J. C. Penney tries to win back its omni-channel cred

Profile picture for user slauchlan By Stuart Lauchlan October 12, 2014
Summary:
J.C. Penney had a head start in commerce and threw it away. Is there time to regain momentum?

Loyalty beyond reason!

By anyone's standards, that's an ambitious goal for any retailer. But when it comes from the CEO of J.C Penney struggling to pull back $2 billion in sales lost during a disastrous makeover, all the more so.

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After former Apple exec Ron Johnson's disastrous time at the helm, Mike Ullman has been trying to navigate a corporate turnaround to restore the retail giant's fortunes with an omnichannel and digital focus to complement its offline presence, but it's an uphill task.

Ullman admits:

The last few years people have sometimes asked, why J. C. Penney, what makes J. C. Penney different and important in the fundamental and changing retail landscape. Our goal is to earn a market position of loyalty beyond reason, to become the preferred shopping choice for Middle America. That’s where J. C. Penney should be, and we see a great deal of opportunity for growth under that strategy.

Digital is a key component of the turnaround plan with Ullman stating that the firms's JCP.com site is on a growth path:

Omni-channel is critical to our growth. We’ll become a leader in omni-channel for the Middle America customer. We have the functionality our customer wants and needs and it’s only getting better. We’re committed to digital excellence to make sure our mobile shopping experience is quick, easy and fun and make the customers lives more convenient.

We’re taking steps both large and small to continue to evolve J.C. Penney reflect how customers shop because how customers shop is changing in real-time due not only the advent of new technology but also the speed of which fashion is changing, a cycle which promotions happen and so much more. Retail is not the industry it was five years ago or even one year ago, smartphone is getting smarter and the tools that we have at our disposal to serve the customer are getting more complex.

Ullman sees developing a powerful omni-channel story as being a key differentiator in the increasingly competitive retail landscape:

We intend to deliver a seamless shopping experience across all channels and devices. We’ll also give you some insight into our most important asset our people. They are the driving spirit to fight they have a spirit to win and to have fun while they are doing it.

The plan

So that's the broad strategic intent; what does the tactical delivery look like? That falls to Mike Rodger, senior vice president, Omni-channel Strategy and Execution, who pitches the firm's ambitions here as cracking a potential $800 million market:

Our opportunity is to leverage what we’ve done in the past with new technology and new capabilities to lead in the mid-tier department store space. Simply by converting 10% of our store only-customers to omni-customers, that represents a potential of $1.2 billion in incremental sales. That’s because omni-channel customers spend three times more than a store only customer, may visit our stores or online 2.5 more times per month than store only customers. Quite simply omni-channel customers are much more loyal.

He argues that J.C. Penney has had skin in the multi-channel retail game for some time:

In 1962 we started the catalog and that was an operation for 40 years became very large and was very profitable. In 1994 J.C. Penney started the first dot-com for a brick and mortar company. That grew to $1.5 billion in sales by 2010.

Despite having a head start, the firm managed to shoot itself in the foot, he admits:

In 2012 we de-emphasized the dot-com business with a new strategy and we decoupled the store inventory from dot-com. That resulted in a $5 million loss in the business. That, at the time when all retailers were growing double digits.

But it's not a case of having lost every advantage from that early investment, he insists:

The good news is we have many of the processes and expertise and systems in effect today that we can leverage in our omni-channel operations. For example we’ve got great integrated buying, planning and marketing teams. These teams work together to drive both businesses. The assortments are essentially congruent with the exception of extended sizes and unique offerings on dot-com.

We have integrated order management system and a solid digital platform by ATG and IBM. Those platforms will form the basis of our omni-channel fulfillment operation. We have a great single view of the customer database that will drive our personalization, which of course is very key to having what the customer wants for them at the right time.

Ecommerce is also on the up, says Rodgers:

We have a lot of work to do, but this year so far through the first half we’re up 21%. Traffic is up 10%. Our average order value is also up 10% and our units per transaction are up 8%. Conversion is only up 1%, largely to do with the shift to mobile.

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Mobile is a seismic shift across the entire retail industry, says Rodgers:

There is a significant shift to mobile. The expectation is that a customer can shop in her immediately need and her immediate context when she wants. Gone are the days where she plans a shopping trip. She wants to shop, she pulls out her mobile device and she starts shopping or starts researching. We know there are customers who are researching a lot before they come into the store. Traffic is down, but our conversion is up significantly.

Deloitte estimates that 50% of all retail transactions by the end of the next year will have a digital experience involved; either they buy it or they research it. I argue that at J.C. Penney we’re already beyond 50%. And what we’re seeing in our traffic by device is very indicative. Since 2012 till now, desktop traffic has dropped from 72% to 52%; tablets, 13% to 16%; but mobile has gone from 15% to 32%. By the end of this year, we expect mobile will outpace desktop and tablet combined.

So it is that J.C. Penney is drilling down on mobile enablement. Rodgers says:

As of today, you can download the new J.C. Penney app for iPhone. It’s in the App Store today. We’ve also delivered a new M-Dot experience for all browsers for mobile devices, also available today. First quarter next year we’ll deliver the new Android app. We decided to do iPhone first, because the preponderance of our customers use iPhones.

What needs doing

Aside from the mobile push, Rodgers argues that he has a clear set of objectives in mind:

We’re at great having a transacting business on our website or on a mobile device. Where we lack a little bit is on the experiential side, which is going to be a critical focus for us going forward. It’s got to be fast.

Our website has got to be fast. Our apps got to be fast. We got to get it to the customer quickly or get it back to the store for them to pick up or pick up the same day, flexible anywhere, anytime, anyplace on any device.

For me it’s got to be personalized. We've got to deliver the right content to the specific customer, that's interesting to them, not generalized. So the three things we’re going to focus to drive our omni-channel growth, enhance the customer experience, leverage enterprise inventory and have a superior mobile experience.

In practical terms, that means a number of innovations:

We’ve enhanced checkout by making it very fast for the customer to get to check-out quickly and be done with the transaction. We’ve enhanced our search and find ability to allow the customer to get the product quicker. And we’ve enabled digital sales service on our new app.

We’re driving towards a search and browse based commerce. The customer wants to get to that product as fast as possible and checkout. And in some ways the design that's done could slow that down, we’re changing all that to be faster. Personalization, it’s got to be relevant to that specific customer. And we can’t forget about the superior purchase experience, both pre and post. Purchase doesn’t end till the customer has the merchandise and if they have a problem, calling into the call center.

My take

J. C. Penney has lost a lot of ground and has a lot of catch-up to do. Having had a good start in what we now call omni-channel, it threw that lead away of its own volition.

One problem it has now is that so much of what it's saying makes up its recovery plan is so familiar to the point of cliche - personalisation, mobile, customer experience yada yada yada.

The trouble is Wall Street has heard it all before so many times that there's nothing jumping out to convince analysts that J. C. Penney has a differentiator. Hence the slide in the firm's share price in recent days.

It's a long way back. Whether J. C. Penney can last the course remains open to debate.