Marvin Ellison sees a three-pillar strategy to bringing J.C. Penney Co. back to prominence — focusing on the department store’s omnichannel capacity, private brands and its revenue-per-customer rate.
“If we do these three things well, we believe we can create customer loyalty,” said Penney’s chief executive officer.
Ellison also said Penney’s needs a better balance of “art and science” during a presentation where he mixed thoughts on growing up and shopping Penney’s with his family, some self-deprecating humor, a brief point-of-view of Penney’s dark days of sharp revenue declines during Ron Johnson’s tenure, and his main theme: “Achieving success through simplicity.”
“The issue Penney’s faces is an issue that many iconic brands face, which is how can you focus on the things that matter most…A year ago when I joined the company, I sat through a lot of meetings, took a lot of notes. In the course of 11 months, I did almost 60 town halls across the country. I came to the conclusion that we had a lot going on. When someone asked me to decide the strategic framework, the best way to describe it is to imagine you are given the keys to a boat on open water and it has 100 holes in it. Any hole can sink you. So the activities you would be involved with would be patching holes. That’s not very strategic. There were no real clear vision and objectives. I walked into a team very astute at patching holes.”
Taking some inspiration from the book “Good to Great: Why Some Companies Make the Leap…And Others Don’t,” by James Collins, and “The Hedgehog and the Fox” essay by Isaiah Berlin, Ellison formulated the mission at Penney’s to focus on what it can be best at — private brands; what it wants to be better at — omnichannel — and achieving higher revenues per customer. “We believe when these three circles intersect that increases customer loyalty and customer loyalty is important for us.
“We have a very simple illustration. If J.C. Penney was a structure, the foundation of that structure would be customer loyalty. Everything is built upon that, and the three strategic pillars holding up the entire building would be omnichannel, private brands and revenue per customer.”
So as the company moves forward, Ellison said, “We are simply going to be very good at three things, and we are going to be very specific of how we achieve these things, how we allocate capital and resources, and expenses, how we measure and how we drive.
“We know that omni is important and that we are behind, but we feel OK about that because we have recruited some very talented individuals who have been there and done it before, and because we think we can catch up.”
Ellison also stressed a better balance between art and science, stating, “When I look at J.C. Penney and ask where are we, our skills are not equal. We are heavy on art and not good on science. We are very proud that our art is as good as it is for a midtier department store.”
He cited the recently introduced Michael Strahan exclusive men’s collection. “Because I am a brand ambassador and a shameless promoter of goods, I am wearing Michael Strahan [a suit] with a Stafford tie.” Stafford is a key private brand at Penney’s.
“When you think about our fine jewelry, we partnered with Modern Bride to create an in-store aesthetic that we are very proud of.”
Ellison listed several ways in which Penney’s shows its creative side, including now rebranding all 800 salons in partnership with InStyle; being the only retailer to operate authentic Disney shops outside of the theme parks; accelerating Sephora openings inside Penney’s stores, and maintaining “a fabulous stable of private brands that many of our customers believe are national brands, like Liz Claiborne, Arizona and Worthington, just to name a few.”
The ceo cited a lot of test-and-learn initiatives to figure out ways to promote in a very straightforward way so the customer understands the values they are receiving; introducing this fall Penney’s first fast-fashion private brand called Belle + Sky to about 50 stores and then rolling it out to more doors; putting a priority on improving the rewards program to strengthen loyalty, and improving marketing so the company does a better job of communicating what’s in the stores. “We feel as though we have the right brands. Our marketing is what we are working on to take that go-to-market strategy” in a different direction. “With Sephora and Disney, when customers realize we have these partnerships, they change their perceptions of J.C. Penney.”
On the other hand, “When you think about science, this is where we are the weakest and where we are going to spend a lot of time. We have good customer data. We just don’t do anything with it,” neglecting the applications for supply-chain efficiency, localization of assortments and pricing, which is still done merchant by merchant. But, “We are working with a large third-party firm centralizing pricing, which we think will reap enormous benefits, having done this before in my past life,” at Home Depot.
“We are behind on e-commerce. The good news about being behind on e-commerce is because J.C. Penney has a fabulous heritage of being a catalogue retailer, the infrastructure is in place; we have three massive distribution centers that we converted to dot-com. Now we have to digitize them more effectively. The infrastructure is in place. We just have to make sure we have the technology that creates a seamless interaction with customers.”
He added, “If you think about the leadership we put in place, it is no coincidence that these leaders tie directly to the science of retailing.”
Ellison knows the Penney’s customer well, since his family is one. “Growing up in a small, two-stoplight town in western Tennessee, with seven brothers and sisters, I had come to understand, appreciate and embrace midtier customers — the plight they face from an economic standpoint and the respect they deserve when they walk into a place to transact. So for me, [Penney’s] is a great place because I have my own stories of J.C. Penney growing up and the importance of demonstrating value, quality and respect for customers that need it. That is what we are going to attempt to do at J.C. Penney.”
Ellison displayed a timeline of his work history which he joked “shouts out in a very loud voice how unimpressive my background in retail is…I started out as a part-time employee with Target, making $4.30 an hour, trying to pay for books and rent while attending college. From that I fell in love with retail.”
Ellison later spent 15 years at Home Depot, where he rose to executive vice president in charge of the U.S. store fleet, and was instrumental in turning around the company. “Luckily, I was part of a team that created enormous value for shareholders.
“I spent a lot of time at Home Depot with Bernie Marcus, the founder, who I think is 85 now and is still very influential in the culture of Home Depot. Bernie influenced me to think differently about leadership — it’s called ‘the inverted pyramid.’ This basically symbolizes the constituency groups that matter most to me — the customers and my associates.
“Many of us here today are spending time in a conference, yet our businesses are running perfectly well with us not being there. It also demonstrates the value of your front-line associates because they matter a lot more than we do. So for me, this not a demonstration of humility, nor is it a philosophy. It is how we will run the business,” which entails the recognition that customers matter and the men and women “that clock in and clock out and represent the brand on the front lines,” whether in a distribution center, a store or a call center, also matter. “It’s also a recognition of someone like me who grew up as a sales associate and no one cared about my opinion,” he said. “No one sought it out. There was no mechanism” for it. “So we are trying to create an environment where the associates really matter.”
In terms of current performance, “We feel good about how we are progressing. We feel good about our topline performance for Q1 and Q2. We feel good about our margin performance and we feel good about our EBITDA,” Ellison said. “We have a lot of work to do. The good news is what we are doing so far is resonating well and we look at our competitive space and we know for a fact that we are taking market share.”
He said Penney’s is on track to achieve the previously stated goal of $1.2 billion in EBITDA in 2017.
“We think we can create a different kind of company serving a customer that is always looking for value, great quality and a very pleasant and respectable experience. That’s my story and I am sticking to it.”
Ellison did briefly refer to Penney’s dark days, from November 2011 to April 2013, when it was led by Ron Johnson and ruined by a highly flawed strategy. Myron “Mike” Ullman replaced Johnson as ceo, on his second stint, and restored most of what Johnson wiped out, like coupons and promotions, and stopped the bleeding.
“Without going back and playing the tape on what happened, I simply call it 18 months in the wilderness,” Ellison said, referring to Johnson’s tenure.
“Let’s go back to high school. Imagine you dated the same wonderful girl for three years and all of a sudden when the prom was coming up you decided she was no longer good enough for you,” Ellison said, speaking metaphorically. “So you make a play for the homecoming queen, and the homecoming queen says ‘no thank you’ and you end up going to the prom stag. J.C. Penney had a customer that loved us and we said to the customer, ‘We don’t like you any more. We like that customer.’ We made a play for that customer, and that customer said, ‘We don’t like you very much.’ And that is how you lose $6 billion in revenue in 18 months.”
For Penney’s, it’s a matter of “really understanding who our customer is, and creating a seamless and simple environment, whether digital or stores for those customers…We will never sit in a conference room with a group of executives and ask what matters to the customer without asking them first. For 18 months, leaders sat in a conference room, they did not test anything, they did not conduct market research, they made decisions based off instinct and opinion, and we know that is not how you run a business.”
He did give the past leadership credit for investing capital in store environments, giving the “stale and tired” environments a more modern aesthetic, though the return on the investment capital “had a lot to be desired.”