Photo: J.C. Penney
Where would J.C. Penney be without Sears?
Do Newton’s laws of motion apply to retailing? An argument can be made when you consider that, as Sears’ business has continued to falter in recent years, J.C. Penney’s has improved. Perhaps not equal and opposite, but related.
Penney has shown modest improvement under CEO Marvin Ellison, earning him kudos for practical thinking, assembling a professional supply chain team and identifying marketplace opportunities such as in the appliance category. The department store chain posted a 2.2 percent increase in comp sales for the second quarter while cutting its net loss.
Without taking anything away from Mr. Ellison, even he has admitted that Sears’ losses have led to Penney’s gains, particularly when it comes to store closings. Sears plans to close 10 stores this summer.
“When a Sears closes in a mall that we’re in, it’s a net positive for J.C. Penney. Our sales increase. In some of the most recent Macy’s closures in malls in which we occupy, it’s been a net positive,” Mr. Ellison told analysts on an earnings call last week (via SeekingAlpha).
“One of the reasons we’re in the appliance business in the first place is because we observe a potential opportunity as Sears continues to redesign their business model,” said Mr. Ellison. “And we believe that there will be appliance market share up for grabs. And because we share over 400 malls with them, we felt that we were in the best position to pick up some of that share.”
Mr. Ellison said that roughly one-third of Penney’s appliance customers were new to the chain and about a third of those opened Penney credit card accounts. Seventy percent of the new customers were female. The company now sells more than 1,200 major brand appliances on JCP.com as part of its omnichannel initiative.
Omnichannel success is one of Mr. Ellison’s goals for Penney. The company debuted a new mobile app and launched its buy online, pickup in store (BOPIS) program nationwide during the second quarter. Mr. Ellison said 40 percent of customers who pick up orders in stores have purchased additional items.
Discussion Questions
DISCUSSION QUESTIONS: Do you think the improvements in J.C. Penney’s business are largely as the result of the struggles experienced by Sears? Where do you see the biggest opportunities for Penney to improve its business going forward?
Poll
BrainTrust
Bob Phibbs
President/CEO, The Retail Doctor
Lee Peterson
EVP Thought Leadership, Marketing, WD Partners
One theory regarding the shift of Sears’ business to J.C. Penney is that the U.S. is simply over-stored with too much redundancy between retailers. But J.C. Penney and Sears co-existed profitably in the past, so what has changed?
What has changed dramatically are today’s consumers! They are highly omnichannel with many more choices than ever before. As a result, they have much higher expectations for their shopping experience, whether it be in-store or online. And increasingly today’s consumers are looking for a “seamless experience” when it comes to apps, stores and BOPIS.
J.C. Penney is winning not because of Sears’ demise. As George Anderson so aptly points out, Mr. Ellison is investing in creating a better omnichannel experience that appeals to today’s consumers’ higher expectations.
Marvin Ellison has noted the sales gains in J.C. Penney 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 J.C. Penney’s sweet spots like sheets, towels, socks and underwear. And the play for Sears’ appliance business is clearcut, even though J.C. Penney also has an opportunity to make its own home stores more productive.
But some of the credit for J.C. Penney’s modest operating improvements is coming from other initiatives that Mr. Ellison is spearheading — cost reductions, improved supply chain management, better IT management and (most important) new merchandising leadership. Given these changes, and the tailwinds coming from Sears and Macy’s store closures, J.C. Penney investors probably have a right to expect faster growth after 2016.
Yes. Now imagine where J.C. Penney would be without Ron Johnson. Let’s be honest, a 2 percent increase after losing one-third of your business shows a long way to go. Macy’s closings will be a boon as will Sears/Kmart’s eventual demise. Being last man standing in this game, though, doesn’t mean you’re a success — you still have to earn it.
But is it a dead cat’s bounce? I hope not.
For department stores, the trick is developing a sustainable and profitable business model. Anyone can grow sales over the short term by squandering shareholders’ capital. J.C. Penney is competing with Amazon, and this nemesis is pulling out of selling products by increasingly directing customer traffic to Amazon Marketplace.
In my opinion there exists no sustainable business model for selling products today. It is very easy to see that. However, we can think of profitable business models for the display (e.g., Amazon Marketplace). Sears is the least of J.C. Penney’s problems, and vice versa.
I think J.C. Penney is just regaining the business it lost under Ron Johnson. Any additional business it gains from the demise (in slow motion) of Sears is just a plus. I don’t think the company has even returned to its 2011 sales levels, so it’s fair to say it’s just drawing back its old customers, to the detriment of Kohls and probably, to a lesser extent, Macy’s.
Ori has it right. It isn’t clear what the successful physical sales model will be going forward. The pending demise of Sears will help J.C. Penney, but that won’t be enough to stabilize the sector. I don’t think anyone knows how it’s going to shake out, but store experience will be a key factor in store success.
J.C. Penney’s is sure to get some short-term lift in malls where Sears has exited. I would not bank on this benefit to last long as consumers have plenty of shopping options. It’s time that the stalwarts of mall retailing utilize the advantages their name recognition, locations and large store footprint provide. These assets, yes assets, could all be leveraged along with their online presence to create a winning shopping experience. One-day delivery (same-day delivery at least in certain locations) is an attainable goal. Emphasis on BOPIS should continue. And then tighten up the slow areas of the large stores and introduce some things to keep the shopper inside the store a little longer. J.C. Penney is doing some of these things and being rewarded. But much more could be done to gain share and deliver a better shopping experience.
Let’s go back to Ron Johnson for a minute. While the end results were far from what was wanted, Ron was brought in because J.C. Penney was in a race to the bottom. They needed an overhaul.
I, and maybe I am the only one, thought Ron had some great ideas. Making the brand lean, moving to every day low pricing. These should have been good moves but they just weren’t executed right and the poor customer was simply left out.
Even though that initiative failed, the brand still needed to be turned around. Mr Ellison is doing some good things but what it feels like to me is a false positive. Are they really gaining or just gaining by default? Has the appliance business been active long enough for us to know if it can turn the brand around? Or is it simply because there is no Sears at the other end of the mall to buy from?
The other thing to keep in mind is how much business can be attributed to the J.C. Penney/Sephora alliance. Especially over the holidays in 2015.
With all this said, I think J.C. Penney still doesn’t know who they are and, more importantly, who their customer is. False positives may still be positives, but are they sustainable?
But that’s just my 2 cents.
I agree that some of Ron Johnson’s ideas — when introduced — were innovative in light of J.C. Penney’s stagnating business at the time. But his unwillingness to test before making changes across the chain, and his almost perverse desire to chase away J.C. Penney’s core consumer (dropping St. Johns Bay, for example) tarnished the value of those ideas.
The damage to the JCP brand was catastrophic — from the operations people who left, the killing of the spirit of the brand culture, not just the BILLIONS of sales lost. And all because one investor was able to strong arm a CEO out of a job and put someone else in who apparently didn’t even like the brand to start with — then reverse it 17 months later. No wonder middle America is distrustful of Wall Street. I said it last originally and stick by it: “Worst. Makeover. Ever.”
Two thoughts come to mind when it comes to J.C. Penney and Sears:
J.C. Penney is benefited by three things:
Wage stagnation and low-skill job loss remain in place and thwart shopping for lower HHIs. Retail is now a fierce share battle as there is no growth.
The Johnson redos are over, the low hanging fruit was harvested by Ullman. J.C. Penney has to improve the experience to continue to take share. The topline was right-sized, now the store portfolio has to be right-sized (both closed and shrunk) while the assortment is right-sized.
Retail ain’t for sissies!
When there isn’t a Sears in the mall it makes it easy for J.C. Penney to pick up that customer. These sales need to go somewhere and for the customer in the mall J.C. Penney is an easy choice. J.C. Penney is still recovering from the plethora of ideas instituted from Ron Johnson’s error and the customer is likely still confused as to what they stand for.
Sears is clearly on the death spiral and J.C. Penney may take the final oxygen in the tank.
Wait. JCP’s business has “improved”? I thought we could all see beyond the smoke and mirrors. They’re in line right behind Sears IMO. (Clue: check store closing numbers.)
Why single out Sears (other than the obvious fact that they’re falling apart)? I’ve long said that Macy’s was the logical and biggest beneficiary of JCP’s woes, as it is the store whose merchandise mix was closest (as evidenced by the Martha Stewart fiasco). And it hardly seems coincidental that Macy’s is now faltering as JCP recovers. Sears, OTOH goes down like a rock regardless of what’s happening outside its suffering walls.
Of course there are multiple players — Kohl’s, H&M, other specialty retailers — and factors — online, shoppers’ changing habits — at work. Let’s not get too hung up on a single cause/effect relationship.
JCP clearly has benefitted from Sears closing of their stores. However, we have to recognize that JCP is changing their model, their approach, and are invigorating their bottom line through increased organizational efficiencies. Sears was not a factor in any of these, but rather the competitive pressures of maintaining and growing an organization in their retail space. Yes, focusing on the omnichannel experience will certainly help, but let’s not forget that a retailer needs to be price competitive, product aligned, and offer the right retailing experience (omnichannel or not) for their consumer. JCP is clearly focusing on doing all of this and it shows!