In his first investor conference sans soon-to-be former CEO Mike Ullman, J.C. Penney’s president and CEO-designee Marvin Ellison talked about the retailer’s strengths, where it needs work and what lies ahead.
Ellison shared his insight during a Q+A session with Oppenheimer hardlines retail analyst Brian Nagel at the Annual Oppenheimer Consumer Conference in Boston Tuesday.
Getting right down to business, Ellison said J.C. Penny had a downturn for two reasons: “A recession that disproportionately affected the customer demographic that they served, and 18 months of really poor strategic direction from a previous CEO,” according to a Seeking Alpha transcript of the event.
But the move forward is simple for Penney’s, Ellison said—it will be all about sustainable shareholder value.
“We have to find a way to have sustainable growth in a way that we can start to get a return to the shareholders that is less, what I would call, disruptive and more sustainable.”
The company has set its sights on hitting $1.2 billion earnings before interest, taxes, depreciation and amortization (EBITDA) by 2017, and Ellison said initiatives are already in place to help Penney’s hit that target.
Nagel asked Ellison—based on the successful store formats he operated at Home Depot during his tenure as EVP of U.S. stores—what’s working and what isn’t at Penney’s stores and how they’ll evolve under his lead.
What’s working is the in-store ambience, Ellison said, highlighting the company’s implementation of Sephora shop-in-shops and noting plans for expansion of the beauty destinations.
“I think we put a lot of capital in the stores in the 18 months that Mike Ullman led the company. Some of it intelligent, some of it no so,” he said according to the transcript. “But I think, all in all, the store visual presentation has improved. And so I think you’re hard-pressed, I’ve been very hard-pressed to walk into a store, announced or unannounced, to find a store that aesthetically didn’t have a really good look and feel.”
Customer service has been a positive too despite the negative press the company has drawn in the last four years, which Ellison said he thought would have caused low employee morale.
What’s not working, however, is the company’s sales productivity.
“We have to get greater sales productivity in the home department. We have to get more sales productivity in kids, and we are working very hard through a capital initiative to reset all of the women’s shoes area and will be done by August 1,” Ellison said.
Penney’s is expanding its women’s shoe department and moving men’s shoes to an open-sell environment separate from the women’s as part of the effort to get that sales productivity, and according to Ellison, early results have been positive. The company is also working to “unwind” strategic mistakes made during Ron Johson’s rule, when higher-priced items took over for coupons, that impaired its Home and Kids departments.
And as part of its plan to improve the store environment, Penney’s is stepping up marketing of its in-store salons, which many—including Ellison—knew little about.
“The problem is that the branding and the aesthetic was rather stale, and so the business had kind of stalled,” Ellison said. “So we’re in a process now. We signed an agreement with InStyle Magazine, and we’re rebranding all the salons – InStyle Salon at J.C. Penney. And we think this will give us the same bounce in sales that the Modern Bride partnership gave us in jewelry.
The Penney’s consumer has started coming back to the core women’s category and Nagel asked what it’s going to take to get her to stay, and to buy in other categories.
“If we can have the right price, if we can be style right, if we can have quality that stands up against all of the competitors, if we could do that in a way that the store environment is conducive, we’re going to win her back,” Ellison said.
Penney’s is in the early stages of its omnichannel stragegy, according to Ellison, but the company is piloting buy online, ship from stores and buy online for same day pick up in stores later this year and a full rollout is slated for 2016.
“We’re behind. But I believe we have a second-mover advantage,” Ellison said of the company’s omnichannel efforts.
In looking to maintain gross margins that aren’t erratic, Penney’s will be working to get clearance margins back to normal and balancing its private brand penetration. The company had to liquidate 13 brands when Ullman came back, and Ellison said, “The liquidation process created a real, what I call a mountain of clearance that we have to work our way through.”
Further improvements to Penney’s strategy include creating a more efficient supply chain, price optimization and implementing assortment and item planning tools.
“We’re taking a very thoughtful approach because we’ve made plenty of mistakes that we don’t want to repeat,” said Ellison, who will take the reins from now-CEO Ullman in August. “We want to learn by listening, we want to learn by piloting and we want to move quickly when we have the right answer. And every time we’ve done that in my eight months here, we’ve been successful.”