Marvin Ellison

J.C. Penney is making “significant” changes on its apparel floors, as it seeks to firm up its women’s business after a soft third quarter.

“Penney’s has always been known for career and traditional but we are editing the assortment. You will see us be a little more casual and modern,” Marvin Ellison, J.C. Penney’s chairman and chief executive officer, said in an exclusive interview focusing on Penney’s apparel business.

“We won’t walk away from career. We will still have traditional, but as a percentage you will see us become more casual going into holiday.”

On Friday, Penney’s reported progress in its turnaround efforts, narrowing its loss in the third quarter ended Oct. 29 by 42 percent to $67 million from $115 million in the year-ago period.

Earnings before interest, taxes, depreciation and amortization improved 26 percent to $172 million for the quarter, from $136 million a year ago. Adjusted EBITDA was up 57 percent to $174 million, a $63 million improvement from the same period last year.

Penney’s cited Sephora, home, salon and fine jewelry as top categories racking up gains but comp sales overall slipped 0.8 percent last quarter and apparel was to blame. Some other major retailers, Macy’s and Nordstrom among them, in reporting their third quarter results last week cited improvements in their apparel trends.

Ellison attributed Penney’s apparel softness on unseasonably warm weather, disruptions caused by the rollout of appliance shops – 113 were opened in one week to capitalize on Columbus Day Weekend – as well as some misfires related to certain styles and colors, though there was no single big trend miss to account for the shortfall.

With apparel, “We will be a lot more simplistic in our assortment, with more clarity on price with less menu signs, and better depth on inventory but this is not an inventory play. We want customers to be able to always find her size.”

Not all of apparel was down. “We are very pleased with active,” Ellison said. “We are expanding our relationship with Nike going into holiday and for next year.” Penney’s active private label called Xersion is “growing exceptionally well,” Ellison added, and Penney’s will increase investments in certain private brands including a.n.a., Arizona, and Belle + Sky, which is Penney’s first entry into fast fashion.

Ellison also said that with its Boutique+ in-store plus size shops featuring private and market brands, “You will see us more aggressive. Special size categories outperform the overall apparel business.”

The changes being made are “significant,” he said, though he added, “I want to emphasize we are not walking away from career and traditional. As we shift our assortments, you will see a change in the ratio” between casual versus career and traditional.” He suggested it was premature to specify the ratio. “We are working our way there. We really want the customer to tell us.”

While some changes are already evident at Penney’s, “When you walk into a J.C. Penney store in 2017 in women’s apparel, you will see a much more edited assortment with clarity of price, depth of inventory, and a different ratio of career and casual,” Ellison said.

While the quarter was done, the ceo said that during October, every apparel category improved as the weather started to normalize and appliance shops were completed and no longer disruptive.

Asked if the presidential election impacted the business, Ellison replied, “We don’t think so.”

He expressed confidence for the fourth quarter and holiday business. “All the data we are looking at gives us enormous confidence in the financial condition of the consumer,” Ellison said, citing higher wages and savings. “Everyone is forecasting a pretty robust holiday season and our data tells us the same.”

He expects Penney’s to also be lifted during holiday season by several initiatives. In particular, 500 new appliance showrooms are now in stores and over 1,200 appliance SKUs are online, positioning Penney’s for a robust Black Friday weekend, considered the highest-volume appliance selling period of the year, Ellison said. In addition:

  • 350 stores now have refreshed center core environments.
  • Toys are being introduced.
  • BOLPIS – buy online, pick up in stores – and mobile checkouts have been rolled out.
  • Penney’s stores will open from 3 p.m. Thanksgiving Day.
  • Lowest price guarantee. If you present an ad from a competitor showing a lower price, Penney’s will beat it by 5 percent.
  • Rebranding the salon business to The Salon by InStyle

Penney’s continues to be bullish on Sephora, having opened 61 locations this year inside its stores, bringing the count to 578. “I can tell you we will open more than that next year,” Ellison said.

Different Sephora concepts are being tested in smaller, rural stores in places like Vienna, West Va. Penney’s is testing in one of its stores selling just the Sephora Collection of private brand products. Asked how many Sephora shops could ultimately operate inside Penney’s, Ellison said, “What we learn from smaller rural market tests will give us that information.”

During a conference call Friday, Ellison said the company would “pivot our retail strategy to non-weather dependent strategies.”

In a review of what performed well and what didn’t, Ellison said men’s wear, kids and women’s performed below the overall company comps, though moderate dresses, women’s bottoms, special sizes, active, boys and girls toddler and preschool did well.

Beauty, with Sephora the key, delivered significant comp sales growth. Penney’s recently added Clinique in select Sephora shops and will increase the distribution.

Once the appliance showrooms were installed, “not only did the appliance business take off, the entire store took off. It set us up very well for the fourth quarter and 2017,” Ellison said. “We are going to evaluate business after holiday and make a decision on how much farther we expand, have a couple of footprints in place and monitor those.”

Penney’s is sticking to its forecast for $1.2 billion in EBITDA for 2016.

“When we think about 500 plus appliance showrooms, 61 new Sephoras, 350 [refreshed] center cores, BOLPIS in all stores, and I could go on and on, we feel great about the holiday season and the fourth quarter,” Ellison said.

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