JC Penney's omni-channel bid to re-connect with Middle America
- Summary:
- JC Penney is looking to an omnichannel customer focus to reconnect with Middle America as well as partial reversal of its no catalog policy.
Five years ago JC Penney turned its back on its heritage and stopped sending Middle America its famous Big Book catalog. The decision brought to an end the retailer’s practice of producing three such catalogs a year, often up to 1000 pages thick, which had been a defining characteristic of the firm since 1963.
Axing the catalog came in the wake of a conclusion that the traditional catalog shopper would migrate online. With catalog production, printing and postage an increasingly expensive cost, JC Penney’s management concluded that the offline catalog had had its day.
So when in March the firm unexpectedly published a 120 page catalog featuring its home department range, it was something of a policy reversal and one based on an uncomfortable reality for online retail evangelists: people do still like flicking through print publications.
What JC Penney found was that what it thought were pure online sales were actually sales that were driven by customers browsing the catalogs and then completing their transaction online.
Ironically the CEO who made the decision to cull the catalogs in the first place is now the man who’s made the decision to re-introduce them, Myron Ullman. Ullman had stepped down as CEO in favor of former Apple executive Ron Johnson, whose brief reign is generally deemed a complete failure from which J.C. Penney is still recovering.
While there will be no return to the Big Book - at least, not for the moment - Ullman sees opportunities for considered use of the catalog medium as part of a wider omnichannel mindset:
We’re not going back to the thousand page several times a year book. That’s frankly with paper and postage not a good proposition and frankly, that’s not the way the customer wants to shop.
Home goods is a excellent test case for this strategy - traditionally one of the top-selling items in the Penney catalog, the Home category also accounts for 40% of online sales.
Of equal importance is the re-introduction of catalogs has had the effect of enabling JC Penny to re-engage with customers who dropped off the radar during the Johnson phase. Ullman explains:
The new Home catalog we launched in March was well received and has helped us to reconnect with lapsed customers and accelerate growth in our online business.
We sent 88% of them to lapsed customers, a customer that we wanted to come back, but they didn’t particularly have an invitation until we got the catalog.
The Home catalog has other benefits, he adds:
The advantage in the home catalog is we may have a 150 beds online and only 25 beds in the store. One advantage with the catalog is you can show more imaging and let the customer use the catalog as a guide to shopping online and that’s what we learned. We think it’s going to pay off not only in terms of getting the customer back to us online, but also might encourage them to come into the store.
Since his return as CEO in 2013, Ullman has put a lot of emphasis on the online proposition. The offline and online buying teams were integrated six years ago which is delivering benefits, he says:
We already have years of experience in buying, planning and allocating merchandise between stores and dot com. Not only does this give us a competitive advantage in the way we run our business but it also allows us to better meet customer demand.
For example, we know when and how to offer congruent assortments and promotions between stores and JCP.com, and when to have extended sizes, colors and styles available. This capability and expertise is what gives us confidence in our omnichannel growth initiatives.
I think we all know that omni-channel is the key to getting customer loyalty and greater spend. We know that somebody shops omnichannel by three or four times the value of the customer than somebody just comes to the mall or just shops online. We obviously prefer obviously success across all channels, but ultimately it’s the omnichannel customer that's going to be the best customer for us.
Omni-focus
Pursuing that customer will high on the agenda of Ullman’s successor, JC Penney President Marvin Ellison, who takes over from Ullman as full-time CEO in August.
He’s already started making an omni-channel mark by empowering each offline store to take credit for online sales in surrounding ZIP codes, a move intended to get store managers to encourage online customer engagement. He argues:
An omnichannel customer shops 2.5 times more frequently in a year than a traditional brick-and-mortar customer. So, it is essential that we continue to convert store-only customers to omnichannel.
Continued development of omnichannel capabilities is essential, says Ellison, citing the introduction of Click and Collect as a case in point:
JC Penney offers customers the ability to buy online to ship to any store in the company. In the first quarter, we saw more customers choosing to buy online and ship the order to one of their favorite JC Penney stores. This results in more trips and add-on purchases when they visit a store to pick up the order. On average, a buy online ship-to-store customer will purchase additional merchandise 20% of the time when they visit a store.
We’ve also enhanced our ability to fulfil customers’ orders online from our store-based inventory. We call this enterprise inventory. This quarter we expanded the number of stores used to fulfil online orders by over 160 stores. Our goal is to continue to expand our buy online ship-from-store capabilities to better leverage our inventory, utilize our existing stores as mini-fulfillment centers and satisfy the needs of our omnichannel customers.
Ellison is under no illusions that there is work still to be done:
We simply have to digitize and we are catching up. We are slightly behind on some of the technology. The good news is being a second-mover, it can give you a second-mover advantage because technology changes so dramatically. So we are putting in modern technology that we think will resonate and we think that we are going to make a lot of progress in a short period of time.
That does require increased digital investment, he admits:
There is a not a large bricks and mortar retailer to make any omnichannel conversion which is just not going to have to make a significant capital investment in what I call omnichannel infrastructure. That's a fancy way of saying really large distribution centers. If you are going to get into omnichannel and try get close to the customer, you have to leverage your physical structures, your bricks and mortar stores, for fulfillment.
J.C. Penney is a company that has a great catalog infrastructure and so as we think about CapEx for omnichannel, we are spending most of that on digitizing the infrastructure. So we are not building distribution centers, we are just trying to create platforms to digitally connect those distribution centers to the customers for what we call seamless transactions for them to purchase in-store, online etc.
My take
JC Penney made a mistake and took its attention off of Middle America. It's still paying for that error.
The direction of travel the firm is now on is the correct one, but one that will take time to deliver results. Commendably both Ullman and Ellison have made it clear that they recognize this. The partial reversal of the catalog policy is indicative that pragmatism is the order of the day.