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J.C. Penney to Focus More on Higher Margin Apparel and Soft Home Goods

In the first major move for J.C. Penney & Co.‘s newly installed chief executive officer Jill Soltau, the retailer will exit the major appliances category and shift gears to focus on soft textiles such as apparel and home furnishings.

The retailer on Wednesday confirmed the repositioning of its home department in a company blog. The blog said J.C. Penney is finalizing new layout options, including the “reduction of store space previously dedicated to appliance and furniture showrooms to maximize efficiencies. It also wants to create and “enhanced shopping experience that inspires repeat shopping trips.”

Apparently, the management team feels apparel is the answer to get consumers to return to the store on a regular basis. One other reason cited in the blog notes the key difference between soft textiles such as apparel and the big, bulky infrequently purchased items that comprise of the major appliance category: “Optimizing the allocation of store space will enable us to prioritize and focus on the company’s legacy strengths in apparel and soft home furnishings, which represent higher margin opportunities.”

The major appliance category will remain in the stores and online through Feb. 28, while the furniture category will still be available online and at select stores in Puerto Rico. The retailer re-entered the major appliance category three years ago under then CEO Marvin Ellison. It was a category he knew well from his days at Home Depot. He left J.C. Penney nearly a year ago to join Lowe’s and try to effect a turnaround there. Solltau was named CEO in October.

J.C. Penney used to be the place where middle-income consumers went to for apparel and soft home goods, but the retailer under Ron Johnson’s leadership from 2011 to 2013 left consumers alienated in an ill-conceived attempt at rebranding the company and store base. Instead of first testing a concept site, Johnson moved quickly to revamp the retail model by throwing out many of the private label brands that the J.C. Penney customer relied on. They showed their displeasure by going elsewhere to do their shopping. That he did so wasn’t exactly a surprise–Johnson had very limited experience with fashion apparel, and almost no experience in the middle market channel.

Interim CEO Myron “Mike” Ullman III brought back some of those brand in his effort to right the ship, such as St. John’s Bay and Arizona Jeans in apparel and JCPenney Home and Cooks kitchenware and small appliances, to attract the retailer’s loyal customer to return. Ellison thought bringing back major appliances would help, but the category isn’t exactly high margin, and once consumers make a major purchase, they won’t need to make another replacement purchase for at least another five years.

Even if Sears closes more stores or ends up liquidating, which would benefit retailers that sell the major appliance category, the lack of high margins suggests apparel could be the right focus for Soltau. Ellison did add women’s plus sizes and men’s big and tall to its fashion offerings, but the retailer can still do more to spruce up its fashion content. Exclusive private label brands in apparel for women’s, men’s and children’s were always a staple at J.C. Penney. And the retailer needs to do something to change the course of its fortunes.

Last month, J.C. Penney said its comparable-store sales for the nine-week holiday selling season ended Jan. 5 fell 3.5 percent on a shifted basis, but comps were down 5.4 percent on an unshifted basis. The 2018 holiday selling season was slightly longer than usual. And while the company, at the time, emphasized that it expects to generate free cash flow in fiscal 2018, as well as end the fiscal year with liquidity in excess of $2 billion, it has been having some issues getting consumers back into the stores.

J.C. Penney also said last month that it will close three stores this spring, but that an ongoing evaluation of its store portfolio could result in additional store closures.

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