As the all-important Holidays season gets underway, Ellison got a boost this week when the firm turned in its first same store sales increase in over a year, while also narrowing its quarterly losses.
So is it time to declare a turnaround victory? Hardly - it's only a few months since the firm hit an all-time low share price! One quarter doesn't change everything.
Ellison himself is quick to note that this a long game and one in which JC Penney still has a great deal of work to do, not least in shaking off old practices internally:
We all would agree that this is one of the most dynamic times in the history of retail and one of things that we talk a lot about here at JC Penney of that you can't run a traditional business where traditional structure and environment is dynamically changing. So we've taken an approach to ask a simple question, what structural changes, what philosophical changes that have served JC Penney well in the past that we need to look at differently?
Quite candidly, not very long ago JC Penney was buying the same way that they were buying 20 years ago. Our merchandising structure was virtually the same structure that we had 20 years ago. Our former Chief Merchant John Todd was a good merchant and more importantly a good person, but the structure was wrong and I learned a long time ago that good leadership can overcome bad structure.
There’s an added complication here, he adds:
We're competing against e-commerce companies that don't have Chief Merchants, don't have even category merchants. They are just moving fast with data. We think that merchandising is important, but I believe that leadership should be closer to decision making and we should have more nimble, agile, decision making based on merchant instincts and data without having this hierarchy that slow things down. So the structure was just not the right structure for us to move quickly, specifically what you look at the competitors we're up against.
But Ellison has been round the retail block enough times to know that it’s important not to just chase the lastest fashions. One theme that’s emerged in the retail sector over the past 12-18 months is a ‘learning to love the stores again’ mindset that has replaced the ‘dot com at all costs’ mantra of recent years. Ellison argues:
So as long as we can be relevant on price, relevant on value and have product that's trend right and that appeals to consumers, we think that we can carve out a place to be successful in this marketplace and we’re going to do that by efficiencies and e-commerce and stores and marketing across the board.
So we’re not changing for the sake of change, we’re changing to get better and to be a more modern retailer and we’re pleased with the progress thus far and I give a lot of credit to my leadership team for the willingness to be open minded and the willingness to take on these changes.
That said, there’s a need to get faster and more agile to adapt more responsively to consumer needs - and ideally to do so proactively. That means a cultural re-invention and an admission that there is problem, says Ellison:
Just looking internally at JC Penney and not looking externally at others, we just came to a decision that we had to move faster. We have to be more agile and we have to be more nimble and we have to not only leverage on the art of merchandising, but we need to leverage the science of merchandising. We created an in-house data analytics team that the merchants could lean into, so they could validate their instincts to the data based on focus groups and consumer data and customer trends.
But the most important thing is make quick decisions, move faster, don't be so deliberate, so that we can understand the needs of the customers faster. That all ties to the ability to be 40% faster from design to sales floor in many of our private brands. Merchandising, talent and instincts are important, but data analytics equally is important and flattening the structure to take away the bureaucracy of decision making for us is keenly important.
We're competing against retailers that are looking at this totally different and we're going to create a structure that works for JC Penney [that] enables a traditional retailer to be nimble, to be agile, and to make decisions a heck lot of faster than we've done in the past.
It’s also about approaching and engaging with the consumer in new ways, including via digital and social platforms. Ellison cites a case in point in the shape of the launch of Fenty Beauty by Rihanna, a brand introduction driven almost entirely via social media:
We had virtually no TV commercials at JC Penney talking about the brand launch, but because of the social media following of Rihanna and the connection to her loyal fan base, the relevance grew. Our new Chief Marketing Officer [Marci Grebstein] has done a really nice job of helping us to understand the different channels in which we have to talk to our consumers. When we launch a brand like Project Runway, that is going to be a little bit more edgy and it’s going to appeal to a younger more millennial customer, we can market to that customer via preplanning.
I mean we have to understand that Instagram and Twitter and other forms of social media will be the way that [the customer] is going to understand what is kind of brand and trend relevant for her. So we are reworking our entire marketing strategy and that marketing strategy will be designed upon a simple premise, - What is the right medium to connect with the customer to talk to her about JC Penney and talk to her about the things that we believe will be interesting, that she will be interested in?
While acknowledging there’s a long way to go, Ellison does allow himself a moment to argue that JC Penney has changed a lot in two year:
In my two years as CEO. we’ve transformed JC Penney from a company focused primarily on the brick-and-mortar business to a true omni-channel retailer. This transition is evidenced by the following. First, we continue to significantly increase our online SKUs [Stock Keeping Unit]. In the third quarter we increased online own SKUs by over 50% and in fact we shipped SKUs by over a 100%.
Second, we continue to make significant improvements in our mobile app with every new update. [EVP of Omni-channel] Mike Amend and his team have transformed our mobile app from 0.5 star rated app with minimal reviews to now an over 4.5 star rated app with 30,000 reviews and counting. Number three, during the third quarter we made our value clear online by highlighting the price after the promotion of coupon has been applied. This led to increased site conversion and sales.
The firm’s Buy Online, Pick-up In Store push is also delivering, adds Ellison:
Approximately 80% of the stores existing inventory is eligible for free same day pickup and over 90% of online purchases touch a physical store. Just last quarter we completed the expansion of our ship-from-store fulfillment strategy. We have now expanded this initiative from 250 stores to 100% of the store network. Now, over $1 billion of inventory is exposed to dot com customers from all 874 stores. We are well on our way to creating our best-in-class omni-channel business at JC Penney.
Signs of life at JC Penney at just the right time, on the eve of the Holidays season. All eyes will now be on how the firm executes in this all-important quarter. But for Ellison, who’s been a consistent omni-channel evangelist, the progress to date is encouraging.