JC Penney CEO - retailers can't beat the e-commerce pure-plays by just moving online

With a rash of flagship US retail brands set to follow Macy’s lead and update on their progress towards an omni-channel future this week, JC Penney has turned in a reduced quarterly loss and is claiming progress towards its goal of re-capturing the heart of Middle America.

The company’s net loss more than halved to $56-million in the quarter ended 30 July, on revenues of $2.93 billion, up year-on-year from $2.88 billion. CEO Marvin Ellison points to the firm’s investment in omni-channel tech as a key contributor to the improved position of the retailer:

We delivered strong results in our dot com business. Our business continues to be excellent online as we build our assortment and create an overall better shopping experience for our customers. We will also add further omni-channel capabilities during the quarter including an all new mobile app.

The priority for the firm remains that of increasing the value of transactions per customer and building the firm’s appliances business, online and offline, is a core element of that, says Ellison:

As we have stated many times, we have approximately the same number of active customers today as we did in 2011. However, there is an opportunity to increase their frequency and amount they spend on every transaction and more than ever consumers are spending more money to update and refresh their homes and we believe that JC Penney is in a unique position to offer a compelling assortment within major appliances, window treatments, furniture and flooring.

As well as having an appliances presence in over 500 stores now, JC Penney’s also pushing this business online. Ellison says:

We went live on JCP.com nationwide in advance of Memorial Day weekend with over 1200 appliances available for purchase from our partners, Samsung, LG and GE. The online team developed a best in class online experience that will provide a simple process for customers to purchase an appliance, schedule a delivery, install a new unit and haul away the old appliance in one seamless process. We're very excited about adding this business to our omni-channel portfolio.

Expansion

That portfolio is expanding, with the firm completing its roll out of 'Buy Online, Pick Up In Store Same Day’ (BOPUS) to all JC Penney stores. Ellison says:

Today, on average, we have over 16,000 items available for BOPUS in any given store. And in the second quarter our tax rate to BOPUS was nearly 40%, which means that 40% of our customers who visited a store to pick up a BOPUS order also purchased additional items. We're very pleased with the early results and are excited that more and more customers are choosing to add this convenience when they shop online.

BOPUS also reflects the ongoing value that JC Penney attaches to its offline stores. Ellison explains:

As we think about the future of both stores and online, it is critical to understand that over 50% of our online orders go through our stores. That's correct, over 50%. When the customers dot com order shipped to a store picked up in a store same day, shipped from a store, sold by an associate via online within a store or conveniently and for free retuned to a store, omni-channel is not a catchphrase at JCPenney. It is a strategic process.

This process allows a 114 year old retailer to leverage all of our assets, our stores, associates, our inventory, our digital platform and supply chain to reduce our costs, to serve our loyal and valued customer. This only furthers the strategic value of our store locations as omni-channel continues to grow.

He adds that JC Penney’s strategy here is based around an awareness that the way for a ‘legacy’ retailer to compete against an online pure-play is not just to focus on putting everything online:

Any brick-and-mortar retail that think they can go head-to-head with a pure play e-commerce company by simply doing it online, I think is in for a rude awakening. We understand that leveraging our stores allows us to have a lower delivery cost to reduce the delivery time for customers and also drive foot traffic in our stores.

So we're going to continue to scrutinize the number of stores. But if we believe a store can be a strategic initiative to help us to get products to customers faster, it will stay within our portfolio. If we believe that store is in significant or doesn't add any value to our strategic vision of getting products to our customers fast and at a great value, then those stores are longer going to be around.

Those stores are going to see greater use of mobile tech at check out as part of a wider push to improve customer services levels, says Ellison:

We’ve trained all 100,000 of our associates on our new customer service expectations. We’re in the process of having mobile devices to help us with checkout. Those devices will be ready for use within the next couple of weeks on back-to-school, headed into the holiday. That will be a benefit.

We’re just working diligently to just create a better checkout experience. We’re replacing virtually a third of our point-of-sale units with a plan to continue that process on into 2017. So it’s an ongoing effort, but when we look at our internal service results in every category, we’re up versus the first quarter and up versus last year. So to me, that’s the data point that matters most and what we’re doing is working.

There’s also been an upgrade in the functionality and usability of the JC Penney mobile app, adds Ellison:

We launched our new mobile app in the second quarter and this app has quickly generated a 4.5 star rating on the AppStore. This app is far superior to our previous version and will allow us to take better advantage of the massive traffic growth in the mobile channel. We know that mobile is the single greatest touch point for our customers in-store and online and the conversion of our app since launch has been outstanding.

My take

Definite signs of JC Penney heading in the right direction. Ellison pays tribute to the team he’s built around him in e-commerce, supply chain management and IT, but the really important thing he’s doing is aiming to strike the balance between online and offline As Macy’s announces store closures, Ellison wants to invest more in his own outlets as a part of the omni-channel vision. There’s potential opportunity here for JC Penney with every Macy’s store that closes in a mall.