Former J.C. Penney (NYSE:JCP) CEO Marvin Ellison smartly moved his company into areas abandoned when rival chains either closed or got a lot smaller. He added toys and baby products after Toys R Us and Babies R Us closed and brought appliances back to his company as the shrinking of Sears (NASDAQOTH:SHLDQ) and death of H.H. Gregg created opportunities.
Ellison was good at identifying opportunity but he was less skilled when it came to marketing. The company did very little to communicate with customers about its new product offerings and it did not use them to create any sort of premium retail experience.
That left an opportunity for new CEO Jill Soltau -- who started Oct. 15, 2018 -- to figure out how to both market appliances and sell them in a way that makes the chain stand out. Soltau has decided not to do that, however, and announced plans Wednesday to drop appliances from J.C. Penney entirely.
Check out the latest J.C. Penney earnings call transcript.
A lack of understanding
Both Sears, which has closed hundreds of stores, and H.H. Gregg, which shuttered entirely, sold appliances. Their departures left thousands of customers up for grabs with both digital and brick-and-mortar chains going after the market.
In spring 2016, J.C. Penney added appliance sections to more than half of its stores -- focusing on markets Sears had left. Aside from adding washing machines, dryers, stoves, refrigerators, and more, the retailer did little to differentiate its offering. Was J.C. Penney the place to go for a deal? Was it the company that offered excellent service? Maybe it was the one to offer exclusive brands or give shoppers a frozen yogurt coupon when they bought a washer/dryer set?
It's hard to know because the company never educated consumers that it sold appliances and it was unclear whether it offered any special approach to how it sold them. Like toys and baby products, appliances just became more store inventory. The difference is that consumers buy toys on impulse but rarely do that for appliances.
The company acknowledged that it would stop selling appliances by the end of February 2019 "in order to better meet customer expectations, improve financial performance and drive profitable growth." That suggests that J.C. Penney's leaders could not have worked very hard to change customer expectations.
A step toward the end
Instead of building a marketing campaign around the idea that J.C. Penney would work hard to serve former Sears and Toys R Us customers by expanding into these categories, the company only did half the work. As part of its announced changes, J.C. Penney released a vague marketing statement that sounds like something former Sears CEO Eddie Lampert would say as he watched his company crumble:
While configurations vary by store, we are finalizing new layout options, including the reduction of store space previously dedicated to appliance and furniture showrooms to maximize efficiencies, reduce inventory and create an enhanced shopping experience that inspires repeat shopping trips. Optimizing the allocation of store space will enable us to prioritize and focus on the company's legacy strengths in apparel and soft home furnishings, which represent higher margin opportunities.
Instead of figuring out how to make appliances a viable business, Soltau has given up and devoted more space to apparel -- an arguably more competitive space where the retailer has struggled to gain traction. J.C. Penney might have built a business around serving markets that lost major competitors.
Doing that, however, would have required clever branding, viral marketing, and traditional ads that lay out the brand proposition. Yes, the company has to serve its legacy customers. But there aren't enough of those to guarantee the chain's long-term survival.
To succeed, J.C. Penney has to be something new and Soltau has to define what that is and convey it to customers. This strategic retreat shows she may not know how to do that. And that may lead the chain into the same slow death spiral Sears has been on for the past few years.