Digital dilemmas for JC Penney's new CEO

Stuart Lauchlan Profile picture for user slauchlan June 11, 2015
Summary:
JC Penney's incoming CEO knows he's got a challenging task ahead to turn around the damaged US retail brand.

marvin-r-ellison
Marvin Ellison

Last month we took a look at US retail institution JC Penney’s challenge in re-connecting with its core Middle America customer base via a comprehensive omnichannel strategy.

It’s a challenge that’s going to be the responsibility of CEO designate Marvin Ellison, drafted in from Home Depot to carry on the turnaround that the company’s been embarked upon since 2013, following the disastrous reign of Ron Johnson in the top seat. Johnson was ousted in favour of former CEO Myron Ullman, who will himself hand over formally to Ellison in August.

While Ellison is a hugely experienced retail executive, the scale of the dilemma facing JC Penney is such that there’s inevitably a lot of curiosity about what he plans to do. At the Piper Jaffray 35th Annual Consumer Conference in New York earlier this week, he gave delegates a bit more insight into his thinking.

Ellison began by establishing his retail cred, reminding the audience that:

I spent the last 12 years with the Home Depot, last six years running the 2,000 US stores. That’s roughly 300,000 associates and I think $60 billion to $65 billion in revenue. Home Depot is a great company. The 12 years were very instrumental to my retail knowledge and my maturation and understanding how to transition a retailer from the past to the present to the future.

I guess the great thing and the biggest takeaway that I can transition from the Home Depot to JC Penney, is the steps that the company took to really transform itself to a true omnichannel retailer. [Home Depot was] a very traditional cash and carry brick-and-mortar retailer that had the foresight to know that the customer shopping patterns had changed and that the retail landscape had changed.

With that on the table, he painted a picture of himself as being just the sort of customer with whom JC Penney needs to rebuild its fractured relationship:

I grew up very modestly. So I have a keen understanding of the customer segment. We are mid-tier department stores serving moderate household incomes. So the customer segmentation resonates very well with me. There was a JC Penney in my nearest town from my home in a small town in Western Tennessee. So I’ve always been acquainted with the company and the culture means something to me.

Ellison was also quick to argue that while there are problems to address at JC Penney, things aren’t necessarily as bad as they might seem:

You have an iconic 113-year old company with a strong dominant brand that still exists. You have a wonderful portfolio of private-branded product, which for any brick-and-mortar retailer competing against pure dot com companies of private-branded portfolio is significantly important. But also there [is] upside opportunity to correct the problems of the past and implement some strategic initiatives that will help the company transform itself to the future.

Coming from behind

He went on to suggest, perhaps not entirely convincingly, that JC Penney’s shortcomings in omnichannel can be seen as a potential advantage:

We are behind in our omnichannel strategy, but we don’t look at that as a disadvantage. I think the second-mover advantage is so powerfully strong, having worked for Home Depot where we literally started from scratch in developing an omnichannel. I’d argue now that Home Depot has one of the best omnichannel experiences of any brick-and-mortar retailer.

The second-mover advantage is going to be powerful and because Penney is a traditionally catalog company the supply chain infrastructure is in place and that is a misperception for many in the outside world.

That Home Depot experience has shown Ellison what works and what doesn’t work in retail:

Finding a seamless connection between dot com to store, mobile and desktop is critically important and how do you leverage over a thousand US stores that are geographically located in every metropolitan area? How you leverage those physical locations to be distribution points for all of your goods is really the key and how you make it seamless for a customer, anyway, anytime, anyhow she wants to shop.

We’re making capital investments in digitizing the network, but most capital investment for brick-and-mortar retail transitioning to omnichannel is really centered on building up huge distribution centers (DC), so that you can have dot com specific DCs. We have those DCs in place because we ran a catalog business so long. We just now how to optimize and digitize those location so that we can tie them to the overall strategy.

Forward steps

Progress is being made, he insisted, citing:

buy online, ship-to-store in all stores, buy online, return-to-store in all stores, buy online, shipped from store being piloted for rollout in 2016, buy online, pickup and store same-day pilot later this year rollout in 2016.

In the past you didn’t have the ability to buy an item online and pick it up and store same day, we’re going to have that functionality in place.

In the past you didn't have the ability to go online to buy Sephora. Today that is one of our most popular attractions in the store. We’re excited about the growth potential and we just launched a Sephora website on jcpenney.com. That is something that’s new and something that we think has tons of future possibilities. In the past you didn’t have the ability to understand the effectiveness of one-to-one marketing. Our predominant market strategy in the past has been print and TV.

JCPenney
JC Penney

Building a more intimate relationship with customers is a key priority and the task of newly appointed CMO and Customer Officer.

We’re going to pivot our customer communication strategy to be as much one-to-one as we can and we think that’s going to allow us be very successful.

In the past our dot com site has been very conservative. It’s been basically an extension of the store, extended sizes and colors. We’re going to take the trusted JC Penney brand and we are going to sort our online business in a way that we’re going to bring in new customers and we are going to have the ability to ship product to the store free of charge to customers. That’s going to be a change.

These changes will also entail a more sophisticated approach than email marketing, he added:

I receive a lot of email marketing. I delete most of it because it is not targeted to me. What effective companies - and there are companies out that are really good at this - do is take your buying patterns and get into a predictive modeling. If you bought these things in the past, you will also like these things .

That's something that we have to get better at and we are very conscious sort of fact we have to get better at it. We just have to be more intimate, to be more customer-specific. We have to tie everything to a common effective way of gaining more value, more return for every ad spend.

For us, it is less about how we’re going to invent more of the same and more about being more precise with our path to going out and trying to communicate with customers.

Ellison also sees JC Penney’s bricks and mortar store infrastructure as another asset:

The key for us will be how do you leverage omnichannel in these a thousand plus stores? Because for us, we believe that the retailer that has the closest access to a population density will be the retailer that can win.

We will start to understand how many stores we really need, but until we can get this omnichannel strategy fully rolled out, we have to be guarded against making an assumption that we have a correct or incorrect number of stores. It’s all part of the future strategy.

I think the omnichannel strategy and how that strategy connects to the brick-and-mortar location will be one of the key determining factor on a number stores we have and where there stores are located.

My take

It's a big job, but Ellison's making the right noises. The trick now is to put that into action of course. That might not be quite so easy.

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