Image: J.C. Penney.
Investors have waited for years for discount retailer J.C. Penney (JCPN.Q) to execute on a successful turnaround strategy, and the jury is still out on whether the company is on the right track. Even though the retailer has reduced its losses and found ways to improve sales recently, it nevertheless hasn't fully bounced back from the exodus among its once-loyal customer base.
Yet executives at the company still think Penney has plenty of room to recover in the months and years to come. Let's take a closer look at just how J.C. Penney's management team believes the company can recover fully from its difficulties in recent years.
[W]e are behind the retail industry in a lot of aspects of omnichannel. We're probably one of the few larger retailers left that currently can't execute a Buy Online, Pickup In-Store [transaction] same-day in our stores." -- CEO Marvin Ellison
CEO Marvin Ellison knows from his retail experience elsewhere that embracing online shoppers is a key to boost Penney's overall business. Yet he has also identified the company's relative lack of popular options, like same-day in-store pickup, as a huge competitive liability in a cutthroat industry environment.
He also believes that it's essential to take advantage of Penney's brick-and-mortar network to act as a distribution center for shoppers looking for faster fulfillment of online orders. That way, Ellison hopes that customers will come into stores, and end up doing additional shopping on the trip, producing a win-win for the retailer. By bringing in omnichannel specialists, Penney hopes to expand its sales channels and get more revenue flowing into the company.
We have a great partnership with Sephora and we will continue to allow and embrace the fact that they will be a part of our long-term growth strategy. -- Ellison
Store-within-store concepts have worked well for a number of different retailers, and Penney, in particular, has enjoyed success from bringing in loyal Sephora customers who are looking for ways to get products without necessary going all the way to a Sephora retail location. Ellison has continued to bolster the partnership by working with Sephora executives, and he believes that, by taking advantage of a reliable flow of customers that like having in-store options like Sephora offers, J.C. Penney can accelerate its recovery, and appeal to a whole new class of shoppers.
[W]e continue to see [average unit retail] moving up slightly, [but] I don't think that there's a lot of room to continue to raise prices in this environment. So frankly, we continue to see [growth] in whether you call it traffic or conversion, we see it on that side of the equation versus AUR. -- CFO Ed Record
J.C. Penney has seen slow-but-steady, progress in comparable-store sales, but the nature of the discount retail business is that it's difficult to drive growth based on price. Promoting higher-value partnerships like Sephora can help, but in the end, Penney acknowledges that it will have to rely primarily on boosting volume in order to keep sales moving higher. With a combination of bringing in more customers through its doors and then encouraging them to buy more items once they arrive, Penney believes that it can continue its upward momentum on the comps front throughout the rest of the year and beyond.
This is such a different retail landscape today versus 2007 and 2008, and my challenge to the team is that the things that we did during that time period to run an efficient world-class retailer simply won't work today because we're going to have to have a significant penetration of our business online versus in stores. -- Ellison
One thing investors need to remember is that, while Penney has tried to recover, the rest of the retail world hasn't sat still. New advances have made it even more difficult for Penney to catch up. In particular, finding ways to combine its extensive brick-and-mortar network assets and the potential from online sales will remain challenging. Over time, though, Ellison thinks he can challenge his team successfully to find new ways to push Penney forward, and make it return to profitability.
We are very committed to being promotional. I mean, I think if we didn't learn anything from the failed strategy, it's that this is a promotional space that we're in and we're going to have to compete. -- Ellison
For a long time, Penney had hoped to eliminate its promotional nature in favor of permanent low pricing. Now that it's failed, Ellison is committed to sticking with Penney's traditional approach.
How that ends up taking shape remains to be seen, as it's evident that the old way of doing business had its problems for Penney, as well. Nevertheless, Ellison hopes to take the best lessons from all of its recent efforts and try to bring them together to create a lasting solution for Penney in the future.
Penney has thus far avoided disaster, but it still has a long way to go before it can reach a full recovery. Investors should watch closely to see if Ellison and his team can convert on the promises they've made to shareholders.
