JC Penney had appeared to be turning a corner

JC Penney had appeared to be turning a corner

US department store retailer JC Penney has said one of its biggest opportunities for incremental growth in the near term is in omni-channel, as it looks to deliver continued improvements in the business.

JC Penney last week saw its share price fall 9% after moving to a loss in its fourth-quarter. The troubled retailer, which had appeared to be turning a corner following improved comparable sales in January, and a lowering of third-quarter losses in November, booked a loss of US$59m for the three-month period. 

Given expectations had risen, margins came in lower than analysts had forecast, and the company has now guided for comparable sales to be below mid-single digits.

For the fourth quarter, however, comparable sales were at the high end of guidance, and speaking on the firm's earnings call, CEO Mike Ullman said the retailer delivered on its goal to generate positive cash flow.

He hailed 2014 as a “very successful year” for JC Penney, thanks to gross margin and sales growth. He added: “We're back in the eyes of the consumers, we're back in running the business effectively, and we're back on solid financial footing, and we fully intend to build on this momentum and continue to significantly improve our business in 2015.”

But while Ullman said he was pleased with JC Penney's accomplishments in 2014, it is now focused on incremental growth opportunities in order to deliver continued business improvements and achieve its 2017 EBITDA target of $1.2bn.

Three growth initiatives, he said, will focus on accelerating its omni-channel success, strengthening and revitalising its centre core merchandise categories in store and online, and improving its home range.

Ullman told analysts: “We are focused on accelerating our omni-channel success in delivering a seamless customer experience across all touch points, whether she is shopping via mobile, tablet, or in-store. This means having consistent style and value message while at the same time strategically using certain promotional events, such as our Sunday night flash sale to drive traffic exclusively to jcp.com.”

The chief executive said there will also be a need to continue to invest in inventory online to ensure the company has the right depth in key items to support customer demand.

Meaningful growth
JC Penney started up its direct-to-consumer catalogue business in the 1960s and its dot-com business in the 1990s. As a result, the retailer has not had to invest a significant percent of its capital into building large dot-com fulfilment centres. Instead, it has invested capital in technology to optimise these facilities.

Marvin Ellison, president and CEO-designee, told analysts: “While jcpenney.com had a good year in 2014, we need to continue to grow our omni-channel business in a meaningful way in 2015. The good news is JC Penney does not have to make significant investments in its supply chain infrastructure in order to support a powerful and efficient omni-channel strategy.”

Later this spring, Ellison said the company will be expanding its buy online, ship from store capabilities to more stores, in addition to ramping up its ability to have customers buy online, and pick-up-in-store the same day.

Further opportunities
Another opportunity will be in shoes, handbags, fashion jewellery, and accessories, which Ullman said signified “unrealised potential”. This will be in addition to growing market share in its largest businesses of women's, men's and kid's apparel.

“We intend to capitalise on the momentum we started in 2014 to grow market share in our apparel businesses in women's, men's and kids. This will be fuelled by growth in our powerful private brands like Worthington, St John's Bay, Liz Claiborne, and J.Ferrar.

"We will be sure to be in stock in key items in both private and national brands to better meet customer demand. This includes national brands like Nike, Van Heusen, Levi's, Dockers, Jockey and Hanes, to name a few.”

In concluding, Ullman said that while the company is still trying to fully recover from the “self-inflicted wounds” of its previous strategy, it now has to work to motivate customers to shop more often and across multiple categories.

He said: “I'm proud to say that JC Penney is back and competing effectively. The initiatives we're putting in place will fuel new growth and earn greater customer loyalty as we pursue our vision to become preferred shopping choice for Middle America.”