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How Retail Contraction Has Sparked a War for Market Share

The headlines fixated on the number of retail stores that are closing are only telling half the story. With every darkened door, there’s opportunity for a still-viable competitor to scoop up share. And J.C. Penney and Macy’s, in particular, are actively working to ensure abandoned shoppers turn to them in the future.

While Jill Soltau, J.C. Penney’s new CEO, is focused on a variety of initiatives like rightsizing inventories and creating a better customer experience, what ultimately may help JCP more than anything is the ongoing retail contraction.

The retailer has long been preparing for a post-Sears environment. At the beginning of this year, former chief executive Marvin Ellison boldly stated the company had Sears’ home business in its sights. Penney’s ramped up its appliance offering, rolling out showrooms in 600 stores, and added home improvement services to key locations.

Now, even with Sears on the ropes, the current team is questioning that bullish move into home. And the performance of the sector in the third quarter could be adding to those doubts. Appliances was one of three categories—along with women’s accessories and handbags—that reportedly performed well below the company comp.

While it may be too soon to know just how much business J.C. Penney could capture from Sears, the company is also actively pursuing the holes left by Toys R Us. With TRU gone, Babies R Us also left the market—and left behind loads of expectant parents and the excited gift-givers orbiting them. Trent Kruse, JCP’s senior vice president of treasury, investor relations and credit, said the baby category has had “nice results in of late,” which he attributes to his competitor’s exit.

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The second opportunity is in toys, a department JCP resurrected in its stores during the 2016 holidays. Based on positive consumer response, the company soon decided to roll playthings out to all doors.

Now that TRU is gone, the department store chain has added 40 percent more toys to its assortment for the fourth quarter.

While only Q4 results will reveal whether the strategy was a good one, the retailer has already seen a lift from another retail bankruptcy that led to liquidation.

“We did see strong results in our stores that were previously co-tenant with Bon-Ton,” said Soltau. “We believe this bodes well and speaks to the overall market share opportunities that exist from competitor closing.”

The uptick in Bon-Ton-adjacent stores has been “pretty universal,” according to Kruse.

“I would say some of the more branded assortments in apparel are probably some of the bright spots… We obviously carry some of those key national brands as well,” he said.

Overlap with Bon-Ton merchandise is also giving Macy’s a boost, while the Sears bankruptcy has largely been a non-event for the chain.

“We have been dealing with Sears for a number of years as their businesses declined or as they have dropped out of particular malls. And as you would’ve probably expected, we have very little customer overlap with Sears. So, I don’t see that affecting us much,” said CEO Jeff Gennette.

He said Bon-Ton’s exit from the Midwest market has been another story.

“Some of our strongest districts have been in those districts that competed against Bon-Ton. And when you think about the arsenal of products that Bon-Ton carried, the brands and the categories, Macy’s you would expect to be a recipient of that,” he said.

Gennette said his department store has been “aggressive” about courting former Bon-Ton shoppers as well as some of its beloved employees.

“So that customer wouldn’t be disappointed with losing that competitor out of that market and figuring out this is a place where you can come and get either continuation of the sales colleague that you enjoyed when you are in another location or a brand that you are used to seeing,” Gennette said.