of volume without being especially promotional. But they operate with different margin requirements (and expense structures) than the typical department or specialty store. So I’m not sure there is an easy answer to the question — but it’s clear that the overpromotion is not driving sales growth.

Some complementary thoughts on the major appliance business

Here are two back-to-back comments (from RetailWire)…first, about JCP’s accelerated move into the major appliance business and second, about Sears’ plan to expand free-standing stores:

If JCP moved up its announcement about major appliances to counteract a speculative “news story,” they are giving the New York Post more credit than it perhaps deserves. I take it as a positive that the test program is working, and that Penney is moving fast under Marvin Ellison’s leadership. As to “why appliances?” — the collapse of Sears represents low-hanging fruit for JCP, which has space to burn in its home store.

There is a Sears Appliance and Hardware store in the Milwaukee suburbs — I’m not clear whether it is owned-and-operated or a franchise outlet. (There is also another appliance store that is definitely franchised.) So I’m a bit surprised to read about this as a “new” concept, unless what’s new is the direct ownership by Sears.

The question with Sears Appliances is whether a rollout of freestanding stores can offset the bleeding of its core business, and the continuing amount of excess square footage that the company operates. But Sears’s appliance business has probably not been compromised by the overall collapse of the brand — so it’s not a bad idea on its own merits.

Can Penney apply lessons learned from the Sephora success story?

As JCP expands its co-branding concept to categories like furniture and floor coverings, there is some disagreement about whether its success with Sephora can be applied to even more categories. Here’s my take from a recent RetailWire discussion:

Sephora is not a store-within-a-store idea along the same lines as the branded shops rolled out during the Ron Johnson era. Instead, it gives JCP a chance to be category-dominant in a business (cosmetics) that a traditional department store needs to succeed. And (in JCP’s case) the absence of key brands like Clinique and Lancome made it essential to build the business around a proven concept and name that customers had already embraced.

Macy’s has been quicker to embrace this idea in categories like sunglasses (Sunglass Hut) and athletic shoes (Finish Line). The idea might work in other businesses at JCP but it needs to go all-in with the idea, as it did with Sephora. For now, Penney’s bigger challenge is to convert Sephora shoppers in its stores to apparel and accessory shoppers, too.

JCP: A new approach to plus sizes?

JCPenney recently announced the launch of Boutique+ (a new private brand for plus-size customers). The news prompted a broader RetailWire discussion of JCP’s women’s apparel business. Here’s my take:

The reshuffling of the JCP merchant team (and the departure of head merchant and former women’s GMM Liz Sweney) signals the new CEO’s dissatisfaction with the growth of their women’s apparel business. I’m not convinced, however, that yet another private brand is the answer — even in an opportunity category like plus sizes. JCP already suffers from too many overlapping brands and a lack of assortment clarity or key items within some of those brands. (And Penney has plenty of company in the department store segment.) Unless JCP feels that the “young plus size” business needs a blank slate, I’m not certain this is the right approach.