J.C. Penney’s New Home
By George Anderson
J.C. Penney may discover the adage, “You can’t go home again” to be particularly fitting to its situation as the company is finding a new base away from its traditional mall surroundings in standalone locations across the country.
The retailer has big expansion plans and is looking to increase its store count by 175 over the next four years. Many, if not most, of those new venues will be at off-mall sites.
Brenda Romero, a spokesperson for J.C. Penney, told the San Antonio Express-News, “This new design allows us the flexibility to continue building new stores and expanding in different markets without being dependent on new mall developments.”
Ward Kampf, president of retail leasing for The Rim shopping center in San Antonio where Penney is opening an off-mall concept store in the fall, said, “They have a core audience that fits in nicely with Target and the other mass merchants. They don’t see themselves as a traditional department store.”
Michelle Tan, an analyst with UBS Securities, said Penney’s off-mall format has proven successful and departments such Sephora cosmetics are bringing new consumers into its stores.
“With everything, it’s a market-share game,” she said. “America is over-stored and there’s no shortage of a retail supply. But what Penney’s brings to the table is unique, and they have a well-thought-out plan.”
Moderator’s Comment: Penney has identified the off-mall
opportunity for its business. What do you see as the biggest challenges to its
achieving its objectives with this part of its business? Conversely, what must
it do to meet or exceed its, and others, expectations for this portion of its
business? –
George Anderson – Moderator
You have to like what you see at JCPenney. It is performing well financially. It has done a good job with own brands. It has built multichannel competency. It has defined a meaningful position that is distinct from Macy’s, Target and Kohl’s. Now it is acting to stay abreast of the restructuring of America’s malls.
While I see its move to “the rim” of The Rim as well reasoned, I also wonder how it may take selective advantage of the store closings resulting from the Macy’s – May consolidation. There are a few choice mall locations up for grabs. I’d bet Penney’s takes a few.
One detail from today’s report that intrigues me is the description of the new store as having checkouts in a central area. I haven’t seen this format yet. Have any of the BrainTrust members checked it out? What do you think of it?
Penney’s is doing things in the right order by carefully developing their proprietary apparel brand stable and brand alliances THEN venturing out into non-mall locations. The Sephora alliance alone will be enough to draw traffic in underserved areas. Bisou Bisou, Nickit, a.n.a., and upcoming E 5th will give Penney’s the point of view necessary to drive destination shopping and to thrive off-mall. The only suggestion I would have is to make sure that bricks and clicks are seamlessly integrated for these locations via in-store kiosks and store fulfillment/pick-up capabilities…it would be a darned shame to not fully leverage $1 billion worth of clicks.
Retail locations like The Rim are actually what I call “loose malls.” They are connected via common parking areas, and quite frequently, consumers shop at more than one location per visit. Independently, most of the stores act as destination draws.
JCP has become a destination store. It does not rely on the accumulation of similar stores in a mall offering sufficient selection to entice consumers. That is not the current shopping model. Because JCP is a destination store, it follows that off-mall locations will be as beneficial as on-mall. I don’t know, but I bet JCP does, how many of its core customers at mall locations also shop other stores on the same visit. This would be nice to know. My intuition is the number is not very high.
The risk, as is the case for any general merchandiser, is that off-mall big box operators in the same area reduce specific category volume. For example, Best Buy, if in the same area, might draw business from JCP’s Electronics business. I don’t know if this happens or not, it’s just a risk. The logical extension of this is that those categories with big box competitors in the same area gradually dwindle, making JCP essentially a big box player in the products left…which would not be so bad.
The biggest challenge they face is site selection. Their brand is strong, but without the traffic guaranteed by locating in a large mall, they’ll need to be sure they select sites that generate sales quickly. If they don’t get above their breakeven points on a regular and accelerated basis, these non-mall stores will be a significant financial drain.
J.C. Penney really has no choice but to move out of malls. Malls have been on a decline for 10 years. In our town, one of the mall anchors left, and the store is being torn down to be re-built for sidewalk access. Since J.C. Penney was an anchor retailer, they were the major pull for the mall. This being said, they should be able to pull customers into a stand-alone or strip center location. But as with all retailing, unless the store has a reason for being, consumers will not have a reason to shop there.
Penney’s has no special challenge regarding off-mall stores. They draw plenty of traffic on their own, and they’ll enjoy the reduced occupancy costs compared to malls. Big box specialty stores like Bed Bath and Beyond, Staples, and Barnes & Noble have done well off-mall, so there’s no reason Penney’s won’t.