J.C. Penney Co. Inc. is cutting some apparel space to make more room for Sephora and applying elbow grease to advance big-ticket appliances, revive its once dominant window covering business, launch toys, and double the number of stockkeeping units online this year.
With all this activity, don’t get the wrong idea about fashion.
“We are not walking away from apparel,” Marvin R. Ellison, J.C. Penney’s chairman and chief executive officer, assured in an exclusive interview. “To the contrary, we are going to be laying out a series of really exciting initiatives throughout this year that will continue to enhance our apparel offering — and we are going to get a lot better at it.
“The only apparel space being reduced is when we bring a Sephora in or expand a Sephora. The Sephora productivity is such that it’s the right thing to do. It enhances apparel because it drives incremental traffic,” he explained.
Sephora shops average 1,600 square feet, but some go up to 2,600 square feet. In addition to 70 new Sephoras opening over the next few months, 32 existing Sephoras will expand by nearly 50 percent for new products and services, such as Benefit Brow Bars, which will be introduced to 25 Sephora shops.
With women’s apparel representing 24 percent of J.C. Penney’s $13 billion in annual revenues, “we can not be a successful retail business without having a strong apparel business,” Ellison said, vowing to invest in the category to make it more productive. “You will see us edit out brands that are underperforming to bring in brands like Libby Edelman, bring in stronger denim statements and grow active, contemporary, casual and plus sizes. For every private branded garment in ladies apparel, we will have extended sizes. That’s a big change.” Women’s accessories, jewelry and Sephora account for another 19 percent of the business; men’s apparel and accessories, 22 percent.
In a couple of categories of private brands, Ellison says, the time it takes to design products to physically being on sales floors has been reduced by 40 percent. “You will see a more rapid transition in tops and blouses,” he noted.
J.C. Penney’s exclusive Libby Edelman “lifestyle” fashion collection by Libby Edelman, cocreator of Sam & Libby and Sam Edelman footwear, debuts with a teaser collection in 500 retail doors July 14, followed by a full launch Sept. 8. “It’s part of our shift from being overly traditional, overly career-oriented to more casual, contemporary and active, not only in apparel but in accessories, footwear and handbags,” Ellison said.
“One of our Achilles heels is we are slow to transition. Women’s was our worst business in 2016, but it was improving the best during [the fourth quarter] of last year to [quarter one] of this year.…It’s still not where we want it.”
Today, the 52-year-old Ellison is at the three-level, 204,340-square-foot J.C. Penney store in the Queens Mall, in the Elmhurst section of Queens, N.Y. It’s one of the retailer’s top-five volume stores, fueled by the dense, diverse population of many middle-income Asian and Latin immigrant families. The demographics couldn’t be better.
He first guides a visitor to the store’s 3,600-square foot appliance showroom filled with refrigerators, stoves, microwaves, washers and dryers from suppliers such as Samsung, LG and GE. It’s one of 600 showrooms in the chain and more are being considered.
“This is not our attempt to cement JCP into something we are not,” Ellison said. But with more than two-thirds of J.C. Penney’s customers being homeowners, Sears abdicating dominance in appliances, and with Ellison’s experience at Home Depot, there was a clear opportunity to bring on the category. Appliances help “weatherproof” J.C. Penney’s business, as does fine jewelry, salons and Sephora, Ellison said. “We have to be prepared when mother nature does not cooperate with our apparel calendar.…There’s also a design and fashion element to appliances many people don’t think about. Appliances have transitioned from just being a necessity to being part of your decor.”
The retailer doesn’t own the appliances. Instead, it showrooms them, takes orders and has the brands ship the products from their warehouses to customers.”From a profit standpoint, it’s no different with the showroom or having the merchandise in the backroom,” Ellison explained. “The only downside is we can’t provide emergency, same-day deliveries.” Deliveries are in two to five days. “It would never work if we had to build distribution centers filled with racks and racks of appliances,” he said.
The company learned from recent “fail search analyses” that customers searched for appliances on jcpenney.com, and toys, too. Neither were in the assortment then. Toys, after last holiday’s successful test, will be in all stores by July 14 for back-to-school.
In mattresses, J.C. Penney’s has 202 showrooms and will have an additional 300 for fall. “[Before,] the assortment wasn’t right,” Ellison said. “We have brought in better brands. There’s more of an assortment and floor space.”
In window coverings, Ellison noted that for many years, J.C. Penney’s sold more window coverings than any other retailer, lost “a ton of share” but is growing the business back, with 500 locations expanding the square footage by 25 percent last year. A third-party seven-day measure, order and install service is being tested.
When Ellison joined J.C. Penney’s, some salons were being closed, but data showed salon customers would shop J.C. Penney’s twice as often and were twice as profitable. Of the department store’s 750 salons, 123 have been re-branded as The Salon By InStyle and 50 more will be this year. Changes include updated graphics, photography, accent lighting, new fixtures and furnishings, elevated service areas and a revitalized space for prestige salon products, tools and accessories from Matrix, Paul Mitchell, Redken and other brands. Last year, Ellison said the salon business recorded its first positive comp in over 10 years.
Passing through other areas of the store — intimates, large sizes, Sephora and a prototype of the upcoming Libby Edelman collection — Ellison stressed that with any initiative, it’s about obtaining growth “without putting a lot of pressure on apparel.”
In an interview, Ellison is comfortable talking about himself. He’s in the stores at least once a week, stressing the benefits of engagement with employees at all levels. An early riser, getting up at 5 or 5:30 a.m. to exercise on the treadmill, the elliptical and lift weights in his small home gym, he’s also a fashionista. “If you want to see one of the most impressive closets ever, just come to my house in Dallas,” Ellison said. “I love designs. I love designer shoes. You name the brand, I have it — Ferragamo, Prada, Gucci, Versace. I have a shoe collection that I would challenge any man in America to compete with me on.”
Indeed, the former home improvement executive said he’s learning much from merchants reporting to him now.
“Coming here for me as a lifelong retailer was not a long stretch because I have always been interested in fashion. But being interested and being educated are two different things. I’ve spent the last couple of years working with John Tighe, our chief merchant, and Valerie Harris, senior vice president of product development and design, and just really understanding as much as I can about the nuances and the complexity of the whole design and manufacturing process,” he said.
Ellison has visited many of the retailer’s manufacturing partners overseas and buying offices, and even picked up on the intricacies of engineering a bra, having seen them designed and manufactured in J.C. Penney’s New York design offices and in Asia. “There are straps, clasps, wires, it has cups. With a bra there are so many more components than a blouse or a pair of trousers. I didn’t even mention the fit. It just blows your mind.…I have a huge appreciation for what it takes to be a great apparel retailer because of the complexity of trend, styles, fit, seasons and colors.”
Asked about his management style, Ellison said, “I listen more than I talk.” Judging by how a few store associates in the Queens store run up to him to get a selfie together, he’s established quite a rapport.
Still, when Ellison became president and ceo-designee in November 2014, later succeeding Myron “Mike” Ullman 3rd as ceo in August 2015, he wasn’t entirely comfortable heading into the situation. Here he was, a former Home Depot executive vice president and fashion greenhorn, about to run a seriously challenged chain with the bulk of its revenues generated by apparel and accessories. J.C. Penney’s and its employees had been on a roller coaster, stemming from the disastrous Ron Johnson tenure — fall 2011 to spring 2013 — and then the Ullman regime, salvaging the business.
“I thought coming in as the new guy from another company, they would kind of have a ‘here we go again mentality’ with another outsider coming in with a bunch of new ideas. But I haven’t faced that,” Ellison said. “The store associates, the merchandising organization and just the overall organization has been very resilient in its will to fight and make the necessary changes.”
Who knew how employees would embrace the floor changes, system changes, mobile devices, omni-initiatives, even the dress code policy implemented by Ellison. He’s got all employees wearing red tops and black bottoms or jeans on Fridays, Saturdays and Sundays, and Penney’s “warrior pin,” instituted by Ullman to foster team spirit and lift morale, is the encouraged accessory. Further, Ellison wants home office executives dressed in J.C. Penney merchandise when they visit stores, which they must do regularly, and are required to wear a J.C. Penney name tag.
“We have a designated rule that one day a week all officers, regardless of your position — I don’t care if you are in procurement — has to spend a day in the store. That includes my general counsel, my head of [human resources], my cfo and obviously chief merchant, head of stores, e-commerce,” Ellison said. “I abide by the rule. There is not a given week that I am not in the stores at least one day, asking associates what’s working, what’s not. It’s informal. Half the time it’s an announced visit, half the time it’s unannounced. I want to see what the customer sees. I spend a lot of time listening, but I also spend a lot of time trying to solve problems.”
Initially at J.C. Penney’s, Ellison discovered a “disconnected” management. “We were spending too much time managing the business through computer screens, PowerPoint decks and spreadsheets, and we were not out talking to the customers, engaging the associates and visually inspecting what the strategy actually was in the stores. I remind everyone we don’t have cash registers at the home office. They’re all in the stores. We don’t have customers in the home office. They are all in the stores.
“In this job you can become really isolated. One of the ways I try not to be is I get out. I don’t travel with entourages. I spend time with entry-level management. It’s not that I am trying to validate right or wrong. I love to get a broad spectrum of viewpoints. We all look at the business through different lenses, so it’s important as chairman and ceo to get the best point of view possible,” he said.
Each month, Ellison does a town hall on J.C. Penney’s internal TV network which is broadcast to stores. He takes questions from associates and responds to e-mails from customers on “a non-canned basis. I don’t know what they are going to ask.” The store visits and other interactions with associates “builds a sense of comfort and sense of approachability. We tend to have a pretty good read about how people really feel about the business,” Ellison said.
J.C. Penney’s has lost a lot of ground — volume was more than $18 billion in 2011 — and the first quarter of 2017 was disappointing, with comps declining 3.5 percent and the net loss swelling to $180 million, largely due to restructuring costs from planned store closings, from $68 million a year ago. “It shouldn’t be ignored that we delivered the first net profit in 2016 since 2010. We went from a negative $630 million dollars in EBITDA [earnings before interest, taxes, depreciation and amortization] just three years ago to over $1 billion this past year. We made great improvements. Great progress. The team overall played a great role in us getting here. But we’ve got a lot of work to do. Believe it or not, our morale is very good,” Ellison noted, citing the company’s annual employee opinion survey. “They feel good about what they are doing and they have a good understanding of what the strategy is. It’s important if you are in a tough market to have a really clear direction, be very transparent around what the strategy is and set plans that are achievable. But make no mistake. It’s a very difficult market. We made some tough decisions like closing 138 stores, but it was in the best interest of the company and shareholders based on all the analysis we did.”
Closing stores – the 1013-unit chain will close 138 location on July 31 – has been the hardest part of his job. Changing management, the second hardest. Of the 13 direct reports he had when he started running the company, it’s down to nine executive vice presidents and six of them are new to J.C. Penney.
Ellison’s first job was during college, working for $4.35 an hour in asset protection at a Target in Memphis. He spent 15 years at Target, in different operating roles, rising to corporate director of asset protection. After Target, he joined Home Depot, where he eventually served as a senior vice president of global logistics, then president of the 700-unit northern stores division, and finally, executive vice president of U.S. stores.
Former Home Depot ceo’s taught him a lot, including Bernard Marcus, Home Depot’s cofounder. “Bernie always taught me it’s important to be in the stores, listening to and engaging with the associates. Some of the greatest lessons come from standing on the sales floor and talking with the associates about an idea to drive sales, or an idea to serve the customer.
“He also taught me that one transaction is not the objective. The objective is to create a lifetime relationship with the customer. Help a customer buy something that’s less expensive than they anticipated and make an emotional connection. At Penney’s, we are trying to service our customer in a very authentic way. We don’t want her to feel overwhelmed or pressured. We don’t try to sell you up or to buy the highest priced items. We will sell customers down throughout the store.”
From Arthur Blank, the other Home Depot cofounder, Ellison learned “the importance of making sure you keep your arms around the financials of the business, that you really dig into the details, understand the financial levers and how you keep the train running on time.” When Ellison arrived, he felt J.C. Penney’s did not understand the importance of managing corporate overheard. “The business was in turnaround” and expenses declining and SG&A seen dropping a point or two this year. “That hasn’t been easy to accomplish, but we have been able to take the expense down without diluting payroll in the stores and without gutting marketing costs.”
From Bob Nardelli, another Home Depot ceo, Ellison learned “importance of taking chances on people. He was the first ceo that took a chance on me. As I continued to perform well in operational functions, he gave me a chance to be a division president of northern stores division and run a P&L. He also taught me if the external environment is moving faster than the internal environment, you are dying and you don’t know it. That’s a very relevant statement now with the massive changes that are happening in retail.”
Ellison said he joined J.C. Penney because he saw “upside potential” and believes “the iconic brand of J.C. Penney still matters.” His feeling at the outset was, “If we could hire some good leaders, create a sound strategy, modernize our approach to the customer with goods and services, we could turn this company around and I still think we can.”
The chance to become a ceo for his first time was also part of the allure, Ellison acknowledged. “Especially for a guy who grew up in a two stoplight town in western Tennessee as the middle child of seven kids,” he said. ” It’s a gift from God and I take it at that.”