Big-box discount retail giant J.C. Penney (JCP +0.00%) is going into its fifth year of annual losses, with its efforts to make a huge strategic shift in the early 2010s having largely failed. Now that the retailer is trying to recapture lost customers while still salvaging something from its attempts to widen its appeal in recent years, J.C. Penney is looking forward to new leadership from current president and designated successor CEO Marvin Ellison.
Ellison just joined J.C. Penney in November, but his future moves as chief executive will inevitably shape its future for years to come, and recently, he took the opportunity to talk with analysts at an investor conference in Boston. Let's look more closely at Ellison and whether he can help save J.C. Penney and its shareholders from a terrible fate.
Ellison: No pulling punches
The first thing that stands out about Ellison is that he's not afraid to tell it like it is. In describing how Penney got into trouble, he gives two key reasons: "a recession that disproportionately affected the customer demographic that [Penney] served, and 18 months of really poor strategic direction from a previous CEO."
Ellison has almost 30 years' worth of retail experience backing his observations. Having served at big-box retail stores in the general department store and home-improvement retail categories, he points to his having gone through tough economic periods before, all the while accentuating his own personal experience with Penney and its strong brand.
Even though Ellison is critical of the company's past leadership, he has been supportive to outgoing CEO Mike Ullman.In Ellison's view, Ullman has done what he needed to do over the past two years to start righting the ship at J.C. Penney, and Ellison is optimistic that he can continue along a similar course. That will involve a strategy that is "less disruptive and more sustainable" in building shareholder value.
Supporting the Sephora effort
Ellison has visited dozens of stores during his initial months at J.C. Penney, and he commented that he "was most surprised with how good our stores look from a condition and aesthetics perspective." He sees that as a natural result of the money that former CEO Ron Johnson spent in reinvesting capital back into Penney's store base, characterizing the spending as "some of it [having been] intelligent, some of it not so." In particular, Ellison called out J.C. Penney's partnership with Sephora as a big win, as it "brings an ambience to the stores that's uniquely different ... from the typical energy you'd see in a mid-tier department store." Sephora has even greater potential going forward, with demand even in smaller and mid-level markets suggesting it could be a real game changer for the retailer. Similarly, Penney's rebranding its salons under the InStyle name and using similar partnership efforts could produce wins that Ellison hopes will add up to a true turnaround.
Not all of Penney's efforts have been so successful in Ellison's eyes. The incoming CEO believes that Penney has to get more sales productivity from the departments covering home furnishings and kids' clothing and accessories. Ellison argues that previous strategies held back those two areas, but the future looks bright in restoring their influence on Penney's overall results.
Being smart about retail handling
Ellison's comments about certain mistakes in J.C. Penney's retail strategy reveal his expertise. In describing missteps in its shoe sales, Ellison said, "It is not an accident that our shoe business was depressed when you have men and women's shoes in the same area. ... By doing that, you force men to shop for men's shoes in the women's department, and you reduce the space allocated to women's shoes, and it's obvious that those two things simply don't go together." In responding to that, Penney has expanded women's shoe offerings while putting men's shoes in a separate area, and the retailer has already seen positive results in both.
Penney is looking at similar initiatives in other parts of the store. Ellison mentioned fashion jewelry, accessories, and intimate apparel as areas where smarter management could lead to a turnaround. With simple efforts like improved lighting and fixtures, Ellison is already seeing gains. Moreover, being smarter about discounting and inventory management should help overall results.
Finally, Ellison is excited about Penney's omni-channel opportunity. By incorporating e-commerce to a greater extent, Penney hopes not only to engage customers better but also get more sales. Ellison points out that Penney's history as a catalog retailer already gives it some of the logistical framework it needs to run e-commerce well.
J.C. Penney has a lot of work ahead of it in order to get itself back into the condition it was in prior to its initial restructuring efforts. With Marvin Ellison at the helm, though, many investors are more optimistic about the odds of saving Penney in the long run, and that suggests that the stock could finally be in a position to produce stronger long-term results well into the future.
