Fine Jewelry Fuels J.C. Penney Comp Jump

Fine jewelry sales helped lead J.C. Penney to a healthy 4.1 percent comp increase in its second quarter, as its new CEO pledged to focus on omnichannel, private brands, and the “science of retailing.”

The company reported net sales of $2.88 billion, compared to $2.8 billion the prior year. It still posted a $138 million loss for the quarter (ended Aug. 1), which represents a 20 percent improvement over last year’s loss.

A statement singled out fine jewelry as a best seller, along with Sephora, men’s, and home. All regions experienced sales growth with the western and central regions faring best. The company expects that comps will continue to rise in the 4–5 percent range for the rest of the year.

In a conference call following the release of its financial results, new CEO Marvin Ellison ticked off his three main strategic priorities: refocusing on Penney private-label brands, becoming a “world-class omnichannel retailer,” and increasing per-customer revenue.

Private-label products “provide us with differentiation and also allow us to grow our gross margins while eliminating any potential showrooming from pure-play online retail competition,” he added. 

Penney is also charging at top speed into the new clicks-and-bricks world, Ellison said, while admitting that Penney has so far lagged behind other retailers in omnichannel.

“We are probably one of the few national retailers left that can’t execute ‘buy it online, pick it up on store,’” he said.

Ellison noted the chain just hired its first-ever executive vice president of omnichannel and argued that the company’s network of stores will prove a competitive advantage.

“I remember years ago when many experts talked about how brick-and-mortar retailers would be at a significant disadvantage to pure-play online retailers,” he said. “Now the sentiment has changed.… [Having stores] used for fulfillment creates a more real-time, same-day chance to get close to the customer.”

Another advantage: its background as a catalog retailer. 

“Many retailers ramping up to an omnichannel world have to spend significant capital expenditures to build distribution centers,” he said. “Because we are a former catalog retailer, we already have the supply chain infrastructure in place to leverage.” 

As far as room for improvement, “We need work on what I call the science of retailing,” Ellison said. “Our size optimization is not good, our replenishment and flowback is not efficient. We have significant improvements to make on the supply chain to lower costs and increase efficiency. We have to make sure our marketing is less broad, more one-to-one, which is more cost-efficient and creates a higher return on ad spend.”

The company will also lean more on pricing analytics. 

“We have a huge opportunity with the modernization of our pricing strategy,” he said. “We do pricing the old-fashioned way, and we are going to modernize that.”

Still, the company will remain promotional, Ellison said, taking a swipe at the no-discount strategy instituted by former CEO Ron Johnson.

“If we learned anything from the failed strategy [of the past], this is a promotional space that we are in, and we are going to have to compete,” he said.

He told an analyst that before he took the job, he traveled around the company and visited Penney stores. 

“The Penney I remember was a little tired and a little worn,” he said. “The stores looked really good.… I am very proud of the overall aesthetics of the stores.” 

When asked about competing retailers phasing out minimum wage, Ellison said that no associate at the company is currently paid minimum wage, and the company is trying to keep salaries competitive. 

JCK News Director