ICSC: International Council of Shopping Centers

JCPenney to go back to basics to turn business around

Publish Date: August 22, 2013

Category: SCT Newswire Articles
Topics: department store, j.c. penney, jcpenney

JCPenney is reversing course in an attempt to get its core customers back into its stores. Many of the initiatives implemented by former CEO Ron Johnson — who resigned in March after a tumultuous year and a half — have failed and are therefore being scrapped, said interim CEO Myron Ullman on an earnings call. “We actually attracted fewer new customers in 2012 than any other previous 10 years,” Ullman said. “Frankly, the strategy was such that we actually lost more customers than we gained.”

Penney posted a year-on-year loss of $568 million for the second quarter. Net sales tumbled 11.9 percent to $2.66 billion from the year-ago quarter. Same-store sales were also down 11.9 percent, though that was better than the 21.7 percent drop reported in the 2012 comparable quarter. To reverse all this, Penney has returned to a crowded roster of promotional events, Ullman said. Johnson’s strategy to establish everyday low prices instead of an array of sales had alienated customers.

Penney’s future also depends on re-establishing the right balance of private brands such as St. John’s Bay, national brands such as Levi’s and exclusive brands such as Sephora, Ullman said. To that end, the company is adding 30 new Sephora boutiques to its existing stores by year-end, bringing the total number of these in-store boutiques to nearly 450. Ullman said 50 percent of Penney’s merchandise would eventually be private-label.

Penney is also working to fix its home-goods departments, important traffic drivers that were damaged by the previous management’s attempts, Ullman said. “We actually have less productivity in the new home stores than we do in the stores that didn’t get a home store.” The missteps included grouping goods based on brand rather than by category. The retailer incurred about $24 million in second-quarter write-offs related to the depreciation and replacement of home-department fixtures. “We’re not totally adrift on the topic of home,” he said. “We just have some structural and physical issues we have to overcome.”

Penney is making its sales associates more mobile and easier to identify with red lanyards, name badges and branded cross-body pouches that carry mobile POS devices. The company is also deploying about 2,800 mobile checkout carts in many stores and some 1,400 permanent cash registers. The previous regime had redesigned stores to feature a centralized bank of registers for checkout rather than having them located throughout the store. “Altogether we have several thousand more places to check out this year than last,” Ullman said.

Penney will refocus on its website, a channel that was being ignored, Ullman said. “We have reintegrated store and online buying, planning and allocation,” he said, “and improved our merchandise assortment and in-stock levels across sizes and styles. And we have reconfigured many of the user interfaces to make it easier to shop.”

Penney, which ended the quarter with some $1.54 billion in cash, is still searching for a CEO, whom the company plans to have in place by this fall, and a property development executive.

Ullman says he is not worried over any lost market share. “We tend to be the lowest-priced anchor in the mall,” he said. “I don’t think they necessarily have found what they wanted other places in the mall. As a matter of fact, some of the studies showed that they actually left the mall to find the price points they could afford. So we think we have a compelling attraction.”

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