Will Penney’s appliance test put a fork in Sears?
Coming from Home Depot, J.C. Penney CEO Marvin Ellison knows something about selling major kitchen and laundry appliances in stores. So, beginning on Feb. 1, some 30 years after the department store chain stopped selling appliances, Penney is testing the sale of the products in 22 stores in San Antonio, San Diego and Tampa.
“This is an opportunity to increase sales productivity and give shoppers what they are looking for,” Mr. Ellison told The Wall Street Journal.
If the test proves successful and Penney expands the sales of major appliances across the chain as planned by its CEO, the company will face sharp competition, most notably from Sears Holdings.
Penney’s department store rival is the largest seller of appliances in the U.S., according to TraQline, a market share survey. TWICE puts Sears Holdings at number two, in part, as a result of its spinoff of Sears Hometown in 2012. Lowe’s is number one on the TWICE list, while Home Depot, Best Buy and Sears Hometown round out the top five.
“We’re not getting into this to compete with the home improvement chains,” Mr. Ellison said (via The Dallas Morning News). “We’re a mall retailer, and we’re going to compete in the mall.”
According to reports, each test store will stock 90 to 150 appliances in a dedicated showroom. Among the brands sold will be GE, Hotpoint, LG and Samsung. In the case of GE, the manufacturer will own the inventory in Penney stores and ship sold appliances directly to customers.
Discussion Questions
Do you expect J.C. Penney to become a significant player in major home appliances in the years ahead as a result of Marvin Ellison’s leadership? What will Penney’s entry into the appliance category mean for Sears Holdings?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Cathy Hotka
Principal, Cathy Hotka & Associates
It is possible but not a guarantee. Consumers no longer automatically think of J.C. Penney when shopping for appliances which is a major hurdle to overcome. Since Sears has to compete against a number of other strong competitors, adding one more is not necessarily significant. The additional challenge of J.C. Penney is that they are co-located in some malls so close proximity of a competitor may be an additional challenge.
I’m not sure whether the J.C. Penney appliance test is intended to take share from Sears right away. However, it’s useful for Penney to take advantage of Sears’ accelerating decline and its increased pace of store closures. It’s worth finding out now (instead of after the demise of Sears) whether this is a viable category in terms of driving sales and profits, and in terms of the unique logistical challenges of the business.
Meanwhile, even without the Sears factor, many J.C. Penney stores have productivity issues today, especially with too much space in the home store. This presents J.C. Penney with an opportunity to fix the problem, provided that the appliance business can deliver incremental margins in a competitive category.
J.C. Penney will join a long list of retailers that sell appliances. J.C. Penney does not have a reputation for selling in this category, so it will have to prove its worth to consumers. Sears, Lowe’s, Home Depot and Best Buy all have solid reputations. If J.C. Penney remains in the category, offers low prices, quality installation, free haul away and prompt repair service, they might have a chance to gain market share. Otherwise, they are a “me too” in an already crowded field.
What most consumers want when buying an appliance is great service, and I’ve had terrible experiences with Sears on getting a good repairman for stuff I have bought from them. Since switching to Lowe’s things have gotten better, as they use locally authorized service people that do a better job and you don’t have to wait three weeks for service, which Sears has made us do.
If Penney’s wants to do this, they better have an army of responsible service agents that know what they are doing or it will go nowhere, as modern appliances break down more often than before.
This is a tough category, as the margins are smaller than home furnishings and you must be able to quickly take car of the customer after the sale when things don’t work. Good luck, and hopefully good planning for Penney’s.
A better question is, do you expect consumers to start thinking of J. C. Penney as a logical, and preferred, place to buy appliances? And the answer to that question is a guarded no.
Of course, in malls where they co-exist, Penney and Sears may go head-to-head for some sales, but I have to ask myself if, with a few tweaks on the sales and service ends, this isn’t a category made to go digital in terms of virtual show rooming.
Can J. C. Penney hurt Sears? Sure, depends how much margin they are willing to sacrifice to do it. Add that the DIY stores and competitors such as Best Buy and Sears already act as physical showcases, wage constant price wars and already have significant consumer mindshare and it looks like an uphill battle for J. C. Penney.
So can J. C. Penney have a significant presence in the appliance space? Yes, if that’s what they want. Will that automatically translate into significant category share? Not so sure.
As I always say, we’ll know more after the test. Consumers are — after all — a fickle lot. But right now I’d say any sense of optimism on J. C. Penney’s part ought to be well-tempered by market realities.
Still, it’s retail, and that means anything is possible.
J.C. Penney can easily become a significant player in major home appliances thanks to its location and visibility (mall anchor, convenient, easy to reach and park, etc.), recognizability, perceived trustworthiness and longevity, plus the fact that it’s still awfully hard to order big appliances on the internet.
As long as Sears is around, both, as mall anchors, will benefit from shoppers visiting both, making comparisons, and then choosing which one to buy from.
Sears should have dominated this category but got complacent and allowed Lowe’s, Home Depot and yes, Best Buy to succeed. I’m sure Mr. Ellison understands this category’s potential given his insights and perspectives from Home Depot. J.C. Penney will not succeed with this category if they rely simply on availability and price.
They will need to create a valued experience along the entire journey to purchase for the appliance shopper; before, during and after the in-store visit and purchase. They may want to understand the success and experiential design and process behind the Miele Center. Creating unique immersive in-store experiences with valued services for the entire life cycle of an appliance customer is imperative. If J.C. Penney simply allocates square footage for appliances their success will be limited.
Wow. What a body blow. Apparently the competition thinks that Sears is vulnerable on EVERY front, not just on its weaker merchandise like apparel. I wish the executive floor at Sears had listened to the legion of RetailWire readers who urged Sears to concentrate on maximizing the Craftsman and Kenmore businesses. What a shame.
I’m glad they are starting with a test and not rolling it out company wide. While the manufacturer owning the inventory is a plus, you still have to look at the amount of floor space and how productive this product will be versus what you are displacing. Although the higher ticket sale is attractive I think it comes as a cost of margin. Consumers have so many options for buying appliances, I don’t see them flocking to J. C. Penney to buy them.
Retail’s problem: there are too many selling square feet. Mobile just exacerbated the issue. From malls to anchors to big boxes, all are challenged by this reality. Add Best Buy in Macy’s, Primark in Sears, Apple/Samsung shops in Best Buy, grocery in Target.
When Johnson attacked the problem it resulted in lots of open, “dramatic” space. Ullman came back in and filled some of it to restore productivity yet resisted a return to the ditch of clutter.
The first Peter Principle isn’t “we reach our level of incompetence,” rather it is “we do what we know.” Ellison is doing what he knows. This is his view into female shoppers if not retail. Doesn’t sound like Ullman’s “center-core” fashion vision.
Across the mall, Macy’s can’t get her to come in for lipstick, but J. C. Penney will have appliances to add value to her shopping experience. When will the sharing economy focus on appliances?
This is a test. And this test won’t work.
Sears will continue to lose share to Best Buy, Lowe’s, Home Depot and Pirch but not to J. C. Penney. Or will Haier launch its “MAVEN”-like program and disrupt the category?
Retail ain’t for sissies. seriously.
Marvin Ellison is very aware of how to make this a profit-taking expansion for J.C. Penney. His previous employer carries a very large assortment of appliances and he should still be aware of the top brands and models down to a geographic location level. This will save time and money for the initial expansion planning. This market is largely driven by price and delivery.
The next, or perhaps current, motivator is with the “Internet of Things” offerings being incorporated with appliances. Consumers will have many “what’s that” and “how to” questions that require the presence of high-level associate capabilities. This product line is expensive to buy for resale, transport, inventory and service. Additionally the competition is not going to take a wait-and-see approach to this market newcomer. If J. C. Penney’s isn’t willing to pay for skilled associates and management he will need to rely more on price and same-day delivery incentives to buy. Whatever happens this will be interesting to watch and learn from.
It’s interesting. With Lowe’s, Home Depot and Best Buy in the top five, it appears that purchasing habits for appliances is through the home improvement channel. Is Sears included in the mix due to the strength of their hardware department?
J. C. Penney, as a clothing retailer, will have an uphill battle unless they are able to own the lowest price space. Also, the competition will only help remind consumers of Sears’ former dominance in the appliance category as a department store.
I’m not feelin’ this one. The competition is too great for them to jump in without something special. Their own line, services, something.
I’m just not sure who J.C. Penney is trying to be these days, but I admire the effort. For my 2 cents!
Before we answer the question, it would probably be good to know why they quit two decades ago. If, as I suspect, it was because the field was being dominated by specialty chains, then I don’t see any reason for effort 2.0 to be any different. But of course I wish them well.
As for Sears, there’s really only one thing hurting them that matters … and his ownership continues.
JCP has excess room in all of its stores now. So Penney’s can either put the new appliance departments on the first floor at one of the entrances to the store from the parking lot, or on the upper level say where luggage is now and make some merchandise department shifts to accommodate the new appliance depts. I think they will knock out somebody, probably HH Gregg if they are successful.
Sears Holdings really never got it right selling Kenmore appliances at their Kmart locations, so I think they may be a little vulnerable at their mall locations. But hey, competition is good, so maybe the consumer will get a price break when this is all over.
I’m guessing Penncrest appliances won’t be part of the appliance mix sold.
Instead of figuring out what their core is and building on that, it appears JCP is like many of the other stores who haven’t got a clue what to do next. So…let’s just keep throwing it at the wall and see if it sticks! What’s next? Hmm, They sold lawn mowers about the same time they sold appliances….
It will obviously take time for them to become a significant player, but I think appliances offer JCP a lot of opportunity. Descent margins, steady inventory (compared to fashion) and the opportunity to see a new category to their current customer.
There’s no doubt they’re going to take some market share from Sears. It doesn’t have to be a lot to help JCP and hurt Sears.
I give it one thumb up. (Holding back the other thumb to see how well they execute.)
J.C. Penney will really need to do something to stand out from the DIY stores, Sears and others selling appliances. Not sure that they can easily become a significant player!
Testing is the key here. They are testing this idea. Smart way to roll forward. Penney’s entry could mean problems for Sears — especially if JCP comes up with a strong, dependable customer service program. Many retailers — especially Sears — lack strong appliance customer service, from on-site advising to maintenance and repair. I have stopped depending on the retailer and buy directly from the appliance manufacturer. Great service before and after the buy.
Tredd…new GE fridge guy….
Answer to first question, will J.C. Penney’s become a major player? NO. It will be a distraction.
What will it do to Sears? Nothing, they are already losing the battle.
Really? Are you kidding? J.C. Penney can’t compete effectively with the regional and national mass merchants/department stores and now they want to go head to head with Home Depot, Lowe’s and Best Buy, chasing a low margin, slow turning category that requires service and salesmanship, neither of which J.C. Penney is known for.
If they don’t know what to do with the space in their stores, they may want to try to lease it out before going into appliances. I can’t possibly see this test going anywhere but South. Just another drain on the resources that should be doing everything they can and with a full commitment to shore up their base business, before that dies. After all, it is in life support now, isn’t it?
Sorry, I don’t see this as a thing but a drain in capital and human resources.
I like Mr. Ellison’s approach, even if it may not work. He is taking a thoughtful data centric approach to the problem. The key here is to pick a sample control group that is representative of the entire chain.
There is a lot of competition for this category and consumers can price shop and buy anywhere, but this may be a JC Penney credit card play. Mr. Ellison knows that he makes Penney’s more value by adding a big ticket item that will drive credit sales and profit. Hello Sears!
J.C. Penney announces their latest cry for help, “We’re selling Home Appliances!”
I have been close to the JCP culture since Mr. Johnson had, what I considered, a
well conceived plan to turn the business around. The rollout of the idea was difficult to execute due to funding and a commitment by vendors to dig in and support the effort.
Johnson was relieved of his duties and the old regime became the new old regime. In their tenure, multiple lawsuits for misleading advertising among others continued to blemish the brand name that for years was gold. JCP was conceived to be the department store for middle and remote America and was good at servicing that demographic.
Of recent, JCP has continued to slip into an abyss due to a lack of creativity and a playing field including online sales which are proving to be too strong for them to ward off. Now out of the blue, the retailer mainly known for home accessory products and apparel, some branded departments come out with “we are selling appliances” as a test.
Let’s see what is involved with this idea based on my firm’s experience in this field.
Space, a commodity in retail estimated at 36′ x 30′ (1080 square feet) that once housed soft goods that had a five turn projection, with an average gross profit margin of 45% product, which generated $300 per sq. ft. on a yearly basis is giving up $324,000 in sales. Now replace soft goods with appliances that have maybe two to three turns a year, with a gpm as low as 15% generated does not come close to meeting the dollar profitability of the prior item. Maybe if the hair salon is replaced with appliances, there is a chance to beat the prior department’s total profit and impact to the bottom line.
Competition? Well Sears has been selling appliances since appliances were invented. They have support, trained sales staff, maintenance, and years of doing it right. With the Kmart acquisition, they expanded their dominance in the category. Home Depot and Lowe’s have every piece of the equation well greased and generating vast profit. Zero finance for two years — a big plus — comes with Home Depot appliances.
In addition, all the accessories that are required with appliances are found under the same roof. The internet is loaded with price driven, inventory intense, quick delivery and branded offerings which low overhead allows for price to rule the sale.
Unless JCP has a lease department with a group that can provide all of the services that the rest of the retail world provides, what are they doing in this category? Bringing in a new demographic?
In my opinion, it’s another concept that will not get past a test unless they have a new concept of selling that will set the world on fire. The handwriting on the wall indicates yet another life preserver designed by Svengali to keep them afloat.