J.C. Penney Co. Inc. executives have green-lighted omnichannel initiatives and changes across the selling floors to step up the rate of recent sales gains and achieve earnings goals.
The most critical changes involve rebuilding home departments to restore earlier formats and merchandise previously carried; pumping up the center core with expanded and separated open-sell men’s and women’s shoe departments; creating sunglass shops; updating handbag presentations, and building more Disney and Sephora shops.
The center core changes begin “in earnest” in the third quarter, while the rebuilding of the home floor continues to be a work in progress.
On the omnichannel and technology fronts, Penney’s this year is piloting same-day delivery of online orders to stores and to customers’ homes, for 2016 rollouts. Penney’s already has buy-online, pickup-in-store, and ship-from-store services.
The company is also integrating an Oracle merchandise planning and allocation system to better stock stores and meet customer demand.
The brick-and-mortar and online changes are critical in enabling the $13 billion Penney’s to reach the targeted $1.2 billion in earnings before interest, taxes, depreciation and amortization by 2017 and restore lost volume. The retailer lost one-third of its sales, shrinking to $12.3 billion from $18 billion, during the disastrous reinvention period from 2011 to 2013 under then-chief executive officer Ron Johnson.
Marvin Ellison, Penney’s president and ceo designee, who is leading the initiatives, told WWD on Wednesday that the center-core strategy entails primarily layout changes and visual improvements. Asked about possibly adding brands to the assortment — some retail experts believe Penney’s doesn’t have enough market brands — Ellison suggested that for now, it’s more about enhancing the current assortment, though changes and brand additions could be considered in the future, he said.
In recent years, “the center core was ignored,” said Myron “Mike” Ullman 3rd, Penney’s outgoing ceo. “These businesses are where the opportunities are.” Center core includes handbags, sunglasses, intimate apparel, shoes, Sephora and fine jewelry.
Penney’s plans were outlined in a meeting with the two executives in New York, and during a presentation at the annual Piper Jaffray Consumer Conference.
They stressed that rebuilding the center core and home businesses and undoing other damage stemming from the short-lived Johnson era, continues. In center core, “the company really lost focus on these areas, with the exception of Sephora,” said Ullman, who introduced the concept during his first tenure as the Penney’s ceo.
On the home front, “We are working aggressively to get that area of the store back to where it was,” Ullman said. “Home was the third-highest-comping division for the third quarter, but it’s still not where we want to be.”
Last quarter, the best-performing areas were men’s and women’s clothing. Penney’s, as reported last week, narrowed its first-quarter loss by more than half and saw sales in the period rise 2 percent, which officials said reflected some recouping of market share during a period characterized by sluggish department store performances.
The company, demonstrating confidence in its strategies and performance, raised guidance, stating that comparable-store sales for the year are expected to increase 4 to 5 percent, versus 3 to 5 percent previously; gross margin should improve 100 to 150 basis points, up from 50 to 100 basis points previously, and SG&A is expected to decrease by $100 million, up from $50 million to $100 million previously projected.
EBITDA is estimated at about $600 million for the year, compared with the $1.2 billion projected for 2017.
“Right now, we feel good about the stabilization of the business. Now we want to grow the business and take market share,” Ellison said Wednesday.
According to Ellison, who becomes ceo in August when Ullman becomes executive chairman, Penney’s shoe departments are being reconfigured at a rate of 250 a month, and all stores will have the new format by back-to-school.
He also said new handbags from Penney’s-owned Liz Claiborne and Evan-Picone brands were added at the start of this year to all stores, and that handbag departments are being reset. Sunglass shops, which will be rolled out in the third quarter, will be stocked with private brands, according to Ellison.
The Dallas-based 1,100-unit department store chain also hopes to spur growth through:
* Sears Holdings closures, which might enable Penney’s to capture customers and market share, particularly in denim and intimate apparel. Penney’s also could move into certain Sears locations.
* Increased localizing of the merchandising, which was de-emphasized when Johnson was Penney’s ceo.
* Getting the company to be more precise and one-to-one with its marketing. “We need to be more precise in communicating with customers,” Ellison said.
* Taking the lessons learned by Ellison when he led Home Depot’s transformation into an omnichannel retailer and applying them to Penney’s. Ellison, prior to joining Penney’s in November, spent 12 years at Home Depot, including the last six running the 2,000 domestic stores.
* Re-branding Penney’s 850 salons through the recently signed deal with InStyle magazine. Better stylists are being recruited.
* The Sephora Web site on jcpenney.com. “It has tons of future possibilities,” Ellison said.
Ullman said Penney’s had 87 million active customers in 2011 and that “we have 87 million today.” While the customer is back, Penney’s businesses have not been fully restored, he acknowledged. “The reason the volume is not the same is that the businesses impaired have not been [fully] restored.”
Ellison acknowledged that Penney’s is “behind in our omnichannel strategy, but the second-mover advantage is going to be powerful.”
“Finding a seamless connection between dot-com to store, mobile to desktop is critically important,” Ellison said. Penney’s already has the supply chain infrastructure in place to leverage locations to be distribution points, with distribution centers already there, though “we are making capital investments in digitalizing the network.”
The executives were asked about how the company will manage its huge debt. Ellison replied that reaching the $1.2 billion EBITDA target will open up options for how to manage it.