J.C. Penney Turnaround Faces Big Test with Home Goods Relaunch
Ben Torres/Bloomberg via Getty Images
By Phil Wahba

J.C. Penney (JCP) is about to undo the centerpiece of former Chief Executive Officer Ron Johnson's failed vision to take the retailer upmarket.

On Thursday, the department store chain is relaunching its home goods sections. It has brought back many of the more affordable, no-frills brands the former Apple (AAPL) executive ditched and reduced the space given to trendier brands he thought would bring in new shoppers.

Penney is trying to rebuild its home business by offering more lower priced items, more in-house brands and additional floor space for basics like towels and comforters. The retailer wants to recapture former clients and go head to head with rivals such as Target (TGT) and Kohl's (KSS).

Fixing the home business is crucial to J.C. Penney's fledgling turnaround, both in-store and online, where it generates half of jcp.com's sales.

"Home is a traffic driver for the whole store," said Jan Hodges, senior vice president in charge of Penney's home goods business. Store visits fell 17 percent during Johnson's term and continued to slip in 2013.

The company, once a leader in the sector, saw sales of home goods plummet to about $1.3 billion in 2013 from $4.2 billion seven years earlier.

In 2006, home products generated about 20 percent of Penney sales, on par with rivals Macy's (M), Kohl's and Target Last year, they were about 12 percent.

To be sure, some of the decline stemmed from its decision to get rid of its catalog order business in 2011, but most of it was from misreading its customers.

Initial reaction has been positive. Citigroup (C) upgraded the stock Tuesday because it expects the new home sections will lift sales. J.C. Penney shares have risen since it gave an upbeat 2014 forecast last month but are still 55 percent below a yearly high hit last May.

"They went astray when they brought in $10 cake mix," said Kathy Gersch, a former department store executive and co-founder of Kotter International, a consulting firm that helps companies implement strategies. "The question remains whether they can get that customer back."

Penney will have to win back shoppers who drifted to competitors. At HomeGoods, owned by TJX Cos. (TJX), sales nearly doubled to $2.8 billion between 2007 and last year, while Target and Kohl's saw steady growth.

Customers Remain Frugal

Adding to the challenge is that many of J.C. Penney's price-conscious shoppers remain reluctant to spend on extras. Euromonitor International also expects the $97 billion U.S. furniture and home furnishings market to grow only 2 percent per year in the next five years.

Investors are hopeful that current Chief Executive Myron Ullman,
who first led the company between 2004 and 2011, can recover from the mistakes made by his predecessor.

Johnson, CEO for 17 months before being fired, convinced the chain to spend hundreds of millions last year remodeling its 600 largest stores, including new home sections with brand "shops," and lost hundreds of millions more in sales from disruption during renovations.

The revamping of the home sections didn't cost much, Hodges said, and J.C. Penney will continue to offer popular brands like Calphalon while expanding its offerings of other national brands, like Royal Velvet bedding and bath towels. The company also plans to keep the uncluttered look Johnson backed.

But J.C. Penney is also bringing back lower-priced in-house brands such as Cooks cookware, that Johnson eliminated, and adding bedding, bath and luggage under its Liz Claiborne brand.

Private brands could boost profits because they have a gross profit margin 5 percentage points higher than national brands.

Home Re-Launch 2.0

On the floor of the J.C. Penney store in Elmhurst, N.Y., last week, ahead of the launch, there were six beds rather than three a year ago, so Penney showcased a wider array of pillows, sheets and comforters. J.C. Penney has put out more mock-up windows fully dressed with blinds.

J.C. Penney is returning to a 60-40 percentage split in favor of soft goods, like bedding and bath products, over hard goods like small appliances since they are more profitable, Hodges said.

J.C. Penney is re-purposing shops that previously housed the Michael Graves and Martha Celebrations brands to showcase juicers and blenders, hot items now. The Graves and Stewart products will be displayed with other items in a given category.

By summer, J.C. Penney will also re-jig its furniture selection, significantly paring the modern furniture assortment that flopped with its shoppers, in favor of a return to traditional furniture.

"Patience still needs to be the prime virtue for Penney investors when it comes to home," Sterne Agee analyst Chuck Grom said in a research note Wednesday.


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10 Comments

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alfredschrader

Poor JC Penney they keep going through CEOs like paper towel sheets.
It's not management, the marketplace is changing. The good paying middle class manufacturing jobs are gone. Service sector workers can't buy nor need a three piece suit.
The thrift stores are everywhere, even dollar stores are selling clothing and towels.

March 13 2014 at 1:24 PM Report abuse rate up rate down Reply
Kim

I stopped shopping JCP when they stopped stocking for middle age women with a little weight-they used to have such pretty dresses, coats etc. And when I wanted something not carried in the store I was always able to find it through their catalog-my octagon shaped dining room rug; as one example. I have gone back in twice only to turn around and leave. They not only did not carry any clothing for someone like me, their shoe department had little to offer either.

March 13 2014 at 11:58 AM Report abuse +1 rate up rate down Reply
Mark Lukas

If they had been successful with the old products, they wouldn't have had to experiment with new products. Somehow this does not sound like a receipe for success.

March 13 2014 at 11:52 AM Report abuse +1 rate up rate down Reply
shani55867

Always loved Penney's for good quality kids clothig & the best curtain dept!

March 13 2014 at 11:49 AM Report abuse +1 rate up rate down Reply
tylrkitkat

If they will bring back some of their old ways and products, they will be great again. I loved my old JCP before the Apple Idiot ruined it. They need to bring back more of the bedding and towel stuff. I hate the crap they have now and there is no selection. Its either the 4 things they have or nothing. Getting back to the old home dept. will help them alot! Bring back my Penney's!

March 13 2014 at 11:25 AM Report abuse +1 rate up rate down Reply
SandPalm9

I cut up my JC Penny's credit card when Mr. Hot Shot took over and stripped the store of outstanding merchandise. I furnished my new home with JC Penny products but will not go back...

March 13 2014 at 11:22 AM Report abuse rate up rate down Reply
deharleyva

I love JCP. I hope they do not go out of business.

March 13 2014 at 11:09 AM Report abuse +1 rate up rate down Reply
SPQR

They need to check out the old suppliers to Fields and offer some better quality products. We already have walmart. Homegoods is mostly just junk but they get the cheap crowd and they have better locations than Pennys

March 13 2014 at 10:47 AM Report abuse +1 rate up rate down Reply
nancy

Dear JCP,

It may sound simple, but when you quit carrying the Cabin Creek line, I quit coming. I worked for 22 years in a job with little clothing restraints, but I found that the Cabin Creek line was easy care, well sized so that I could order from a catalogue and be assured of great fit, quality products and reasonably priced. Please bring it back, I'll bet there are a lot more customers you would regain......

March 13 2014 at 10:40 AM Report abuse +1 rate up rate down Reply
________________

JCP needs to ditch all the Martha Stewart brands. During the holidays, I did not buy a single thing, ornaments or anything because they were all" Martha Stewart" brand items. Do not try to force us to buy Martha Stewart goods by "NOT" offering other brands in some areas, it will not happen with me. However I just purchased an affordable quality bedding set in the store, that had matching lined drapes (online), that were definitely NOT Martha Stewart brand. So please listen to your customers, let her go back to KMart, or if Macy's want to keep her, let her stay there, do not push her on your valued JCP customers!!

March 13 2014 at 9:58 AM Report abuse +1 rate up rate down Reply