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.
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.
RetailWire panelists recently had a chance to discuss a new promotion at JCPenney (buy one item, second for a penny) and what it says about JCP’s growth prospects. I wouldn’t read too much into it:
For those with a long memory (meaning that we remember JCP before the Ron Johnson era), this is something of an echo of Penney’s Anniversary Sales. JCP occasionally ran “second item for a penny” during these events and as Black Friday doorbusters. It’s the equivalent of “buy one, get one free” and is a good tool for selling key items bought in depth at a cost where you can still make money at 50% off.
The campaign will drive sales, traffic and sampling of private label goods — all important tactics for JCP in the short term. But pay more attention to the strategic steps that Mr. Ellison has taken in the past six months — especially in areas like IT, omnichannel and logistics. These won’t be as visible as new marketing and promotional tactics but will pay dividends in the future if Penney can keep its sales momentum moving.
After Marvin Ellison had his first earnings call as the new CEO at Penney, it left unanswered some big questions about the sustainability of his company on the expense front. Here’s my recent comment from RetailWire:
I’ve commented to consulting clients that the store count and the high expense structure are the big issues facing Mr. Ellison. Penney has a “legacy” problem of too many unproductive stores (by the sales-per-sq. foot standards of its competitors), and has always run much higher SG&A levels than its biggest national competitor — Kohl’s. The new CEO needs to tell us more about his plans to fix this.
So far, Mr. Ellison has said the right things about catching up on omnichannel, on improvements in supply chain management, and on some of the merchandising improvements started by Mike Ullman. (And the stores I’ve shopped look improved, especially in the re-engineered home store.) But simply rewinding to 2010 and trying to erase the errors of the Ron Johnson era isn’t enough to declare that JCPenney is a sustainable turnaround story, despite its opportunity to pick up share from Sears right now.
Published October 14, 2014
Brand management , Corporate culture , Department store retailing , Discount stores , DIY Retailers , Investor Relations
Tags: Dick Seesel, Home Depot, JCPenney, Marvin Ellison, Mike Ullman, Retailing In Focus, RetailWire, Target
Just a few days after JCPenney held its “analysts’ day” in New York — and left unanswered the question of succession planning — it announced yesterday the appointment of Marvin Ellison, the senior store executive at Home Depot, to succeed Mike Ullman next year. Here’s my comment from today’s RetailWire discussion:
There is some comparison being made between Mr. Ellison and Brian Cornell, the new CEO at Target. Mr. Cornell was also praised for his operational background (especially given Target’s data breach and missteps in Canada). But he also identified merchandise categories that will help Target the brand differentiate itself from more “consumables”-oriented competitors.
Yes, Mr. Ellison is faced with some operational challenges — and, in particular, he needs to attack the store count and bloated SGA more aggressively. (This was a big unanswered question at the JCP analysts’ meeting last week.) And “blocking & tackling” becomes more important in an omnichannel environment, with competitors like Amazon who are experts at logistics.
But, at the end of the day, any new leadership at JCP needs to redefine the meaning of the brand without repeating the mistakes of the Ron Johnson era. Right now, JCP is in an “error correction” mode, but turning back the clock to 2010 can only get you so far. Let’s see if Mr. Ellison is up to the task.