CEO Marvin Ellison on JC Penney's bricks-and-clicks advantage

Stuart Lauchlan Profile picture for user slauchlan August 16, 2015
Marvin Ellison is now in situ as JC Penney's turnaround CEO with a mandate to drill down on omni-channel.

Marvin Ellison

We have also a lot of work to do to restore JC Penney to its status as a world-class retailer.

We’re going to spend a ton of time making our omni-channel a lot more effective.

Two clear statements from JC Penney’s new CEO as he begins the tough task of rebuilding one of Middle America’s best-known, but recently declining, retail brands.

We’ve touched on Marvin Ellison’s initial impressions of the challenge ahead several times before, but now he’s in situ as CEO he’s putting some more meat on the bones in the form of what he refers to as “a more holistic strategic framework: for the company. He states:

This framework will be made up of three simple strategic priorities and these priorities are private brands, increased revenue per customer and omni-channel growth.

On the latter point, he states:

We are committed to become a world class omni-channel retailer. We understand the change in dynamics of retailer. We also understand that attempting to recreate a pre-2011 JC Penney would not work in this new omni-channel world, therefore are adjusting our business model and our leadership team to compete on this new omni-channel retail landscape.

While Ellison reiterates his frequently-made admission that JC Penney is playing catch-up in omni-channel, he does detect progress being made:

In the second quarter, sales growth through JC accelerated sequentially from the first quarter and we’re very excited to see several aspects for our omni-channel capabilities improving. For example, one third of our dot com customers took advantage of the ability to buy online and ship to the store they desire. This results in more physical tips to our brick-and-mortar locations would add on purchases.

Offline bonus

Exploiting synergies between online and offline, in the form of JC Penney’s bricks-and-mortar stores, is key part of the strategy going forward, he adds:

We’re very pleased with the improvements in our ability to leverage our enterprise inventory to better fulfil customer’s online orders from store base inventory. We call this buy online ship-from-store. For retail with over 1,000 brick-and-mortar locations, leveraging enterprise inventory provides us with a great opportunity for stores to act as fulfilment centers. With stores located around the entire US, enterprise fulfilment increases the strategic significance of many of our brick-and-mortar locations.

Later this year, we will be piloting buy online, pick up in store same day in several key markets, with a companywide rollout happening early 2016. Our goal is to continue to expand these capabilities to better satisfy the needs of our omni-channel customers and never miss a sale.

To support these ambitions, Ellison will be turning to two new appointments in the form of Mike Amend, formerly VP of online, mobile and omni-channel for The Home Depot, and Mike Robins, formerly SVP of Global Supply Chain for Target’s US stores who’s come on board as SVP of Supply Chain. Ellison says:

These two gentlemen are exceptional leaders in the industry, they have successful track records of creating enterprise inventory networks that enabled brick-and-mortar and e-commerce to merger into one seamless shopping experience and their backgrounds perfectly aligned with our long-term growth plans to become a world class omni-channel retailer. We are excited to have both of them in our team.


So if the pieces are increasingly in place, how long before the benefits of this omni-channel investment start to pay off? Ellison estimates the second half of 2016 as a tipping point:

We are seeing improvements with enterprise inventory today, I mean we are able to fulfill more .com orders that historically would have been simply out of stock because we can bounce the fulfilment from our distribution centers (DC) that services dotcom to roughly 250 stores and we can fulfill the orders from those locations. that is a huge benefit The other benefit is we’re capturing that data and so we’re updating the replenishment in the in stock performance in the DCs to reflect the fact that they were out of stock when an order came through.

JC Penney bag
Ellison also wants to see JC Penney expanding the range of what’s available to customers online, building in online-only offerings. He argues:

We have one of the most conservative assortments online of any large retailers. If the customers pressure brand they will buy things online that you don’t sell in the store. If you look at JC, you will see a very strong representation of items we sell in the store and you see very few unique items that are online only.

We have a lot of failed searches meeting customers to go to key in an item they’re looking for and we have collected that data. We know what they are looking for and we know what we don’t carry, so we are starting our list with increasingly assortment on those items.

Key to all of this is improving the firm’s ability to manage its inventory and to that end, JC Penney has been upgrading its Oracle supply chain technology:

These systems are designed to enable our teams to better merchandize into our stores and distribution centers and optimize our sizing, merchandizing planning, localization of our assortments and to make those into more efficient retailer. These tools will only become more useful and more powerful resulting in fewer markdowns as we end each season.

In addition, we need to continue to focus to enhancing the efficiency of our supply chain, which will be a key component of our ongoing gross margin improvement and this will be a priority of our new supply chain leader Mike Robins.

Ellison believes that improved control over supply chain and enterprise inventory, allied with the firm’s offline store presence will be a major competitive advantage:

I remember years ago when many experts talked about how brick-and-mortar retailers would be at a significant disadvantage to pure play online retailers. I think now the sentiment has changed. Brick-and-mortar locations close to population density are being used for fulfilment. [This] creates a more real time, more same-day advantage to get close to the customers. So we think enterprise inventory is a huge part of our success today and forward.

We also believe that when we are able to rollout, online, pickup-in-store both was same day that that’s really the key game changing initiative for a retailer.

From a CapEx stand point we have a tremendous advantage, many retailers that are ramping up into an omni-channel world, they have to make significant capital investments in constructing distribution centers. Because we are former catalogue retailer, we already have the supply chain infrastructure in place to leverage. So rather than spending significant capital and building distribution centers we’re spending less capital to digitize those distribution centers.

My take

A big challenge, but one being tackled with a clear strategy.

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