JC Penney to Close Up to 140 Stores, Focus on Growth Strategy

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JC Penney is trimming down to focus on creating physical stores that can compete in a digital world.

JC Penney hit a milestone in the fourth quarter of 2016, reaching profitability for the first time since 2010. This announcement, however, was balanced against news that the company will close 130 to 140 stores this year.

The company’s plan follows in the footsteps of other department stores, but the retailer sees a way forward through its ongoing growth initiatives, which include beauty, home, omnichannel, a new pricing strategy and improving women’s wear. JC Penney plans to expand on these plans for 2017, and says closing stores will allow it to do so.

“Our decision to close 130-140 stores will allow us to raise our overall brand and standard of JCP and allocate capitol more efficiently to a smaller base of stores This will also allow us to implement our growth initiatives to a larger percent of our stores,” said Marvin R. Ellison, chairman and chief executive officer.

The store closures represent between 13 and 14 percent of the company’s retail portfolio and less than 5 percent of annual sales. The closures will save the chain about $200 million. The company plans to funnel the savings into improving the customer experience in the remaining stores. With more appealing stores, it feels it can become a destination for shoppers, insulating it from online competitors.

Ellison said the company’s plan to shutter doors coincides with its early retirement program, which will open up 6,000 jobs that displaced employees could fill.

Under the new initiatives, JC Penney will capitalize on the significant comp sales growth that Sephora represents by opening 70 new shop-in-shops in 2017 and expand 30 more. It says Sephora, along with its salon, represent an experience that ecommerce can’t provide.

Based on the strong performance in its 500 appliance showrooms, JCP will open 100 more in early 2017. It will also test home installation services like HVAC, a move it feels will attract its customers, 70 percent of whom are female and homeowners.

Omnichannel will remain a focus, as the company increases online SKUs by 140 percent in the first quarter. And thanks to offerings like buy online, pick up in store, 77 percent of online shoppers also visited a physical store in 2016.

In terms of pricing, the company has tested, and will more fully implement, its data-driven approach to setting prices this year.

Finally, the company has a multi-pronged approach to addressing its issues with women’s wear. It includes, expanding its Nike and Adidas activewear selections, focusing on the “underserved” plus-size market, which includes adding swimwear to this category, and ramping up speed to market.

“We are pleased that in the face of a very challenging 2016 retail environment we delivered our first positive net income since 2010. As recent as 2013, JC Penney reported a net loss of nearly $1.3 billion, or ($5.13) per share, and negative EBITDA of $641 million. This year, we delivered positive net income and generated EBITDA of over $1 billion,” said Ellison

For the quarter ended January 28, 2017, the company reported net sales of $4 billion, with comp store sales slipping 0.7 percent. The company acknowledged weak sales at the beginning of the quarter which dragged down a strong performance in the 6-week holiday period. JCP was pleased with double digit growth in online sales for the quarter but says aggressive promotions both online and off were “poor decisions,” which “eroded gross margin while providing limited top line sales.” Gross margin for the period dropped 100 basis points to 33.1 percent of sales.

Net sales for the year slid 0.6 percent to $12.5 billion, with flat comp store sales.

Gross margin dropped 30 basis points to 35.7 percent.

JC Penney’s guidance for 2017 takes into account the store closures. The company expects comp store sales to drop 1 percent or rise by 1 percent. It says, gross margin will rise 20 to 40 basis points.


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