Is it now or never for J.C. Penney?

Discussion
Photo: JCPenney
Jan 10, 2019
George Anderson

What a difference a year makes. Around this time last year, then J.C. Penney CEO Marvin Ellison was touting the department store’s success in turning its business around coming off a holiday season during which the chain delivered same-store gains of 3.4 percent.

Penney’s story is not nearly as cheery this year.

The retailer announced that its same-store sales fell 5.4 percent during the nine weeks ending Jan. 5, despite operating in one of the strongest markets in recent years. Further, one of its most direct competitors, Sears, bled business to the point that it is now, perhaps, just days away from beginning to shutter all its stores. There’s a bah-humbug for you if there ever was one.

So, the simple question for Penney and its relatively new CEO, Jill Soltau, is what to do?

Ms. Soltau certainly knew that she had a big task in turning the company around when she took over the top job last October. For one, while Mr. Ellison may once have praised the job that he and his team achieved as “one of the greatest financial turnarounds in retail history,” he still unceremoniously bailed on Penney last May when Lowe’s came calling. Ms. Soltau also has to deal with a debt load of around $4 billion, most of which comes due between now and 2025.

When Ms. Soltau took over, she said she would take some time to get understand the business and the team she had to work with. It appears that after watching revenues go south over the holidays, she is prepared to act. One of the first steps was an announcement on Tuesday that Penney is in the initial steps of closing three underperforming stores this spring. Penney also announced that information related to future (perhaps, additional?) store closings would be made on Feb. 28 when the company reports its fourth quarter and full-year earnings.

Penney currently operates 860 stores. One lament of Mr. Ellison’s following his departure from the department store chain was that he didn’t act more quickly and decisively in closing many more locations than he did while at Penney.

DISCUSSION QUESTIONS: Do you have a sense that J.C. Penney needs to do something big — and quickly — to avoid the fate of other failed retailers? What would be your recommendations to Jill Soltau on how to fix J.C. Penney?

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28 Comments on "Is it now or never for J.C. Penney?"


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Art Suriano
BrainTrust
J. C. Penney needs to reinvent themselves completely. Department stores today are becoming a thing of the past. The advantage they once had when they were a full-line department store is what I feel J. C. Penney needs to revisit. Years ago department stores made the mistake of getting rid of the departments and focused on apparel, jewelry housewares, and a few other small categories. That was fine before all the specialty retail that blossomed and then the internet. Today, walking through J. C. Penney I don’t know who they are as a brand or why I should shop there. I still feel that years ago Ron Johnson was on the right track but unfortunately a bit too soon. J. C. Penney should become a full-line department store with many small departments making the experience fun to shop and using Johnson’s idea, small stores within the one big store, so that each department functions and appears as a separate store. J. C. Penney can brand their business differently from all other departments stores and be… Read more »
Richard Layman
Guest
2 months 9 days ago

While I don’t know if this would work/would resonate with most of the locations in suburban malls, there is no question that U.K. department stores like Selfridges on Oxford Street wow the customer. Johnson’s initiative was flawed in two ways: 1.) people need “sales” to remind and push them to buy, because so much of what they purchase is discretionary and not necessarily needed; 2.) he needed to come up with a system defining tranches of stores, roll out the changes he made to the stores where that would make sense, and come up with other changes that fit better for different tranches.

In short, he should have picked 10 or more stores depending on how the classification process went, and made them over as landmark or signature stores, like the REI or Walgreens examples, based on the likelihood of success, and worked from there.

Craig Sundstrom
Guest

I think your recommendation would make sense for Saks or Lord & Taylor — which, sadly, gave up its flagship opportunity last week, but (to paraphrase an old debate line) we all know Penney’s, and Penney’s, you’re no Selfridges.

Richard Layman
Guest
2 months 9 days ago
Or Macy’s. But yes, it was a fish out of water concept for JCP. Still, there are ways to bring excitement back to these stores, even if not at Selfridges level. E.g. I was only able to run through the store briefly. Their book department was focused on art books. They had a special section on city bikes (I am a transportational cyclist), a food court on the top floor and of course, a “typical” outstanding department store food department on the ground floor. And the restrooms, like restrooms in other stores and Heathrow Airport, were fabulous. Etc. I’d say that with JCP, the model would not be Selfridges, but the signature Canadian Tire store in Edmonton. Or even, with appliances, PIRCH. You think that’s a stretch, but in smaller towns where you still have appliance + home stores (which tended to grow out of hardware stores), when I did a planning study in Brunswick, GA, that store equivalent there had demonstrations with the stoves, etc. — no different from PIRCH.
Neil Saunders
BrainTrust

Let’s begin by saying that the dire holiday numbers are no reflection on Jill Soltau. She joined the company too late in the year to have any tangible impact on festive trading. However, the steep decline does underline the fact that J.C. Penney needs to move quickly to save the business.

Cleaning down inventory is vital. Stores are packed full of poor product, especially in apparel. It needs to go and make way for new and better lines — preferably good own ranges focused on a clear target market. Determining that focus is still on the “to-do” list for J.C. Penney. Getting people into stores and online is then key. Incentives, similar to Kohl’s Cash may help generate interest in the short-term, as will better marketing.

And this is just a fraction of the things that need to happen.

Lee Peterson
BrainTrust

And to think that Ellison essentially got promoted to a higher position (Lowe’s) while touting the greatness of said doomed brand. Such is retail.

To me, J.C. Penney missed its big opportunity to change when it let Ron Johnson go. I know many of my fellow contributors disagree, but some of his ideas, like a “town center” or “fashion runway” are now coming into play from the likes of Walmart and Nike, who are being touted as “forward” when in fact, Johnson was attempting to implement those ideas at J.C. Penney years ago.

It could be too late for J.C. Penney but, IMO, they should go back and look at Johnson’s blueprints for a “new” model and test some of those ideas ASAP. They have nothing to lose and everything to gain at this point. It’s either that or a slow, Sears-like death spiral. Price is not going to save them now.

Jeff Sward
BrainTrust

Ron Johnson’s blueprints. Precisely. I’ve said many times that he had the right idea. And the world’s worst calendar for implementation. (Where was the board?) His plan was not 100 percent wrong. Surely there are lessons to be learned and extracted from that fiasco. Ron Johnson tried the revolutionary path. Now let’s try the evolutionary path — on vitamins, not steroids.

Phil Masiello
BrainTrust

I want to believe that J.C. Penney can turn this around. However, after all of the effort and changes to management and strategy, the one glaring point is where does J.C. Penney fit in the retail landscape? What is the value proposition?

Unfortunately, I cannot find it and it is not glaringly obvious.

Until J.C. Penney carves out a clear path to the consumer’s wallet, I am afraid they are headed down the path of obsolescence.

Mark Ryski
BrainTrust

On its current trajectory, J.C Penney will supplant Sears as the new whipping-boy of the industry. The ideas of “big” and “quick” are difficult to do in an 860-store chain, loaded with debt and negative comps. There’s no question this is a serious turnaround situation, and it’s going to take strong, decisive leadership to do it. Ellison was supposed to be the savior, but he bailed — perhaps this is telling of just how difficult the task really is. Closing three underperforming stores? Only three!? If this is indictative of the type of moves management is making, then they have a very long way to go.

Ed Rosenbaum
BrainTrust

I agree with you Mark. I also questioned the “three store closing” when I read it. What is that going to do, other than nothing? Penney’s has to take a hard look at each store to determine the profitability and what the store adds to the total picture. Currently they operate 860 stores. Closing three? My guess is closing more like 5 percent is closer to what has to happen to start turning this ship around, if it is even possible. Too many similarities to Sears keep cropping up.

Dave Bruno
BrainTrust

In my opinion, J.C. Penney needs to undertake dramatic changes to change consumer expectations of the brand. I think they need a complete overhaul of both their assortments and their experiences to better align to modern expectations. Their brand promise is – at best – dated and their assortments are uninspiring to all but a select few. I believe a turnaround will also require them to attract and recruit key influencers to validate their assortments and, most importantly, change perceptions and expectations of the brand. This is not impossible, but will definitely require an aggressive overhaul of assortments, experiences and go-to-market strategies.

Jeff Sward
BrainTrust

Stores closings are not a solution. They are simply a recognition that if/when a solution is found and implemented, these stores no longer make sense in this over-stored, declining foot traffic environment. J.C. Penney needs a merchandising and marketing solution not rooted in the last century. They need an actual brand promise that will give them top-of-mind awareness in shoppers’ thought process. They need to understand that Primark will roll right over them in any mall where they go head-to-head. J.C. Penney actually has some good proprietary brands. Use them!

Brandon Rael
BrainTrust

While the J.C. Penney organization may feel a sense of pressure, especially with the collapse of Sears, to do something drastic, now is not the time for the company to make any desperate moves. Sears’ collapse was not an overnight phenomenon, and there were severe operational, merchandising, strategy and customer disconnects and issues that occurred over a long period of time.

Now is the time for CEO, Jill Soltau and the J.C. Penney team to reconnect with their core customer, and seek new ones by redefining what truly differentiates the retailer outside of every day low prices and deep discounts. Customers will flock and remain loyal to brands and retailers that “know” them and provide outstanding shopping experiences across all channels.

My advice to the J.C. Penney team is to avoid the temptation to panic and do anything drastic. Invest in your most talented people, most profitable stores, and work the marketing/branding machine to re-establish what makes the company stand out in a sea of competition.

Ed Rosenbaum
BrainTrust

Maybe it is time for those in the “Ivory Tower” in Plano to get out and visit the stores. Mingle with the employees and customers. find out honestly what their problem is and how they suggest it be corrected (if possible). This is what the auto industry had to do in the ’60s when their business was being taken over by the Japanese manufacturers who were producing a better product. Reports and charts do not always tell the complete story.

Brandon Rael
BrainTrust

Completely agree with you Ed. Without being where the rubber meets the road, how will the J.C. Penney executives truly comprehend what the current customer experience is in their stores and across all channels? There is still a chance of recovery, however, some drastic measures will need to be made ASAP.

Gene Detroyer
BrainTrust

J.C. Penney is dead and it will be gone in two years. They can talk about big things and a turnaround, but they are extending their payments to suppliers and no investor with any sense will put good money after bad.

Good-bye J.C. Penney. Your time has long gone.

Bob Phibbs
BrainTrust

Closing three stores was laughable. This is a chain that has so destroyed their base customer they do not know why they need so many stores. I believe J.C. Penney will need to close about 300 stores in order to find their way. Admit they are a red state retailer more comfortable at the bottom end of middle-class fashion and embrace it without trying to upscale to Macy’s or kid themselves that Frankenstein bolt-ons like appliances will drive traffic.

Richard J. George, Ph.D.
BrainTrust

J.C. Penney need look no further than the demise of Sears to see its future if nothing changes. The key question is what is or could be a significant differential advantage or positioning that J.C. Penney could develop that would give customers a reason to shop there.

Closing stores is a necessary course of action to stop the bleeding. However, in the long run it is difficult to save your way to prosperity. Sears, Toys “R” Us and others demonstrated the failure of this strategy. J.C. Penney needs a major overhaul of its positioning, brands, store format, etc. if it is to survive.

Mark Heckman
BrainTrust
Intuitively, the average J.C. Penney shopper is likely being drawn away by the likes of Kohl’s, Bealls and a few other more streamlined regional department store formats. The aforementioned chains have been relatively successful by creating a “deal” environment, with coupons, store cards, store cash, and other incentives tied to both their loyalty programs and for the more occasional shopper. These competitors have also smartly sprinkled national and international fashion brands among their offerings, creating a quality image for shoppers who enjoy advertising the logo of their clothing manufacturer. In addition, these stores have become a destination location for value-priced but branded shoes, a very important category. Finally, these stores have chosen not to be in a mall and pay mall rents, but rather build and own their free-standing stores in strip centers, near malls, but much easier to access than the mall itself. The allegiance these stores has created is somewhat remarkable. J.C. Penney, conversely, has not been able to distinguish itself as either a place to find deals or branded merchandise, important to… Read more »
Dick Seesel
BrainTrust

Disclosure: Jill Soltau is a former colleague and I know her to be a talented merchant. Job One is to fix the merchandising, which was frankly a mess in the stores I saw recently. (Overstocked and over-assorted especially in apparel.)

There need to be some big product writedowns and J.C. Penney may have some vendor goodwill in its favor, if those vendors don’t want to lose two big accounts in one year. But the bigger looming problems are the weak locations and debt — these will require more drastic action.

Daniel Reynolds
Guest

Sadly, J.C. Penney gave up on the transformation driven by Johnson and went back to its comfortable, old ways. That failure guaranteed that the company would only be able to recruit “caretaker” CEOs going forward.

Perhaps the company can hang on for a while by closing stores, selling assets and refinancing debt.

Tony Orlando
BrainTrust

I believe they will be done in the near future, and more shutdowns will follow. We have consumers who are beyond finicky, and they have a ton of options to shop for the best deal. Loading up the sales floor with extra help IMO is not going to help, and with online booming the need for extra help isn’t necessary anymore.

You can buy Levi’s Jeans and all kinds of apparel in a host of stores and online. There will be more failures, as we simply have too many brick-and-mortar stores these days. My industry is getting very difficult in the rural areas, and you will see more small town independent grocery stores closing. The margins are the slimmest of any retail venue, and with the additions of dollar stores and drug stores selling food, more casualties are coming. The very strong mega stores are dominating, and that is simply how it is, so for J.C. Penney, I see them gone soon, as their debt is too much to overcome.

Rich Kizer
BrainTrust

The very under-performing stores need to be shuttered now — no waiting on the next CEO’s six months of evaluations. Secondly, when you change slower than the rest of your competitors, you are doomed. Many say they need to completely reinvent themselves, I absolutely agree. But I don’t think it will happen; it’s a big ship to turn and they’re in heavy water. And many locations are in sub-performing malls. This is going to be a climbing Mt. Everest saga for Jill Soltau.

Karen McNeely
Guest

Full disclosure, I worked with Jill at Carson Pirie Scott, probably about 20 years ago back when she was a relatively new buyer. She took what was a sleepy little knits and sweater department and transformed it into a powerhouse. Clearly, turning around J.C. Penney is a much bigger job than turning around a department, but she is a strong, smart and determined woman. Her thoughtful approach to analyzing the situation and acting on the data, rather than making knee-jerk decisions, is the right one. It won’t be an easy task, but my money is on her.

Craig Sundstrom
Guest

Fetishizing on “something big” (and who’s to say it even exists?) only distracts from what I think is important: getting little things right. That’s not to say that something big isn’t around the corner, but that big thing is likely to be mass store closings and as much as I’d like that not to happen, I’m not sure it’s avoidable. Unlike (even) before the Ron Johnson mis-adventure, it’s no longer doing what every business must … making profits.

Brian Kelly
Guest
2 months 9 days ago
We no longer live a departmentalized life. That is why all department store mall anchors are going away. Which is Ms Soltau greatest challenge: the built in traffic of a mall is gone. Soltau has to create demand for brand JCP. That means it starts with the customer, whose life is radically different as are shopping behaviors. The boxes are too big. Appliances? Why not! Well it didn’t work. JCP isn’t Sears. While they shared customers, the relationship with JCP was different because JCP was more hers than his. The tendency is to keep the sales in hand and not shift assortment away from those customers. Johnson broke with the merchant creed and “right sized” revenues. He also got whacked because he didn’t manage the street’s expectations. So what does Ms Soltau do? Get Merchant/Operator/Marketing/Finance/Tech all on one page. Hold them accountable to one another and brand frontliners. Put a stake in the ground as the store for “21st century Middle American Families.” Craft a story that is relevant. Of course, add all the seamless… Read more »
gordon arnold
Guest

J.C.Penny has little to say or do about its future. The company is in the hands of the vendors and banks holding them up. The company’s biggest problem is making payroll. This alone is the biggest need for the future. Vendors, real estate and banks are simply prolonging the inevitable.

William Passodelis
Guest
2 months 5 days ago

I hope they try anything and everything that they can afford to, and give it some time to succeed in the chosen stores where they are experimenting with “X.” We must give Ms. Soltau a little time. Hopefully, steady, small continuous steps will create a forward path!

My biggest concern is that the darn debt will kill them! There is no getting around that. They were left cash starved after Mr. Johnson, and that situation has become worse. And the debt is formidable and terrible.

I am biased; I really like Stafford and buy a lot of my work clothes and clothes in general at Penney’s, at my JCP. They have nicer selection than everyone’s favorite — Kohl’s.

I wish them the best and I remain worried for their demise. The debt is the biggest problem —it takes away their time.

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