DISCUSSION
Has J.C. Penney pulled off 'one of the greatest financial turnarounds in retail history'?
Written by George Anderson
Marvin Ellison, Chairman & CEO, J.C.Penney - Photo: J.C.Penney
Speaking last week on an earnings call with analysts, J.C. Penney CEO Marvin Ellison said the department store chain had pulled off “one of the greatest financial turnarounds in retail history.” While Mr. Ellison admitted (via Seeking Alpha) that there was no reason to be “satisfied with where we are as a company,” he said Penney had defied “conventional wisdom” that predicted its failure back in 2013.
The retailer reported positive net income for 2016, achieving a $514 million increase over 2015. Comparable store sales for the fourth quarter were down 0.7, which Mr. Ellison attributed to a slow start in November. He said comps in December and January, not part of the report, were positive.
The chain announced it would close up to 140 stores. Mr. Ellison said closing locations would improve the “brand standard of J.C. Penney and allocate capital more efficiently to a smaller base of stores.”
He identified five initiatives that are key to Penney’s turnaround.
The first is the company’s beauty strategy, primarily built around Sephora. Penney will add 70 new shops to stores this year while expanding space and assortment in existing shops. There were 577 Sephora shops operating inside Penney stores at the end of 2016.
The home category is also an area of growth for Penney. The chain announced it would add 100 new appliance showrooms in stores early this year. Penney, which currently operates 500 showrooms, is focused on capturing share from Sears.
Omnichannel is also key. Penney’s CEO expects online sales to exceed 20 percent of the chain’s total within five years and believes in-store fulfillment can drive top line growth while reducing costs.
Data-driven pricing is the fourth key initiative. A test in 2016 produced improvements in sales and gross margin.
Finally, Mr. Ellison expects women’s fashion, particularly activewear and plus sizes, to boost sales. Nike products will be in all Penney stores by the end of the first quarter and Adidas will be in over 400 locations by back-to-school season. Penney plans to expand selection in its plus-size boutiques to include swimwear and accessories.