FINANCE

Analysis: Penney now has the right leader but has very little time to course correct

Today’s very weak results underline the fact that J.C. Penney is now the laggard of the retail industry. The chain lost a significant amount of business over the key holiday period as shoppers deserted it in favor of stores that had something more compelling to offer. That consumers drifted away indicates that the results are a function of the failings of JCP rather than weaknesses in the market or structural shifts caused by changes in the way people shop.

The central problem for JCP is that it no longer gives shoppers reasons to visit stores and to make purchases. In other words, it has lost sight of why it exists. This is evident across both stores and online where a hodgepodge of products are thrown together in a seemingly random fashion. The net result is a very confused offer which is hard and unpleasant to shop – something that turns many consumers off.

If JCP was in fashion only, this would be bad enough. However, as a department store selling numerous categories, having a cohesive assortment is vital. To make its large, expensive stores work, JCP needs to stimulate cross-department shopping. In other words, it needs to draw customers in and ensure they buy items from home, fashion, beauty, and other areas. Sadly, our consumer data shows that this trend is going in reverse with cross-department shopping falling steadily over the past few years. In our view, this is down to JCP’s failure to understand who its core customer is and focus on them when it is developing ranges.

Not being clear about the target market is a critical failure from which many other problems flow. For example, JCP needs to invest more in creating unique and compelling own labels to differentiate from rivals. However, without an adequate understanding of the audience this task is impossible to complete with any modicum of success. Equally, revitalizing the store experience requires a knowledge of how the core customer shops and what they want from a physical environment.

Given the incredibly poor performance over the holiday quarter and the weak state of the financials, JCP needs to move rapidly if it is to steady the ship. This falls to the new CEO, Jill Soltau, who has used her first few months in the job to listen and learn. To be fair, the failure of this quarter is not a problem of her making. However, the future trajectory of the company will be down to her and success relies upon decisive action with a firm focus on the shopper.

So far, we are broadly impressed with Ms. Soltau. Her approach seems levelheaded and customer-centric. She has identified certain areas, like the foray into appliances, which are not working and has acted to remedy them; some stores are also being closed to help improve the financials. She also appears to be building a good team around her, including the appointment of a new chief merchant, Michelle Wlazlo. In our view, Ms. Wlazlo’s experience of revitalizing Target’s apparel offering will prove extremely valuable as JCP tries to improve its relevance.

As much as we firmly believe Jill Soltau is the right leader, our main concern is that JCP has very little time to course correct. The business needs to move at pace and without any missteps – a tall order in today’s complex and fast-moving retail environment. Ms. Soltau has noted that J.C. Penney is a revered brand, but such warm sentiments will ultimately mean little unless the company focuses on its customers and gives them reasons to use JCP.

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