Amid its efforts to restructure its business, J.C. Penney is embracing a new path to get there: resale.
The mass chain under new leadership managed to narrow its second-quarter loss and enter the back half with a clean inventory position, and chief executive officer Jill Soltau is rebuilding the business model to include online resale platform ThredUp. Macy’s Inc. also recently partnered with the recommerce company, proving just how important the resale market has become to retailers hoping to lure more younger consumers into stores.
In a Nutshell: “While we still have work to do on our topline, I strongly believe that growing sales in an unprofitable way is simply not an option. The only way I know how to reconstruct a business, is through a holistic approach across all the key tenets of strategic, purposeful and effective retailing.”
In that vein, the company is looking at new ideas to bring to its stores, starting with the ThredUp partnership.
Thirty ThredUp shops will find their way into J.C. Penney stores offering secondhand women’s apparel and handbags. Each ThredUp shop, which will range between 500 to 1,000 square feet in size, will be curated and refreshed weekly, beginning this week. Shoppers who make purchases at ThredUp shops in J.C. Penney stores can use existing promotional offers to maximize their savings, and the purchases are also eligible to earn J.C. Penney Rewards.
Michelle Wlazlo, executive vice president and chief merchant for J.C. Penney, noted the “emotional thrill” consumers get with finding one-of-a-kind secondhand product for less. “While there are more secondhand shoppers than ever before, we’ll continue to test and evaluate how this resonates with customers. We’re excited about the prospect of creating a new in-store experience that makes high-end brands attainable, as well as catering to eco-minded consumers who want more sustainable options in their wardrobe.”
Soltau also noted that the company has been proactive in developing contingencies for sourcing of its private brands for nearly a decade, which has helped reduce exposure to China. She said there has been “minimal impact” from the tariff tranches that are already in place, and the teams “continue to work through derisking efforts.”
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The CEO spoke about testing ideas driven by customer insight, and cited one example in the women’s apparel fitting rooms called the “styling room.” The fitting rooms were enhanced to create a bright and fun space, with digital billboards and mannequins positioned nearby to show trend-right merchandise. There’s also a stylist in the area to provide customers with personalized one-on-one service, Soltau said, adding that the “basket size was significantly larger for the customers shopping in this area.”
Net Sales: For the second-quarter ended Aug. 3, total revenues fell 7.4 percent to $2.62 billion from $2.83 billion, which include a net sales decline of 9.2 percent to $2.51 billion from $2.76 billion. The company said comparable sales fell 9 percent for the quarter, but only 6 percent on an adjusted basis that excludes the impact of the retailer’s exit from major appliance and in-store furniture categories.
Dana Telsey at Telsey Advisory Group, said that while J.C. Penney is still challenged, the retailer “showed some encouraging signs of improvement.” She cited the retailer’s gross margin improvement, up 312 basis points to 36.8 percent, due to lower permanent markdowns and improved shrink rates. The analyst also noted that inventory was down 12.5 percent year-over-year, which she described as a “clean position.”
Earnings: The company narrowed its loss to $48 million, or 15 cents a diluted share, from a net loss of $101 million, or 32 cents, a year ago. On an adjusted basis, the net loss was 18 cents a share.
Wall Street was expecting a loss of 31 cents on revenue of $2.69 billion.
J.C. Penney said it ended the quarter with $1.7 billion in liquidity, and “no outstanding borrowings under its revolving credit facility. The company expects liquidity to be at least $1.5 billion for the remainder of the year.”
For full year fiscal 2019, J.C. Penney guided comparable sales to be in the range of down 7 percent to 8 percent, or down 5 percent to 6 percent adjusted to excluded the impact from major appliance and in-store furniture categories. Earnings before interest, taxes, depreciation and amortization were guided to the range of $440 million to $475 million.
CEO’s Take: Soltau said the company “reduced inventory by 12.5 percent as we continue to reinstate the discipline required to improve inventory management and productivity. Delivering on our customers’ expectations relies heavily on our vendors and the portfolio of brands we offer. The ongoing dialogues and interactions we are having with our vendors are strong and positive–they are equally excited about our direction and are bringing new ideas and innovating with us.”
The company, she said, is “laser-focused on two parallel paths. One is building a framework to reestablish the practices needed to strengthen the day-to-day operations of our business. Concurrently, we are developing differentiating, transformational initiatives. The journey we are on will restore health back into our company….We are not simply running a business–we are rebuilding a business.”