One year in, JCPenney’s new CEO raises the retailer’s trajectory

This article was published in the August 2016 issue of STORES Magazine.

Paging through the wondrously large JCPenney catalog of years past meant considering near-endless options — and being patient for the results.

JCPenney CEO Marvin Ellison

JCPenney CEO Marvin Ellison

It rings true, then, that the retailer’s newest CEO — Marvin Ellison, in place a year this month — would take the same approach. As one who came from modest Tennessee beginnings, looking forward to shopping at JCPenney twice a year for back to school and Christmas with his half-dozen siblings, Ellison’s strategy of studying, testing and waiting has impressed the analysts who cover him.

In March, Piper Jaffray reiterated its 2016 top-pick “overweight” rating of the 114-year-old retailer based in Plano, Texas, anticipating it would outperform relative to the median of the group of stocks being covered. Likewise, Deutsche Bank is recommending JCPenney stock; analyst Paul Trussell sees a unique turnaround play at hand, as well as “a lot of upside at current levels.”

Shares have dramatically risen, hitting a high of $11.99 in March — a year-over-year increase of more than 50 percent. Current initiatives focus on driving traffic, sales and profitability through an emphasis on revamping center core departments, expanding in-store Sephora locations, increasing private label penetration, recapturing lost home category sales and launching omnichannel efforts including buy online, pick up in store.

How JCPenney is transforming the customer experience

JCPenney’s Executive Vice President of Omnichannel Mike Amend will share how the company is building a next-generation customer experience in a keynote at Retail’s Digital Summit from Shop.org, Sept. 26-28. Learn more.

“I’ve been following this company closely for a decade, and there have been a lot of ups and downs,” Trussell says. “More downs of late. The debt on the balance sheet is substantial. It’s something they’re going to have to continue to work on, in terms of building up their cash balance and improving their free cash flow, being able to actually pay down the debt and once again become a profitable company.

“They’ve got a lot of hard work ahead of them,” Trussell says. “But I do think that this [continues] to be a uniquely positioned company because of its merchandise assortment and price point. I’m not that deeply concerned, and not necessarily ever was, that it was the end of days.”

Future-focused

Not that long ago, not everyone was so sure. Ellison said in June during a Piper Jaffray Consumer Conference that the company is now trying to “just listen to our customers” more effectively.

“We can list all the grave mistakes made in the failed turnaround strategy of the past, but one of the key mistakes made was simply not listening to the customer,” Ellison said. “We ushered in a large number of brands that in the conference room in Plano a lot of people felt great about.

“We are just simply leveraging focus groups, detailed consumer research, and we are asking and we are testing and learning.”

Marvin Ellison
JCPenney

“The problem was, in that conference room, no one was talking to a customer … . We’re trying to be really careful not to have an elevated view of what we believe our customers want, and we are just simply leveraging focus groups, detailed consumer research, and we are asking and we are testing and learning.”

One more thing the company is doing: Looking to the future. Neely Tamminga, the Piper Jaffray senior research analyst who led the Consumer Conference discussion, was inspired by the way Ellison noted that “the JCPenney of 2010 will not win in 2020.”

“He is not only course-correcting some things — and there were clearly some places they needed to course-correct — but he’s doing it with agility, trying to move everyone forward to what the new reality of retailing is,” Tamminga says. “A lot has changed in consumer behavior from 2010 until now.”

As for Ellison’s practice of testing before rolling out, Tamminga laughs that it seems “so … novel.”

JCPenney’s new appliance offerings, which require little capital expenditure, are bringing in customers that had not previously shopped there.

“As does not being unafraid to do what the customer wants to do,” she says. “When JCPenney announced this year it would start offering appliances, there were naysayers within the investment community. But it’s bringing in customers that had not previously shopped at JCPenney.”

And how: Piloted in 22 stores across three markets in February, the rollout requires little capital expenditure and doesn’t require JCPenney to take ownership of any inventory other than floor models. The low-risk endeavor gives the retailer the opportunity to pick up customers from flagging competitors.

“For a really old, established retailer to be in the business of customer acquisition and not just retention is astonishing,” Tamminga says. “It’s bold.”

‘A lasting difference’

Both Tamminga and Trussell admit there seems to be something precious about the retailer, with customers and analysts alike rooting for its return to strength. Tamminga says perhaps it relates to the chain’s size and scope; Trussell believes there’s an understanding beyond just the investment community that “this wasn’t just a company that came apart on its own, as you will, as opposed to a management team that took it strategically in the wrong direction.”

As for Ellison’s trajectory, Trussell says, “He is known to talk about marrying the art and science of retail, and I completely agree with that.”

Part of that, no doubt, was the careful study of the company under the wing of CEO Mike Ullman, who returned to JCPenney in an attempt to right the ship. Ullman was CEO from 2004 to 2011, and then again from 2013 until July 2015. For Ullman’s last nine months at JCPenney, Ellison was president and CEO-designee.

“It’s an incredibly important distinction to make in observing why Marvin is and will continue to be successful,” Tamminga says. “It was an uncommon but very good idea to have Marvin join the company outside of the investor spotlight. It afforded him the time to listen and gain information without having to communicate a fully formed vision or strategy to the investment community right out of the gate.”

Taking the time to gather the right team is essential, too — Tamminga is aware of at least 10 changes made at a level that required a press release or announcement to shareholders, including some leaders who followed him from The Home Depot. Prior to his time at JCPenney, Ellison spent 15 years at Target and 12 years at The Home Depot, where he served as executive vice president.

For all these reasons and more, Tamminga believes the new CEO has the attributes — both professionally and personally — to make a lasting difference for the company.

“His understanding of what value really means to a consumer, specifically the JCPenney consumer, was ingrained in his institutional memory as a child,” she says. “This is incredible, as it informs his ability to not only connect with the JCPenney consumer, but also with more than 100,000 company employees. He understands the value proposition, and why consumers shop there.

“That isn’t always the case. Sometimes you have leaders who have never really lived in and walked the shoes of consumers,” Tamminga says. “But he has. His family has. And this is critical in our estimation of Marvin’s ability to come in and help the organization move quickly, because he can do it with authority and authenticity.”