JCPenney's partnership with threadUP - Photo: JCPenney
On J.C. Penney’s second quarter conference call with analysts, CEO Jill Soltau made clear that her job and that of her team was not simply running the department store chain’s business. It was rebuilding it.
The retailer managed to cut its quarterly loss in half even as same-store sales fell six percent (excluding discontinued appliance and furniture sales). However, Penney continues to face multiple challenges, including carrying billions of dollars in debt, the threat of having its stock delisted by the New York Stock Exchange, establishing a point of difference with department store, online and specialty retail competitors, and attracting new generations of customers that it has failed to connect with up until now.
On her call with analysts, Ms. Soltau stressed the size of the hole that Penney dug for itself over the last decade. Understanding this, she said, job one is moving the business into the black.
“I strongly believe that growing sales in an unprofitable way is simply not an option,” said Ms. Soltau (via SeekingAlpha). “The only way to reconstruct a business is through a holistic approach across all the key tenets of strategic, purposeful and effective retailing.”
To return to profitability, Penney has sought to cut down on excess inventory and reduce markdowns. Ms. Soltau said the chain had made progress on both fronts, cutting inventory levels 12.5 percent during the second quarter and changing Penney’s “markdown and clearance cadence … contributing to nearly half of our cost of goods sold improvement this quarter.”
The retailer, which has seen erosion in online sales, has worked to improve gross margins, evident in the recent quarterly results. Penney has improved its merchandise selection while making functional changes in presentation, search and other areas that helped the retailer improve “conversion and customer service scores year-over-year.”
With more than 80 percent of its total sales made in stores, Penney has focused on making it easier and more fun to shop in its physical locations. Ms. Soltau pointed to new centralized pickup and return areas, a new checkout process and a changing room pilot that Penney is looking to expand. The chain was also able to reduce shrink and improve operating margins by adding associates in high traffic departments.
Penney’s CEO said it will take “innovation, personalization and clear differentiations” to put the retailer in a position to “ultimately drive traffic and capture share of wallet.” She pointed to Penney’s partnership to open thredUP shops within 30 of the chain’s stores as an example. The shops, which will range in size from 500- to 1,000-square-feet, will allow Penney to offer its customers affordable “high-end brands” not typically sold in the chain’s stores while “catering to eco-minded consumers who want more sustainable options in their wardrobe.”