PENNEY’S ONLINE BUSINESS IS BRIGHT SPOT AT TROUBLED RETAILER

Byline: Rusty Williamson

Dallas — While other traditional retailers barely have begun to crawl through cyberspace, two-year-old JCPenney.com started sprinting online straight from its inception — and hasn’t stopped yet — despite the problems plaguing the namesake department store chain.
Indeed, the Web site has been gaining momentum quietly and now is eyeing sales of $300 million for the full year, a projection that reflects two upward revisions, fed by customer traffic that consistently puts it near the top of the list of most-visited apparel e-tailers.
That’s $20 million more than the forecast made just six weeks ago by Vanessa Castagna, executive vice president and chief operating officer of the Plano-based retailer, who pegged the company’s full-year sales estimate for JCPenney.com at $280 million.
Through June 30, JCPenney.com had rung up sales of $79 million, or an average of about $3.5 million per week. It’s also one of the few profitable fashion Web sites, along with Landsend.com and Victoriassecret.com.
Not bad for a fledgling e-tailer that posted first-year volume of $15 million.
So how is the $32 billion retailer, whose sleepy corporate culture and bureaucratic tangle have reduced its competitiveness with players like Target and Kohl’s — major challenges confronting new chief executive Allen Questrom — succeeding in super-charged cyberspace?
In an exclusive interview with WWD, Paul Socrates Pappajohn, the dynamic, passionate and decidedly optimistic 34-year-old president of J.C. Penney e-commerce, explained, “We are aggressively leveraging our core assets, most importantly the awareness of Penney’s brand name, along with our multichannel sales, customer service and distribution operations.
“As a result,” Pappajohn contended, “we are second to none in availability of product from window treatments to babies’ shoes to women’s dresses.”
Not surprisingly, Pappajohn is bullish on JCPenney.com’s capacity to keep extending its customer base rapidly. Roughly 750 million people visited J.C. Penney’s traditional department stores or shopped its catalogs in 1999, and the president of the company’s e-commerce unit views all of them as potential Internet consumers.
Penney’s Web site placed third in June traffic at top apparel e-tailers, with 1.78 million unique visitors, according to ratings agency Media Metrix. Only the iTurf network of sites, with 2.8 million users, and Kmart-controlled BlueLight.com, with 1.84 million, drew more shoppers. JCPenney.com regularly is ranked as a top-10 Internet shopping destination by various agencies, such as Media Metrix and NeilsenNet Ratings.
“Last year, 52 million customers made a purchase in our stores, through the catalog or over the Internet,” Pappajohn recounted. This year, he added, “We expect to have more than 3 million registered customers who want to receive e-mail from Penney’s.”
And JCPenney.com doesn’t see that expansion ebbing anytime soon. On the contrary, it plans on producing $1 billion in Internet business by 2003.
The Web site currently fulfills more than 40,000 orders per week, from an inventory of more than 250,000 skus, or virtually its entire catalog assortment; deliveries are usually completed within 24-72 hours of a purchase transaction.
Ironically, it appears the much-maligned J.C. Penney, with its five straight years of sales declines and struggles with its cumbersome infrastructure, can teach the competition a thing or two about selling in cyberspace.
“We are uniquely positioned to build J.C. Penney online,” said Pappajohn, who signed on at Penney’s last November. Prior to joining the dot-com unit, Pappajohn, a Yale graduate with a B.A. in economics and finance, was vice president of development and e-commerce for WashingtonPost.Newsweek Interactive.
His strategy for long-term Internet dominance revolves around capitalizing on Penney’s intrinsic and synergistic assets, which he enumerated last week.
For one thing, Pappajohn views Penney’s $4 billion catalog business as a direct gateway to sustained growth online, as virtually all of the company’s catalog merchandise is available on the Internet. “Our catalog business is the largest in the Western Hemisphere and more than twice the size of the closest competition,” he stated. “Our catalog fulfillment and distribution capabilities help us tremendously with our Internet initiative.”
Penney’s publishes three hefty “Big Book” catalogs each year, along with 70 smaller and niche-driven catalogs.
Orders for both the catalog and Web site are entered via 14 customer-service centers spread across the U.S. that manage more than 1 million calls and e-mail inquiries per week, excluding December, when Christmas orders push the monthly tally to three million orders.
Fulfillment is handled by Penney’s five distribution centers, which processed nearly 70 million transactions last year.
In addition, in an effort to more fully integrate its operations, the chain has installed 2,000 catalog desks in most Penney’s stores, as well as its Eckerd drugstore chain, during the past three years.
“We like to think of them as physical Internet portals,” Pappajohn said of the desks. “We are experimenting with Internet kiosks in some of our new stores that will allow consumers to go online for extended assortments in areas such as special sizes.”
Penney’s online shoppers currently spend an average of more than $100 per transaction, or 25 percent more than the average catalog order.
Apparel and home furnishings are the best-selling categories on the Web site, according to Pappajohn, with the fashion business fairly evenly distributed among women’s, men’s and children’s.
“We are starting to see more interest in fashion items as consumers become more comfortable with the Web site,” noted the e-commerce president. “With the Internet, we can also broaden our selection and content as customers’ needs and tastes change.”
Currently, Penney’s is redesigning major portions of the site to be more user- and fashion-friendly. The plan calls for broadening the focus on apparel, which is likely to include innerwear and foundations near-term, while expanding niche fashion classifications such as special sizes.
“The results will be visible by this fall,” Pappajohn projected. “We’ll offer a more tailored and convenient experience.” The remodeled site will place a greater emphasis on virtual fit models that users can customize by incorporating their measurements and other personal data.
JCPenney.com already has found success, Pappajohn said, with niche fashion offerings, including a redesigned segment for plus-size, tall and petite women that it launched in May.
Retail observers noted Penney’s two-fold tactic of playing up its brand name online while capitalizing on its rock-solid infrastructure is smart — and should continue to pay off.
“Penney’s success on the Internet has a lot to do with their very broad product offering and their existing catalog and customer-service infrastructure,” said Michael Exstein, a retail analyst at Credit Suisse First Boston. “They’ve got a long history of playing up their name and it’s paying off. They’ve got a lot of brand leverage.”
Peggy O’Neill, analyst at Nielsen Net Ratings, which charts online purchasing patterns and data, agreed that Penney’s robust catalog business gave the chain an edge in initiating its Internet drive.
“The Internet business is like a catalog business on steroids,” offered O’Neill. “There are lots of parallels, from customer service to distribution. I think Penney’s Internet business will continue to grow nicely.”

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