Kudos to struggling J.C. Penney (OTC:JCPN.Q) for trying something new to drive much-needed foot traffic. Retailing has changed, and while giving consumers nonshopping reasons to step foot in a store isn't exactly a brand-new idea, Penney's had done little on that front. Now it is taking the plunge.
Unfortunately, the iconic retailer may be too far gone now to merely start experimenting with the idea of spas, yoga, coffee, and plenty of lounging areas in its stores to sidestep a future some fear will end in bankruptcy. The most interesting aspect of the new strategy being tested at one of its stores in Hurst, Texas? Its rivals are in a better position to utilize the idea, and perhaps continue pushing Penney's toward an oft-rumored bankruptcy.
Offering an "experience" works
The meltdown of department stores and the subsequent meltdown of the mall management industry are hardly secrets. Since its peak in the year 2000, spending at department stores like J.C. Penney's and Macy's (NYSE:M) has been nearly cut in half. Reasons for the implosion range from the advent of e-commerce to relevancy challenges to sheer inconvenience.
Department store chains have helped themselves in this regard, though, finally figuring out what most other consumer-facing companies have already learned: Stores can't be merely places to purchase clothing and home goods. They must be destinations, and entertaining ones at that. Macy's announced in October that it would be opening four more Potbelly Sandwich Shops, adding to the one found in its Mall of America store. Nordstrom (NYSE:JWN) opened a new flagship store in New York last month that features seven different restaurants.
Malls are helping themselves too. A wave of retail bankruptcies has led to an overwhelming number of vacancies, cutting down on foot traffic that encourages other tenants to leave. Virtual reality experiences, surprisingly enough, have proven effective draws. Mall owner Unibail-Rodamco-Westfield Partners has tapped a company called The Void to establish 25 virtual reality venues at several of its locales.
The gambits just might work, which is why Penney's is getting in on the same act, starting with the addition of a barber shop, yoga classes, and a selfie studio (and more) at its store at the North East Mall in Hurst, Texas. CEO Jill Soltau says the store is "the fullest articulation of our brand strategy and we're going to use as a lab."
Penney's application of the strategy, however, simply might not be enough given the profile of its typical customer.
One of these things is not like the other
They're all classified as department stores, but there are distinct differences among J.C. Penney, Macy's, and Nordstrom. They largely cater to different income brackets and, by extension, different service expectations.
The average Nordstrom customer is, perhaps surprisingly, not terribly old. Data from Viant says more than half the retailer's regulars are between the ages of 18 and 34, versus Macy's 37%. On average, Nordstrom serves 43-year-olds, while Kantar Retail reports Macy's shoppers are 49-year-olds. Don't let the average age fool you though. Nordstrom's typical customer is more likely to earn a six-figure income. A little more than 40% of its customers earn more than $100,000 per year, while 35% of Macy's shoppers can say the same.
Penney's typical customer is -- in contrast to patrons of both Macy's and Nordstrom -- 51 years old, probably a mom, and more likely to be looking for a bargain (or more likely to use a coupon). The average Penney's shopper earns just under $63,000 per year, versus a little more than $75,000 for Macy's, Kantar Retail data indicates.
J.C. Penney revealed that income-based vulnerability when it discontinued coupons in early 2013. Sales fell nearly 12% during the quarter it happened, making clear that its customers are looking for value. The retailer has since restored its coupon program, but it's never quite been the same.
Macy's and Nordstrom never needed much of a coupon-driven approach to begin with, implying they have attracted and continue to serve a higher-end crowd that might be more receptive and responsive to offerings like yoga and coffee.
Don't overthink it
Averages don't tell the whole story, to be fair. Still, it's not a stretch to suggest Macy's and Nordstrom's customers are more likely to have the time and money necessary to enjoy non-shopping experiences at shopping venues.
Penney's shoppers? Not so much. They're more likely to be seeking value than frills. That's the problem, with no end in sight. As Mark Cohen, director of retail studies with Columbia Business School and former CEO of Sears Canada, said earlier this year, "Luxury players are doing OK, and discounters are doing OK. But the middle continues to be a killing ground, and I don't think that's going to change any time soon."