J.C. Penney Stands Alone
J.C. Penney continues to roll out off-mall standalone stores and the latest area to get one of these single-level units is a suburb outside of Chicago.
According to a report in the Chicago Tribune, Penney plans to open a 104,000 square-foot store in Woodridge, Ill. The building previously housed a Kmart.
The new store is a continuation of Penney’s plan to seek growth outside of malls. It is not alone in the department store sector, as others such as Sears seek to capture business lost to competitors, including Target and Kohl’s, that operate, for the most part, standalone stores.
Steven Platt, director of Platt Retail Institute, said J.C. Penney is on the track. “I wouldn’t continue to put my assets in mall-based stores, either,” he said. “Mall traffic is down. Freestanding stores are a lot more convenient.”
Penney has found clear benefits to operating standalone units. Company stores outside of malls average $200 in sales per square foot while mall based locations generate $157. Penney’s management believes it can build sales in standalone stores to $250 a square foot.
Currently, the chain has 22 standalone stores and it plans to add the same number to its portfolio by the end of the year. It is looking to add at least 50 standalone units annually beginning next year. In total, J.C. Penney operates 1,020 stores in addition to its catalog and online businesses.
Discussion Question: Traditional mall-based stores
are looking to standalone locations while others, such as Target, are beginning
to open stores in malls. How do you make heads or tails from this?
J.C. Penney is only continuing their strategy of creating brands strong enough to pull shoppers to their locations and that’s a great strategy. Anytime you get a shopper to drive to your location, they’re going to be a shopper who will spend more as compared to a mall shopper who visits multiple stores to browse. Finally, the J.C. Penney shopper will drive a greater distance to shop, while a person who is going to shop at a mass merchandiser location is not going to travel as far. This is a simple reason why Target needs to have more locations than J.C. Penney and, therefore, is moving to open up additional locations in malls, etc.
The traditional regional mall is an endangered species. My 21-year old niece mandated last Christmas, “no ‘mall clothes’ except (Marshall) Field’s.” I park as close as possible to my preferred department store and get in and out as quickly as possible. The walk through most malls is just punishing; look-alike clothes and fake sales.
Outside of the lease costs, the biggest difference between mall and standalone locations is the behavior of shoppers.
Shoppers at a mall tend to browse more and buy less, while shoppers at a standalone location are more likely to make their decision about an item before leaving the store. Back when malls were the big thing, I recall hearing that Toys R Us continued to focus on standalone stores because they knew that once the family got to the store, they were more likely to make a purchase than if they were stopping by a mall location.
While contradicting each other, the moves of JC Penney and Target do make some sense. JC Penney can presumably drive more business from shoppers that seek out their standalone stores, while Target stands to benefit from the more frequent exposure that the mall gives them. And both of them can probably get a pretty good deal on the lease costs.
I think Target should re-think its strategy for going into malls. In my city, our local Mills mall has a SuperTarget and it’s filled with loud, gum-smacking, shoplifting mall rats. Stand-alone SuperTargets are far more pleasant.
JC Penney is on the right track, and I hope they’ll be taking up some of the vacated stand-alone Mervyn’s spaces in my city and elsewhere. I’m never tempted to visit a Penney store in a mall, but if it were next door to my local SuperTarget, I’d visit it at least seasonally (and it would surely attract more shoppers than Mervyn’s ever did).
No wonder the standalone JC Penney stores have a higher sales per square foot — they are typically newer and in higher growth areas. Let’s make a true comparison of sales per square foot, adjusted for new versus old store (age of remodel), and declining/stagnant versus high growth markets.
I’m not sure I’d call any of this a “trend” decisions are – or at least should be – made on a case-by-case basis, and it’s hardly surprising that (a) Penney’s has reached the saturation point in malls and expansion will be elsewhere; and (b)Target is moving into malls (often into a vacated former dept store, and probably in a mall that already has a Penney’s).
These are marginal moves, not the oft-imagined “paradigm shift.”
From a consumer viewpoint, I’d like to add that J.C. Penney has made enormous strides with their fashions and overall product design that will aid in standalone store efforts. I’ve recently had 4 people share unsolicitedly that they went to a store for the first time in years and “couldn’t believe it.” Personally, I agree! They’ve put their money where their mouths are. If you haven’t visited a store in a bit, go see for yourself.
This news is simply solidifying their appetite to try new things to see what works for their long-term vision.
J.C. Penney’s off-mall expansion is the right move at the right time. Penney’s has done a phenomenal job of driving destination shopping via their ongoing strength in Home and newer strength in apparel private labels and own-brands. Moving off-mall is a logical way to capitalize on those strengths as newly-loyal customers seek out their neighborhood Penney’s and take a bit more time to discover other areas of the store while there (rather than moving through the chain of specialty stores that leads to the next anchor).
Target’s move to the mall makes sense as well but for different reasons. Target will get added to the list of apparel and home mall drop-ins, driving additional sales in those high-margin areas where they already have cred, and they’ll sell all kinds of necessaries (and unnecessaries) that other mall operators don’t carry in the process. Mall-based Super Targets will snag grocery shoppers who want to avoid another trip (but otherwise wouldn’t shop Target for food).
Getting new customers in the store and getting the old ones to stay and shop a while . . . what every retailer wants.
Is the comparison between “standalone units” and “regional malls” only? How are “strip center” locations factored in?
You’re a real estate VP. You’re offered mall space for $50/foot with $10 in extras (allegedly your share of heating and air conditioning the mall public spaces, security, real estate tax increases, etc.). Half a mile away, you’re offered a free-standing location whose rent is $30 with $4 in extras (no enclosed public hallway spaces need to be heated or cooled). The sales estimate for the freestanding location is similar to the mall sales estimate. Why bother paying the extra rent to be in the mall?