In a rapidly changing retail world, J.C. Penney (NYSE: JCP) runs the risk of slipping into irrelevance. The chain has made some moves to adapt its business the current market, but its transformation efforts appear to be falling short.
It's not that the chain is doing everything wrong. Its efforts to add appliances and to revamp its women's apparel offering have started to pay off. It has also smartly revamped its in-store salons and added more store-within-a-store Sephora locations to give customers more reasons to visit the retailer.
This has partly paid off, with Q3 comparable-store sales climbing by 1.7%. Overall sales, however, dropped by 1.8%, and its year-over-year loss nearly doubled, climbing to $128 million, or $0.41 per share, compared with $67 million, or $0.22 a share, in Q3 2016.
The company has made some positive steps, but it's falling behind in other areas. Because of that, it needs to revamp its management team. That's not saying CEO Marvin Ellison has to go. Instead, the retail veteran needs to take a page out of Wal-Mart's (NYSE: WMT) playbook and add a top-tier digital executive with significant start-up experience. In addition, the chain would benefit from adding a retail leader focused on protecting and enhancing the in-store experience.
J.C. Penney has made some good moves, but work remains. Image source: J.C. Penney.
It's an omnichannel world
During his company's Q3 earnings call, Ellison used the word "omnichannel" a number of times. He clearly understands that the market is changing and that his company needs to change along with it, but his efforts lack the urgency of the changes being led at Wal-Mart by Jet.com founder Marc Lore, who heads that chain's digital business.
Under Lore, with clear support from CEO Doug McMillion, Wal-Mart has transformed its internal thinking from a store-first mentality to a customer-first mentality. He has helped the company accelerate its changes while also getting a management team rooted in brick-and-mortar to consider digital an equal player.
J.C. Penney has made progress, and in his Q3 earnings call remarks, Ellison noted that the company has increased online-only SKUs by over 50% and items it ships by over 100%. He also pointed out that Digital Executive Vice President Michael Amend and his team have "transformed our mobile app from 1.5-star rated app with minimal reviews to over in 4.5 stars rated app, with 30,000 reviews and counting."
Those are achievements, and not the only ones, but the chain still lags in certain areas. Two-day delivery, for example, has become standard, and Wal-Mart offers it on qualifying orders over $35. J.C. Penney has fallen behind with its three- to five-day shipping offer on orders over $49.
In addition, Wal-Mart has been a leader in creating innovative ways to use its stores to facilitate in-store pickup and returns for online orders. This has involved using everything from dedicated pickup towers to curbside service, and arming its employees with tablets equipped with software aimed at creating a seamless customer experience. J.C. Penney does use its stores for in-store pickup and returns, but it hasn't optimized the process as well as its rival.
Amend, like Ellison, came from Home Depot. He works closely with Mike Robbins, who serves as senior vice president of supply chain, the same position he previously held at Target. Again, it's not that this team hasn't had its successes -- J.C. Penney now can ship online orders from all of its stores -- but neither of these two men has the digital-first start-up DNA an executive like Lore brings to Wal-Mart.
Stores need help, too
As changes come rapidly, it's easy to lose focus on core offerings. J.C. Penney has, based on my personal shopping experiences across multiple visits to three of its stores in recent months, lost some focus on its in-store experience.
In each case, inventory was lacking and store personnel were not easy to find. On top of that, sales and discounts remain confusing, sometimes with a regular price one week being not all that different from a 30%-40% discounted price the next.
In a broad sense, it's not that the chain offers an awful in-store experience, but it could be vastly improved. That's only going to become harder as more resources get devoted to fulfilling digital orders in stores.
Ellison clearly needs an executive to rally the troops to make sure the in-store experience doesn't suffer during these changes. On the pricing side, he also needs to find someone who can pick a strategy and stick with it. Consumers are increasingly savvy, and offering big discounts on list prices rarely, if ever, actually sells the items, as the strategy is likely to turn off a segment of shoppers.
It's about getting over the top
J.C. Penney has done a lot of things right, and it's still losing money. To change things, Ellison can't just keep moving forward at the current pace. He needs to accelerate and innovate, and it appears his management team needs some help to get that done.
That's not an indictment of the CEO's leadership. Instead, it's a nod to how quickly Wal-Mart, Amazon.com, and other leaders are moving the bar. J.C. Penney has a chance to be one of those leaders, but it needs its own Lore, as well as someone -- perhaps an existing member of the leadership team -- to make sure stores continue to serve customers well as other priorities take focus.
It does appear the company can become not just a retail survivor, but a leader. To do that, J.C. Penney's current executives just need a bit of help to make sure it gets the rest of the way there.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has the following options: short January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.