JC Penney losses double as digital transformation remains at the "thoughtful" stage after nearly 5 years

Profile picture for user slauchlan By Stuart Lauchlan May 22, 2019
Summary:
Thoughtful, strategic, slow...JC Penney shows no sign of what's fast-approaching a five year digital transformation program paying off.

JC Penney bag

When is the point in a multi-year digital transformation strategy where you stand back and think, ‘Oh, stick a fork in it, we’re done’? That’s certainly what ran through my mind yesterday when JC Penney CEO Jill Soltau told the world yet again that the transformation of this 117 year old US retail institution would “take time”.

The problem is, that’s the message we’ve been hearing for years and years now and still tomorrow never comes. The company started talking about its digital reinvention back in 2015 under former CEO Marvin Ellison, who used to talk about the need for speed in this respect.

To be fair to Soltau, she only picked up this poisoned chalice in October last year, but what she’s inherited seems in terminal decline. The retailer just turned in a quarterly loss of  $154 million, nearly doubling the $78 million loss recorded for the comparable period last year. Meanwhile sales fell 5.6% to $2.44 billion from $2.58 billion a year ago.

So when Soltau talks about “acting swiftly, but thoughtfully”, those are wish fulfilment words that are increasingly difficult to take seriously or at least without a sense of frustration that the thoughtfulness is slowing things down. At the same time, a lot of what the CEO is saying makes sense, but should have been done a long, long time ago.

For example, Soltau talks about customer-centricity, ticking an all-important 'Retail 101' box:

In everything we do, we are putting the customer at the center. We must reconnect with our customers on their terms with a deep understanding of how they live, shop, and interact with JC Penney. Whether through data, focus group, or one-on-one discussions with customers, associates, or partners, we are listening and learning and taking action. The knowledge we are gaining provides a foundation for what we are doing right now and what we will do in the coming months while setting our aspirations for the future.

Good, good - but the question being begged here is, how much longer before these aspirations become achievements? Again there’s a ‘keep calm and carry on’ vibe that fails to reflect the crisis that the company is in. Soltau says:

We are setting the bar high while remaining thoughtful and strategic in our approach. We are taking the time needed to ensure we are making the right strategic choices. And from our research, we are testing and learning around ideas, assortment, and concepts that our customers are giving us permission to create for them.

On the one hand, on the other hand and on and on. I find myself sadly minded of Karen, Selina Meyer’s lawyer in HBO’s Veep, whose pursuit of balance in everything she said meant that she never actually said anything. Or maybe it’s Theresa May chanting “Brexit means Brexit’ as she tees up yet another attempt to pass her legislation to quit the European Union?

Action 

That said there is some action being taken in terms of an ongoing executive shake-up to build a team around the CEO. The most significant of these is the appointment of a Chief Customer Officer, Shawn Gensch. A ten year veteran of Target - a retailer that has executed a successful digital turnaround - he’s also been CEO of Sprouts Farmers Market, overseeing their brand and category marketing strategy, digital marketing, social media  and e-commerce operations. His new role will be a big one, says Soltau:

Shawn will be instrumental in developing a compelling brand identity that builds meaningful connections with new shoppers and strengthens relationships with our most loyal customers. His proven leadership in brand management, digital marketing, analytics, mobile applications and customer loyalty programs makes him the ideal candidate to join our team of highly esteemed retail experts to position JC Penney for success.

She adds:

Retail is a dynamic business with many touch points that all lead to the customer experience. We are working swiftly to build a framework and team to reestablish the fundamentals across the board with each of these touch points…JC Penney can't regain its footing without reconnecting with our customers. We must reinvigorate and enhance this customer experience. We must put the customer at the center of what we do addressing their needs, and providing superior value to them.

We must also develop a leading omni-channel shopping experience through our highly relevant and capable network. This will require us to work on redefining our brand identity and promise, evolving it for today's digital age and enhancing the design of our online platform and physical stores accordingly.

There have been achievements en route to building an omni-channel business, insists Soltau:

We removed hundreds of thousands of unproductive and unprofitable factory-shipped SKUs from our website with almost no impact to our online sales results. This marks a significant improvement to the business as it is today and paves the way for a return to growth in our digital channels in a sustainable and profitable way.

She adds:

Where we go from here is really running the dot-com business as we would run our physical footprint from a great fundamental standpoint, making sure the assortment is curated and right and it's what the customer wants, having the right visual merchandising if you will and how we bring it to life and communicate to customer, supported by great technology and experiential ways in which the customer will navigate through and utilize the site so that the experience is vastly improved. There's much we have to do. The great thing about improving a website is that it is digital in nature and we can move a little bit faster.

As for the physical stores:

We are redesigning and improving core store processes that will benefit the customer directly…we launched a new checkout process to streamline tasks and enhance the customer experience, which translates into a shorter wait time at checkout. We have tested our new centralized pickup and returns area with plans to expand this concept to 500 stores...This not only makes the in-store experience better, but it's a step toward a better omnichannel customer experience as well.

But again and again, the underlying message is that change takes time - true - and that JC Penney is taking things carefully forward for best effect - questionable. Soltau says:

Re-establishing the fundamentals of our business operations will take time yet…My commitment is that, we will make sound strategic decisions backed by data and will always be rooted in delivering on our customer's wants and expectations. We are acting swiftly, but thoughtfully as we move the business forward.

But how much time is left? 

Meanwhile as well as JC Penney’s own problems, there’s the prospect of more pain from President Trump’s tariffs war with China. To date, the saber rattling hasn’t hurt that much, but in common with the likes of Macy’s and Walmart, there’s worse to come, warns Soltau:

There is a minimal impact on our business resulting from the three tariff tranches that went into effect last year including the recent increase on the third tariff tranche that went into effect on May 10th which increased tariffs from 10% to 25% However, in looking ahead, we do anticipate a more meaningful impact on both our private and national brands if the potential fourth tranche of tariffs does go into effect on all Chinese imports.

My take

JC Penney is an American retail icon that is very important to our customers, vendors and hundreds of communities throughout the country.

Yup - and that’s what the management team at Sears told themselves as well...

The Chief Customer Officer is a welcome appointment, hopefully putting some meat on the bones of the all exec speak about customer centricity. I’m more concerned however at the failure to appoint a VP of e-commerce and omni-channel, a role that Soltau has previously identified as critical. Gensch looks as though he’s going to be picking up that responsibility part-time for now, but it’s a role that needs full-time focus by an responsible officer. Maybe not axing the role in the first place might have been a plan?

In the meantime, it’s back to the aspirational exec speak:

Our strategy long-term will be a great balance between the fundamentals of retail and providing that strong foundation as well as transformational and/or innovative choices that we'll make to differentiate and re-establish JC Penney for the future.

Whatever that means.