JC Penney - combining art and science in omni-channel retail

Stuart Lauchlan Profile picture for user slauchlan June 19, 2016
JC Penney CEO Marvin Ellison reckons that this year's Presidential Election isn't depressing consumer confidence. Just as well, given the firm's ongoing digitally-driven transformation disruption.

Marvin Ellison

As November’s US Presidential Election looms larger, something unusual is happening in the retail market, according to Marvin Ellison, CEO of JC Penney: 

There is a lot of data, there is a lot of research that shows when there is a presidential election, without an incumbent, it tends to lower consumer confidence that maybe playing a role.

But this year, it’s different, he told delegates at the Piper Jaffray Consumer Conference last week:

The consumer tells us that their wages are up, their job stability is better than it’s been in many years. They have price appreciation in their home. They have more money in their savings accounts than they have had quite a while and energy prices, although up, are still down relative to last year. So overall, the consumer is telling us, they feel really good about their personal economic position.

That being the case, it should be good news for JC Penney, which has been investing heavily in digital transformation in a bit to regain the affections of Middle America. We’ve kept a close eye on Ellison’s efforts here, articulated now as being to create:

a model that’s more difficult for pure play e-commerce competitors to compete against.

Ellison was drafted in from Home Depot in 2014 after a sustained period of decline and mis-management at JC Penney. To support him, he’s added fresh external talent to boost the firm’s capabilities:

Oftentimes when a business is in turnaround, it is difficult to recruit highly talented industry-proven executives. We’ve been very fortunate because the upside potential of JCPenney and the brand itself, because it’s so iconic, has benefited me in going out and signing really talented people to come in.

We recruited a great leader in marketing and in customer data, Mary Beth West, and she brings significant experience from that space. Mike Amend brings enormous e-commerce talent from the Home Depot and he was part of the team that developed all of their online capabilities and the omni-channel connectivity store. A great supply chain leader from Target Mike Robbins,who understands the entire supply chain international and domestic very, very fortunate to have him in position; great Chief Information Officer; great Store Leader in Joe McFarland.

With this team in place, there’s the capability for a massive overhaul of the way JC Penney does business. Ellison reminded his audience of a maxim he’s articulated before:

One thing we’re pretty sure of the JC Penney of 2010 will not win in 2020. That business model can’t work for the future. There are elements of that business model we are very confident that can work and specifically that element is private brands. It’s a huge competitive advantage that we have as a company.

Bad habits

On the downside, there’s been a need to shake off some bad habits:

When I arrived back in November of 2014, I quickly realized that we were heavy on art and very poor on the science of retail.

We spent a lot of time on presentation standards. We spent a lot of time on the aesthetics of our environment, but we didn’t spend enough time on the back-end process. That really drives retailers to be efficient, things like supply chain efficiency, things like having a seamless e-commerce connectivity to bricks-and-mortar; like having robust information technology, mobile apps and devices that really create a great seamless environment for customer;  the way she wants to shop, the time, the place and the opportunity;  and not to mention, how we look at and measure productivity across the entire enterprise, whether it’s at home office, in the store or in the supply chain.

We want to have great presentation in the store. We don’t want to walk away from that, but that great presentation has to be backed up with more sophistication around replenishment, around measuring productivity on the floor and around how we can gain great profitability from the product that we sell.

Inevitably, give the bricks-and-mortar estate at JC Penney, the term omni-channel is never far from the conversation. Ellison said:

I know the omni-channel term is overly used in retail, but for me it’s very appropriate because JCPenney was once a dominant catalog retailer. So, you could argue that JCPenney was one of the first omni-channel retailers, between bricks-and-mortar and catalog. Online is only a very sophisticated modern view of what the catalogue was 50 years ago.

This was a trick that was missed under the old management, he added:

That was totally lost in the leadership transition and change in philosophy. So, now, we’ve brought in a great e-commerce leader and we’re in the process of really creating a seamless connection between e-commerce and bricks-and-mortar. That has never existed in any shape, form or fashion in our company.

The omni-channel investment is beginning to pay off in terms of deliverables, argued Ellison:

We’re ready to roll out a new mobile app that’s been in beta for the last few weeks .  We’re excited about it because it’s something that we desperately need based on how our customers shop.

There are still significant shortcomings in JC Penney’s capabilties, admitted Ellison:

We’re one of the few retailers today that do not have the ability to have buy online, pick-up in-store same day in our stores.  We have roughly 250 stores in the first quarter, we’ll have all stores chain-wide rolled out by the end of August. In our pilot location in the first quarter, roughly 40% of the customers that came into the store to pick up an item that they had purchased, bought something additional. That’s a huge, huge conversion rate.

We’re truly becoming an omni-channel retailer, because you have to be. We have 1,000 store locations. We’re going to be piloting enterprise fulfilment where we’re going to take stores that are in uniquely geographic locations and use those stores as the first choice for online replenishment. That’s going to save time and money from a distance of delivery and from an efficiency, in some cases, same day and next day.

Within all of that, we’re going to continue to leverage the things that we historically do well. And those things are private brands, great service, and having array of national brands that really shift the perception of the consumer.

It’s all about combining the art and science of retail, Ellison concluded, promising:

We’re not going to make the same mistake. We may make different mistakes; we’re not going to repeat mistakes. I can guarantee that.

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