J.C. Penney has always been the go-to place where Americans shopped for affordable clothing for their family.
But the Plano, Texas-based department store chain announced Friday that it must reduce its dependency on clothing and follow where the shoppers are spending their money: services and other products like appliances.
While part of the move has to do with being less reliant on Mother Nature, Penney is waking up to the overall seismic shift in consumer spending that is started to wreak havoc on mall-based retailers.
It comes as Penney reported an unexpected drop in sales for the first quarter, joining a chorus of major department stores including Macy’s, Nordstrom and Kohl’s that reported weak first-quarter sales results.
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The latest government figures on retail sales for April, released Friday, underscored that shift. Gains were fueled by online spending and automobile purchases.
“We look at our categories, and we look at what customers are spending,” Marvin Ellison, CEO of J.C. Penney told investors Friday. “You heard the data all week. Entertainment, it’s experiences, it’s home beautification. So we’re listening. We’re addressing those customers’ needs.”
Ellison told investors that it’s conducting a detailed review of its customers’ current and future shopping habits and will start to shift its merchandising mix accordingly.
The new approach comes as J.C. Penney Co. is still clawing its way back after a catastrophic reinvention plan under former CEO Ron Johnson sent sales and profits into a free fall in 2012 and 2013. Business had stabilized, though it has yet to fully recover.
Under Ellison, the department store is looking for new ways to increase sales while playing catch up in e-commerce. One area that it’s betting on is appliances.
Penney is getting back in the appliance business in nearly 500 stores, almost half of the locations, this summer. Penney got out of the major appliance business more than 30 years ago. That could be a big opportunity.
Ellison said one third of its appliance customers are new, based on a pilot program, and the overall average transaction in appliances is $1,200. Stores like Home Depot have avoided the retail funk thanks to a strong housing market.
Penney is also expanding its Sephora beauty shops and is updating its beauty salons now branded Salon by InStyle.
A challenging environment in other areas of retail, however, could stall any momentum J.C. Penney has.
The department store chain reported a 0.4 percent decline in same-store sale stores open for at least a year reversing five straight quarters of growth. Analysts had expected an increase of about 3 percent.
The company lost $68 million, or 22 cents per share, for the three-month period ended April 30. That compares with a loss of $150 million, or 49 cents per share, in the year-ago period.
Revenue dropped 1.6 percent to $2.81 billion.
Analysts were expecting a loss of 38 cents on revenue of $2.92 billion, according to FactSet.
Penney still expects same-store sales to rise 3 percent to 4 percent for the year. Ellison told analysts on the conference call that strong sales over Mother’s Day provided confidence to keep its outlook intact.
But it pared its gross margin estimates for 2016 due to the expenses it will occur in the rollout of its appliance business, and also rapid growth for its online business.
Penney shares slipped 22 cents, or 2.8 percent, to close at $7.58. They had fallen as low as $7.31 in morning trading and as high as $7.97 Friday. They are down more than 13 percent since a year ago.
Date: May 13, 2016