Since CEO Marvin Ellison took the reins at J.C. Penney (JCPN.Q) two years ago, he has pushed the company into new lines of business in an attempt to boost sales even as mall traffic continues to decline. On Thursday, J.C. Penney officially announced the newest piece of this turnaround effort: opening toy shops in all of its stores.
Toy shops certainly won't be a panacea for J.C. Penney's problems. Nevertheless, they are a promising addition to the merchandise mix at J.C. Penney.
J.C. Penney has been branching out
Since 2015, sales have been falling at most department store chains as disruption from off-price and e-commerce rivals has become too much to handle. Periodically, unfavorable weather trends have added to department stores' woes.
J.C. Penney was able to buck this trend in 2015, posting a 4.5% comparable store sales increase, but its comp sales growth abruptly stopped in 2016.
J.C. Penney's comp sales growth ground to a halt last year. Image source: J.C. Penney.
Fortunately, J.C. Penney's management didn't wait to make changes until sales started sliding. One of Ellison's key goals at J.C. Penney has been to "weather-proof" the business by growing non-apparel sales. In that vein, he has continued to expand the company's successful cosmetics partnership with Sephora and has revitalized J.C. Penney's salon business. But he has also looked to introduce new merchandise categories.
Appliances are a particularly notable example. J.C. Penney quickly tested appliance sales in a handful of markets in early 2016 and rolled out appliance sections in half of its store fleet by the fall. It is adding another 100 appliance showrooms this year as it tries to capitalize on Sears Holdings' apparent death spiral.
Last year, J.C. Penney also partnered with Ashley Furniture to provide new furniture collections and with Empire Today to sell flooring at select J.C. Penney stores. More recently, it has begun testing a variety of home services offerings such as bathroom remodeling.
These initiatives haven't fully offset the weakness in J.C. Penney's apparel business yet, but they are gaining traction. Indeed, Ellison hinted last week that the company's sales performance has improved significantly this quarter relative to the first quarter of 2017.
The toy business shows promise
Toy sections are the newest addition to J.C. Penney's merchandise selection. J.C. Penney tested toy sections with great success during the 2016 holiday season. As a result, the company had announced earlier this year that it would begin carrying toys year-round.
J.C. Penney is now in the midst of rolling out toy shops in all of its stores. The new toy shops will carry top brands like Hasbro, Mattel, and Fisher-Price and will be located next to the Disney shop within each store's children's department.
J.C. Penney is creating toy sections in all of its stores. Image source: J.C. Penney.
Toys represent a promising growth avenue for J.C. Penney, because the company gets 10% of its revenue from selling children's apparel. As long as parents are already coming to the store to buy clothing for their kids, J.C. Penney might as well try to make itself a one-stop shop.
Throwing darts at a wall?
To a critical observer, J.C. Penney may not seem to have a real strategy. After all, the company is testing a variety of disparate merchandise categories, running the gamut from toys to heating and cooling system installations.
However, in another sense, J.C. Penney is going back to its roots as a department store: a seller of just about everything. Years ago, the company sold things like toys and appliances, before shifting to focus heavily on more profitable apparel sales in the past couple of decades.
With the apparel market now seemingly oversaturated, a more diversified assortment could be the ticket to success. Right now, J.C. Penney may still look like a laughingstock of the U.S. retail industry, but in a few years, it could come to be seen as one of the most forward-thinking department stores in the country.
