J.C. Penney, to advance turnaround efforts, is banking on a bevy of merchandise initiatives — from appliance and window treatment buildups and Michael Strahan private brand men’s wear — to achieve earnings and sales growth this year.
J.C. Penney’s also continues to roll out Sephora shops in its stores, where soon Clinique skin care and Laura Mercier cosmetics will be added to select locations. There are now Sephora shops inside 574 J.C. Penney’s locations and four more are slated for this fall.
“Our new Sephora locations are generating the best grand opening results that we’ve ever seen,” said Marvin Ellison, J.C. Penney’s chairman and chief executive officer. “This is incredibly encouraging as we are placing Sephora shops in the small and more rural locations than ever before. We’re garnering such positive results in these rural locations that we now believe that we can open more Sephora shops than we previously anticipated.”
During a conference call Friday after J.C. Penney’s released second-quarter results showing improved sales trends and a narrowed bottom line loss, Ellison outlined several changes on the selling floor. Among them, he said the midtier retailer continues to actively refresh center core departments with Liz Claiborne handbags recently reintroduced, and that Nike girls will be introduced for back-to-school at 350 locations.
In addition, J.C. Penney’s plans to relaunch Nike next spring with an expanded assortment in men’s, kids and women’s housed in an updated environment. The relaunch is further indication of the ongoing growth in the activewear category and follows the news that J.C. Penney’s competitor Kohl’s will introduce Under Armour activewear in its stores this fall.
On the home front, the Dallas-based chain is rapidly rolling out appliance departments to more than 500 stores this year, from the current 200. “We went live on jcp.com nationwide in advance of Memorial Day weekend with over 1,200 appliances available for purchase from our partners Samsung, LG and GE.”
Ellison visited last month a store testing all of J.C. Penney’s home initiatives, which included appliances and window treatments. “The combination of appliances, our improved window treatment presentation, Signature Design by Ashley furniture, Empire Today flooring along with our dominant soft home presentation was very compelling. Even more importantly, the early sales results in this store and other test stores have been excellent,” he said. Ashley Furniture is being carried in select stores and Empire Today flooring is being tested in the Tampa, Fla.; Washington, D.C., and Phoenix markets.
The more than one-third of customers who came to buy appliances were new to J.C. Penney’s and 70 percent of the transactions were done on a J.C. Penney’s credit card. The appliance areas are like showrooms in that J.C. Penney’s owns the floor sets but not any of the other inventory until it’s sold.
While expressing the importance of private apparel labels such as Arizona and St. John’s Bay, Ellison did talk up categories like appliances, Sephora and window treatments. “We are pleased with our results and overall execution. We know we must pivot our assortment toward less weather sensitive categories. We will continue to focus on apparel. We will always be an apparel retailer.”
Macy’s decision to close 100 stores next year, revealed Thursday, as well as recent downsizing by Sears Holdings, Gap Inc. and other retailers, and the Amazon effect, have ignited retailers into reassessing their brick-and-mortar fleets. It’s never been more apparent that the U.S. is way overstored.
“As a reminder last year, we closed roughly 40 stores and are closing roughly seven stores this year,” Ellison said. “We have a very disciplined process. We will not maintain any store or any strategic entity that doesn’t provide value to our customers or to our strategic future.”
Regarding the impact of other retailers closing stores, Ellison said, “Obviously we spend a lot of time with mall operators understanding their strategy to redesign the mall if there is an anchor that closes. When a Sears closes, it’s a net positive for JCP; our sales increase. With some recent Macy’s closings, it’s a net positive. Our data tells us because the closings are well telegraphed, we can take market share. We believe there will be appliance market share up for grabs.
“There will be some situations [involving store closings] where we are pretty sure that the mall will be severely impacted. In that case we will make a decision to do something different.”
Ellison explained how in an omnichannel world, “any brick-and-mortar retailer who thinks they can go head to head with pure play by doing it online, has a rude awakening.”
“It’s critical to understand that over 50 percent of our online orders go through our stores. That’s correct — over 50 percent,” Ellison said. That involves orders online getting shipped to a store so a customer can pick it up there; shipping orders taken online from the store inventory; having associates in stores order a product via online on behalf of a customer, and enabling customers to return items they don’t want to the store.
“Omnichannel is not a catchphrase at J.C. Penney. It is a strategic process,” Ellison stated.
He also said stores offering the buy online, pick up in store service results in lower delivery costs and reduced delivery time for customers. It also drives foot traffic and incremental sales.
During the call, Ellison said the state of the consumer really hasn’t changed from last quarter and that he’s pleased, looking back on July, about the trajectory of the business.
In other news, J.C. Penney’s has distributed mobile devices to associates with POS functionality to be ready within the next couple of weeks; is replacing point-of-sale units with modern versions, and is close to finalizing a sale-leaseback deal on a portion of its Plano, Tex., headquarters.
On Friday, J.C. Penney’s said it narrowed its loss for the second quarter and cited improving sales trends across a wide spectrum of categories. The Dallas-based retailer also reaffirmed its guidance for the year. J.C. Penney’s projects earnings before interest, taxes, depreciation and amortization, to reach $1 billion; comparable store sales up 3 to 4 percent; gross margins increasing 10 to 30 basis points; SG&A dollars decreasing; cash flow improving, and adjusted earnings per share expected to be positive. EBITDA next year is projected at $1.2 billion.
For the second quarter ended July 30, J.C. Penney’s narrowed its loss to $56 million, from $117 million, on a 2.2 percent comparable sales gain. There was an $85 million or 59 percent increase in EBITDA to $229 million. Sephora, home, footwear and handbags were the top performing merchandise divisions.
Next Wednesday, J.C. Penney’s will hold an analyst day in Dallas. “It’s really going to be about outlining the strategic future of J. C. Penney,” Ellison said. “If I’m an analyst or an investor, I want to understand the strategic relevance of a 114-year-old retailer in this really dynamic marketplace.”
Ellison said he will introduce the management team and “lay out in a high degree of detail how we think we can win not only in 2016 but over the next two to three years.”