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JCP’s Silver Lining: Online Sales Surging

Beleaguered retailer JC Penney (JCP) is long overdue for some good news and it seems to finally have arrived. July e-commerce sales are surging, up 14 percent higher than last year’s second quarter.

Much of this success has been the result of reversing a strategy of keeping online and in-store merchandise separate. CEO Mike Ullman explained, “We dropped about $0.5 billion in Internet sales last year by disconnecting the merchandize assortments from the online assortments so the fact that they were not congruent made it very difficult for store associates to access online to get additional merchandize for their customer or to put that on order. By reconnecting and realigning the merchandize assortments, the business popped almost immediately.”

The new reintegration has apparently been the driving factor behind JCP.com’s over achievement. Ullman continued, “We have re-integrated store and online buying, planning and allocation and improved our merchandize assortment and in-stock levels across sizes and styles, and we have reconfigured many of the user interfaces to make it easier to shop.”

And this is especially welcomed good news following JCP’s recent second quarter showing. JCP reported a monumental $586 million loss for the second quarter ending August 3rd, widespread attention has turned to the company’s overall financial profile. Fears about the company’s creditworthiness already swirled about the industry last July when factoring firm CIT placed a considerable basket of orders on hold, ostensibly worried about its cash flow.

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JCP’s gross margins have been particularly worrisome. Over the second quarter, JCP’s gross margin nose-dived to 29.6% from 33.2%. One credit analyst surmised that JCP could likely improve its standing by as much as 100 basis points over the next quarter given the proper strategy. “Penney’s can do that by loading up the inventory to drive sales. I feel pretty comfortable about the direction they’re heading in,” he said.

William Susman, founder of the research firm Threadstone partners, gave a more wary appraisal. “JCP is a capital-intensive turnaround with limited current liquidity. The vendor base has no choice but to sell them. However, they are out of the mall and in neverland if they believe they will make their margins,” he said.

Still, JCP has focused on revamping its previously neglected online presence. Part of this approach requires a deep overhaul of its business software. Ullman spoke to this commitment: “We have not stepped back from the enterprise software improvements. We replaced our 40-year-old general ledger in the last quarter, so we’re making improvements that will help us run the business, but we’re not trying to win awards for the most exotic technology in a store.”

Nevertheless, Ullman tempered his enthusiasm with a touch of pragmatism. He conceded, “We actually attracted fewer new customers in 2012 than any of the other previous 10 years. We actually lost more customers than we gained.The road to a recovery will be a long one and the obstacles for JCP are many. We have a damaged and impaired business that we’re turning around.”