Digital transformation progress report - JC Penney chasing omni-channel

Profile picture for user slauchlan By Stuart Lauchlan September 10, 2015
Summary:
In the first of a series of digital transformation progress reports, JC Penney's re-invention as omni-channel retailer comes under the spotlight.

marvin-r-ellison
Marvin Ellison

We have no expectation to try to recreate a pre-2011 JC Penney. That company could not compete well in this marketplace.

We’ve been tracking the efforts of retailer JC Penney as it tries to exploit digital tech to re-invent its appeal to Middle America. As part of a series of ‘progress reports’ on various retail digital transformation, this week’s Goldman Sachs 22nd Annual Global Retailing Conference presented a prime opportunity to touch base with the evolving thinking of the retail giant’s new CEO Marvin Ellison.

Ellison has been pretty consistent about the challenge ahead, both before and since taking up his new role. It’s a big task and it starts with a clear understanding of corporate identity:

When we look at the competition and the changing landscape, we’re very cognizant of it, but we also understand we have to figure out what JC Penney is as a company. What we’re not going to try to do is recreate 113-year old comp and it will be something that we are not.

That mindset has led to some simple, but essential learnings:

We quickly learned that you cannot convince the customers you are something that you are not. So what we are is a company that offers a wide array of products for our customers with style, quality and value. We have over 1000 locations that we can offer convenience and our goal is to leverage those locations for fulfilment, for our omni-channel and for same day pick up when we launch that part of our omni-channel strategy in 2016.

In pursuit of the omni-channel ambition, Ellison has always been frank about the realities of JC Penney’s need to play catch-up there, while also being able to exploit the firm’s own private brands business:

Candidly, we are quite a bit behind, but we are excited, because we are creating a very talented team that can accelerate our improvement [in omni-channel].

On the private brands side, we were excited about the infrastructure we currently have with sourcing in private brands, design and development. The challenge we face is, how do we intelligently attack the opportunity?

Our goal is to increase our online business while increasing our private brands penetration, while nurturing and protecting the national brands that really matter to our customers.

Stumbles

There have been some stumbles along the way to achieving this ambition, he concedes:

Our online business is disproportionately driven by home. So when that business was so severely impaired by the [previous] sales strategy, it directly impacted the online business.

That said, there are actions being taken to redress the balance. Ellison explains:

We have to continue to drive traffic to the site and our Chief Marketing Officer and our new Head of Omni-channel are laying out very specific initiatives to do that, but we also have to expand the assortment.

Our assortment online is very conservative. We are basically an extension of size and color to what we have in the store, and we have a very small number of online-only skews to offer to customers.

So we are quickly looking at ways to expand the assortment online, while making sure that we are true to our customer demographics, but leveraging the brand that our customers’ trust. They are regaining trust in to sell other items that we don’t carry in the store.

But there’s still one glaring trick that JC Penney is missing, admits Ellison - shoppers can’t order online and pick up in-store the same day. This is a priority for 2016 and to tackle this, Ellison has turned to tried-and-tested colleagues from his previous firm, Home Depot (whose own digital transformation efforts will be covered later in this series of articles.) He says:

We are in pilot and we will roll it out to first part of next year. The good news is that we now have a leadership team in place on the supply chain and the dot com side that has executed and rolled us out before, bringing a degree of knowledge from my years at the Home Depot where I think we did it very well.

Better use of data to drive marketing and customer acquisition and retention is another priority. Ellison says:

I will be the first one to admit that our marketing spend and our ability to target customers historically has been very poor. Mary Beth West is a new leader of marketing and we are uncovering more strategic and more efficient ways to talk and communicate with our customers.

You hear a lot of retailers talk a lot about more intimate one-to-one marketing. Those are not just words for us, it’s very important.

We are going to spend a lot on making sure that we are effectively communicating with the customer in the way that he or she is interested.

But more importantly, we want to make sure that we are focused on return on ad spend in a way that we can reduce overall marketing and advertising spend while having a higher return and creating more productivity and we think that we have tons of opportunity to do just that.

JC Penney is getting better use at exploiting data to this end, he insists:

As an example, when we launched the home catalog in the spring, we targeted customers that had defected and we mailed those catalogs directly to those customers as a way to try to reengage them to JC Penney and we had some level of success.

Another example is we talk about Salon. We partnered with InStyle magazine to rebrand the InStyle Salons in JC Penney. What we have learned is a traditional JC Penney customer shops a little over three times per year. A Salon customer shops on average of eight times per year. So when you become a Salon customer, your frequency significantly increases because of your loyalty to the Salon, which ties to your loyalty with JC Penney.

It’s insights like that, that will shape the direction for JC Penney in 2016 and beyond. Ellison affirms:

As we continue to really go deep into the customer analytics, we are finding out specific names that we can act upon. We are in the very early stages, which is one of the key reasons why we brought in a new Chief Marketing Officer to really help us with a more modern view of how you take really powerful customer analytics, make it actionable and drive sales and more profitable sales.

He concludes:

We are excited about the possibilities, but we have ton of work to do to really create value from what we have.

My take

Progress report - heading in the right direction, with 2016 set to be a tipping point for omni-channel ambitions.

Next up - Home Depot.