Following J.C. Penney's (NYSE: JCP) brush with death during the past decade, the 113-year-old company's future boils down to a three-part turnaround strategy overseen by president and CEO-designee Marvin Ellison.
The challenge that lies ahead for the chain of department stores can't be overstated. Since the beginning of 2006, J.C. Penney's same-store sales, which measure sales at existing locations open at least 12 months, as well as online sales, have dropped by a cumulative 30%.
The good news is that J.C. Penney's customers don't appear to have outright abandoned the retailer; they're instead simply shopping less frequently, and making smaller purchases when they do.
"[W]e had 87 million active customers in 2011. We have 87 million active customers today," explained CEO Myron Ullman on the company's latest conference call. "The reason the volume is not the same is frankly [because the] businesses that were impaired [under the previous leadership team] have not yet been fully restored."
Given this, J.C. Penney's strategy revolves not around attracting throngs of new customers, but rather around encouraging its existing customers to buy more. This central point is reflected in the first prong of its turnaround plan: to boost sales in its "center core."
"The center core is really defined as Sephora, handbag, shoes, [and] fashion jewelry," noted Ellison. "Those areas of the store that are great for cross-shopping and what we call incremental sales attachments to the core purchases."
J.C. Penney's primary tactic for turning around its stores, in other words, is to boost the size of customer transactions by seeking to convince shoppers to add smaller items to their larger purchases. It's akin to putting candy bars in front of a register at a convenience store.
The second prong of J.C. Penney's turnaround strategy is to evolve into a so-called omnichannel retailer -- one that allows customers, in-store sales persons, and call-center staff to effortlessly maneuver between multiple distribution channels (in-person, over the phone, online, and from mobile devices).
"We are behind in our omnichannel strategy, but we don't look at that as a disadvantage because I think the second-mover advantage is so powerfully strong," says Ellison. The key challenge, he went on to note, is to transform J.C. Penney's 1,000-plus locations into "distribution points" for everything the company has to offer, and to make the process "seamless for a customer, anyway, anytime, anyhow she wants to shop."
Finally, the third prong of J.C. Penney's turnaround strategy is to invest in its home furnishings department, which had been sidelined in the failed rebranding attempt of 2011-2012. This includes focusing less on so-called hardline goods such as furniture, and more on softline goods like towels.
"[W]e had to change the mix of Home, it was two-thirds hard home, one-third soft home, we've made that transition, we're back to two-thirds soft home, one third hard home," explained Ullman.
Ellison elaborated by noting that the strategy around home furnishings also encompasses updating its products with exclusive lines from the likes of Eva Longoria, and redesigning the actual home department "to take it from more traditional to a much more modern view."
At the end of the day, of course, it remains to be seen whether these tactics will be enough to reverse J.C. Penney's fortunes. The odds are certainly against the storied retailer -- as Warren Buffett has observed in the past, "turnarounds seldom turn." However, given the considerable odds facing the company, any sense of victory is bound to be that much sweeter.
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John Maxfield has no position in any stocks mentioned.