February 27, 2014

Penney ... Penney ... Penney

Dear Readers - give our friends at J.C. Penney some love by clicking here to read about their turnaround efforts. I'll wait for you while you read the article ...

... ok, welcome back!

Here's a ten year view of total net sales, operating profit, and sales if they increased at a 2.5% inflationary rate. What do you see (figures in billions)?

When compared against a reasonable inflation rate, sales have been cut in half in a thirteen year span, have they not? Heck, sales need to increase by 33% next year just to get back to 2012 levels. And when that is accomplished, they sales need to increase by another 46% to catch up to modest levels of inflation.

In Q4-2013, same store sales rose 2%.

In other words, the hardest part of the turnaround is not complete.

When I worked at Eddie Bauer (late 90s) and Nordstrom (00s), we liked to see sales per square foot, in stores, at about $300 per year. JCP is just north of $100. #omnichannel.

From 2007 to 2011, their business shrunk by 11%, with operating profit shrinking by 58%. This was not a healthy business before the experiment to move away from discounting.

There are very few mentions of merchandise in the article, and maybe that's to be expected in an article in a trade journal focused on advertising.

There are so many important aspects to retailing that are being ignored. Think about a handful of issues outlined below:

  • Is it possible that large format retail stores have too much square footage to support existing demand? What does it mean if the answer to the question is "yes"?
  • It has been a decade since customers wanted to buy merchandise at increasing rates at JCP. Discounting has been consistent during this time. The online channel has been consistent and present during this time, suggesting that merchandise might be a problem. How would you fix the merchandising issue at JCP?
  • Pursuant to the merchandising issue at JCP, how is it that Kohl's grew from $10.3 billion to $19.3 billion in a decade while JCP shrunk by $4 billion during the same timeframe? Discuss the reasons why this would happen.
What are your thoughts about traditional department store retail brands and their relationship with middle income customers across various age groups? In other words, describe the future of #omnichannel, when some retailers thrive and others struggle. Go!