July 18
J.C. Penney has added toys, Sephoras, and hotel furnishings, but the changes are not enough to make the company a retail leader.
Toys, makeup, and hotel partnerships are unlikely to add up to a growth spurt for J.C. Penney Co. Inc.’s business, experts say.
While J.C. Penney JCP, +3.24% should be commended for its efforts to mix up its assortment and think creatively about its business, it is not a strategy that will win in a world dominated by retailers like Amazon.com Inc. AMZN, -0.50%
In recent months, the struggling retailer, which has seen its shares sink more than 41% in the last year, has announced new toy shops in all of its stores, its entry into the hospitality industry through a B2B program, an expansion of its Sephora store-in-store locations, salon rebrandings and more.
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“They’re making bets to be more competitive, but not doing anything that puts them in a leadership position,” said Brittain Ladd, a Seattle-based global strategy and supply chain consultant. Ladd spent about two years ending in March working with Amazon on issues related to the supply chain, delivery, Amazon Fresh, and more.
“I think J.C. Penney should be complimented. But are they doing anything to be a leader? No,” he said.
Analysts at Gordon Haskett Research Advisors upgraded J.C. Penney at the end of June to hold from reduce, based on signs that the company’s same-store sales are reaching a bottom. Analysts highlighted a comment from Chief Executive Marvin Ellison that same-store sales for the month of May were positive, and said, in a June 26 note that they expect gains from areas like cosmetics and footwear, which should offset apparel weakness.
But even with all the changes and additions, growth won’t be meaningful.
“I applaud them for trying to improve the business and trying to be innovative while some of their peers are sticking to the same formula that hasn’t worked for the last several years,” Gordon Haskett managing director Chuck Grom told MarketWatch. “They’re all nice additions but not significant needle movers.”
J.C. Penney told MarketWatch the new areas are all ones that will increase customer frequency and spend. “They are also areas that our customers told us that they wanted JCPenney to offer,” said spokesperson Sarah Holland.
The company tested toy shops and found that toy customers spend more per transaction and visit more frequently, according to Holland. And J.C. Penney research found that appliances are a top search term on the retailer’s website. In apparel, the company’s private and exclusive brands get high customer ratings on the website.
“We understand that to remain competitive, we need to diversify our business so we have been exploring new services and product categories, and implementing these ideas as they prove successful,” said Holland.
Grom said toys is a category that J.C. Penney is not known for. “They need to get relevant with the millennial customer, give people reasons to go to the store and fix their apparel business, which has been their Achilles’ heel,” he said.
On the company’s first-quarter earnings call in May, Ellison said it was “critical” to improve the “all-important apparel business,” according to a FactSet transcript. He admitted that it was struggling, but said he saw signs of encouragement, for instance, with the Now Trending items for women.
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“Survival will come down to their ability to tailor their assortment to their core customer and then present it to them in a way that offers a compelling experience, good value and convenience,” said Jared Wiesel, partner at tech-enabled consulting firm Revenue Analytics. “If they can’t hit all these core elements then survival will become increasingly difficult.”
Wiesel agreed the assortment changes won’t be a “game-changer” for the retailer, and says there are issues still to be resolved.
“Even with these moves, the biggest question is whether they can differentiate themselves enough to survive in this crowded and hypercompetitive retail landscape,” he said.
To that end, it might be time for J.C. Penney to think even more unconventionally. Maybe if they can’t beat the competition, they ought to join them.
“It would be wise for J.C. Penney to ask: Is there a way to leverage Amazon rather than trying to compete with them?” asked Ladd.
J.C. Penney shares are down 10.8% for the past three months while the S&P 500 index SPX, -0.01% is up 5% for the period.