After four months at the helm, Jill Soltau has made her first big move as CEO of JCPenney by swapping out its investment in appliances for a much-needed focus on apparel. While I have always been less pessimistic about JCPenney’s appliance strategy than others, the business isn’t taking off as its creator (and Soltau’s predecessor) Marvin Ellison planned. The ultimate denouncement of this strategy has been that it distracted and delayed JCPenney’s investment in its core apparel categories. So props to Jill Soltau for tackling this issue first … not last.
While practically eliminating appliances and furniture from selling floors (they will still be available online and in Puerto Rico stores) seems like an easy decision on paper, they will leave a non-zero sum of revenue un-comped, and a large footprint to replace in stores. It is also yet another major strategy change by the retailer in the last few years. While shoppers may not be as “in the weeds” of JCPenney’s strategy as we are, they can still smell trouble and will surely notice several thousand feet of newly-empty floorspace. Two key questions will need to be answered to understand how JCPenney’s new strategy will unfold.
How will they replace the revenue?
While appliances are admittedly getting the axe because sales weren’t great, there will still be nothing where something used to be on the income statement this year. JCPenney only owned the units it displayed in store, with suppliers handling the logistics of warehousing and shipping, so this will be a greater hit to revenues than it will be a cost savings. The answer will be inextricably linked to …
How will they fill the space?
While the focus is shifting from appliances to apparel, this is unlikely be a one-for-one trade in selling space. Soltau has said that inventory management improvement is another priority, indicating that it is unlikely fashion will expand to completely fill this space.
Soft home seems a likely candidate with existing category expertise as well as a handful of private brand launches in the past few years indicating investment in the category. Also, mattresses are remaining in some 450 store locations making engaging lifestyle vignettes a legitimate (and spacious) possibility. Expanding Sephora or InStyle salons are also potential experiential levers to pull.
But the more prudent question may be will they fill the space? The retailer may well announce more store closures, and many of its competitors have already begun the downsizing process. Kohl’s is letting space to Aldi, Primark entered the U.S. market via shrinking Sears locations, and Macy’s CEO has indicated more European-style concessions could be in their future.
Will JCPenney follow suit, shrinking stores to lower costs and right-size inventory? We’ll know more when the retailer reports its annual results on Feb. 28. Stay tuned to KantarRetailIQ.com to get our take as more information unfolds.