Marvin Ellison, J.C. Penney’s president and chief executive officer designee, is stepping out and talking strategy for the recovering midtier department store chain.
On Tuesday, in his first investor conference on behalf of Penney’s without current chairman and ceo Myron Mike Ullman at his side, Ellison addressed investors at the Oppenheimer Consumer Conference, indicating where Penney’s shines and where it needs repair work and stressing that the $13 billion chain is on recovery road.
Asked what the overall mission is at Penney’s, Ellison replied: “It’s very simple — sustainable shareholder value.”
“The board also wants J.C. Penney to be a true corporate citizen…It’s a pretty straightforward mandate.”
He also said he wants to get into “a rhythm growing the business, creating profit” and hitting the $1.2 billion goal for earnings before interest, taxes, depreciation and amortization by 2017. “We think we have upside potential to do a little better,” he added.
Ellison becomes ceo in August when Ullman becomes executive chairman. Earlier this month, the two appeared at a press gathering in New York and later at the annual Piper Jaffray Consumer Conference but at the Oppenheimer presentation, Ellison stood out on his own.
The former head of Home Depot’s U.S. store operations, Ellison said that based on visiting roughly 50 Penney’s stores in 12 states and Puerto Rico since he came on board last fall, “I’m most surprised at how good our stores look,” including their physical condition and aesthetics.
Sephora, he said, continues to be a huge win, bringing “an ambience and energy” that’s different from midtier department stores. “We think we can push Sephora further. We are excited about the growth potential. We are testing and piloting Sephora in smaller, rural settings.”
“I have been very hard-pressed to find a store that aesthetically didn’t have a good look and feel,” though he also said that Penney’s continues to execute capital improvements.
He said he felt “really good about service levels,” adding, “Our customers are voting that they feel good when they walk in. Associate morale is really high. Coming in with all the negative press [on Penney] my first impression was that morale would be low.”
However, Ellison didn’t shy away from what ails the $13 billion Dallas-based retailer. The home and kids departments are still impaired from the disastrous Ron Johnson regime from 2011 to 2013, when higher-priced merchandise and a slicker presentation were installed and coupons were dropped, leading to a one-third decline in volume and mass customer defections.
“Home and kids are still impaired because of some strategic mistakes that we are unwinding,” Ellison said.
Penney’s, Ellison said, is “working very hard” through a capital initiative to separate the men’s and women’s shoe departments and convert them to open sell. “Our shoe business was depressed when you had men’s and women’s in the same area. They simply don’t go together. The moment we expanded women’s shoes and put men’s in a separate open-sell environment, the business started to turn.”
In another major change, Penney’s hair salons, which Ellison characterized as the largest hair salon business in the U.S., are being rebranded in collaboration with InStyle magazine. The InStyle salons will be rolled out company-wide later this year, Ellison said.
Underscoring that Penney’s is on a growth trajectory, he said, “If you go back to Q1, Penney’s was one of the few department stores that highlighted men’s and women’s apparel as a positive for Q1.” Men’s and women’s represents roughly half of the chain’s volume.
Ellison also said that Penney’s handbags were suffering last year. “The bags were ugly.” But with a new merchant and design team, they have begun to sell, including new bags from Liz Claiborne sold exclusively at Penney’s.
Fashion jewelry, accessories and intimates have not performed well, but Penney’s has reset the space, improved the lighting and fixturing and rolling out the new format.
On advancing omni-initiatives, Ellison said, “We are behind, but I believe we have a second-mover advantage. By this time next year, we will have an holistic omnichannel strategy to compete with anyone in the marketplace.” 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.
He said margins are “getting back to normality,” after Penney’s had to liquidate 13 brands. “The liquidation process created a mountain of clearance that we had to work our way through.”
Other opportunities cited by Ellison: optimizing the supply chain, rolling out assortment and item-planning tools and being “very aggressive and focused on taking out costs where costs are not needed.”
Ellison said that Penney’s can take back market share provided it provides great prices, great environments, style and value.
Noting rising gas prices and interest rates, Ellison said, “We feel the economic environment does not give us a headwind or a tailwind. It’s pretty much a constant for us and that will play out for the rest of the year.”