BIZ JCPENNEY-DIGITALSTRATEGY 2 DA

The J.C. Penney store in Frisco, Texas.

Louis DeLuca

Mike Amend likes to say he heads a startup inside 115-year-old J.C. Penney.

The division he leads as executive vice president of omnichannel is housed in newly converted space inside Penney’s suburban Dallas headquarters. The gray fabric cubicles are all gone.

Amend, 39, with a LinkedIn profile summary that includes “Future CEO,” has a standing desk on one side of the large, open office. It’s staffed with rows of data scientists, site reliability engineers, page designers and product managers. Upholstered furniture settings are mixed in for small groups to meet. There are phone rooms for private calls.

Another large, L-shaped space has glass walls, whiteboards and the department’s only large conference table. Around the corner are foosball and indoor basketball table games.

The setting “releases our capabilities,” Amend said, and matches a new workflow with empowered teams completing two-week implementations of decisions that are driven by data. “Sure, we still have one-, two- and three-year visions and strategies, but we have to break up the execution into chunks.”

Having a strong digital platform is even more important as Penney has been closing stores. CEO Marvin Ellison has said more stores could close. But for now, Penney still has a large fleet of 875 stores, and those locations have been immersed in the online business.

Amend spoke confidently about progress in Penney’s online operation during interviews last month, at about the same time Amazon.com and Sears were announcing they’ve partnered to sell Kenmore appliances. Just a year ago, Penney started selling 1,200 GE, LG and Samsung kitchen and laundry appliances, first online and then in 600 stores.

In a second punch, Nike confirmed that it’s partnering with Amazon on a limited assortment. Penney expanded its Nike merchandise earlier this year and carved out 500 square feet of prominent space in 600 of its stores for Nike men’s shops. Then Amazon offered to buy items in high demand from tens of thousands of its third-party merchants and U.S. retailers for full price. Amazon confirmed to CNBC that it made the offer because it wants to be able to deliver those goods faster from its own warehouses.

Asked about the daily barrage of new challenges, Amend said niches of competition are constantly springing up. Penney is in the mattress business fighting with new online-only sellers Casper and Helix, “just two of so many home goods competitors,” he said.

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“There are hundreds of millions of customers out there. We focus on our customers, and we’re not trying to be Amazon. They are doing interesting things and having success,” Amend said, “but we have a huge customer base, and we can serve them better and get more of their wallet.”

And Penney customers may not fit the typical high-income customer profile of an Amazon Prime member, he said.

Research from comScore tells Penney that it has one of the lowest customer overlaps with Prime members of any mass retailer and department store.

Penney had sales of $12.5 billion last year, proof that there’s a Penney customer out there. One competitor Amend doesn’t name, but is obviously Sears, still has a lot of customers, too, that are up for grabs as Sears accelerates its store closings. Sears is on every analyst’s list to go bankrupt soon and has been shrinking for more than a decade. Last year, Sears had retail sales of $19.2 billion.

“Our customers have household incomes of $60,000 to $90,000, and they tend to be hardworking, two-income families living both in rural and urban settings,” Amend said. “They don’t have the discretionary income to commit to membership fees.”

In June at a Piper Jaffray conference, Ellison said it was important to state clearly where Penney stood.

“There was no retailer our size as behind the curve on e-commerce and omnichannel,” Ellison said. “We were woefully behind in every respect.”

Ellison brought in Amend, Mike Robbins as executive vice president of supply chain and Therace Risch as chief information officer. Amend had worked with Ellison at Home Depot. Amend was vice president of online, mobile and omnichannel when the home improvement’s online sales grew to $3 billion and Home Depot received industry accolades for building its online business.

In 2015, still stabilizing its business from a failed attempt to reinvent the department store by former CEO Ron Johnson, Penney lacked a basic online shopping service: buy online and pick up in stores. That was just added a year ago.

“That’s table stakes,” Amend said, a poker term that’s come to mean the minimum a business needs to be in the game.

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Penney is still catching up.

Last month, Penney added the ability to ship from all its stores, which immediately made about $1 billion of store inventory available to online customers and cut the distance between customer and delivery.

About 80 percent of a store’s existing inventory is eligible for free same-day pickup.

In July, it offered free shipping to stores with no minimum purchase. Large items like refrigerators and trampolines are excluded.

JCPenney.com now stocks four times the assortment found in its largest store by partnering with other brands and manufacturers. More than 50 percent of its online assortment is drop-shipped by suppliers and doesn’t go through Penney’s distribution. Categories added range from bathroom and kitchen hardware to sporting goods, pets and toys.

JCPenney.com now has one web experience regardless of the screen: phone, tablet or desktop.

Its new mobile app and wallet include Penney’s new upgraded rewards program. Customers can book salon appointments on it. The in-store mode has a price-check scanner.

“Marvin talks about the art and science of retail. When I started working here, the art was someone’s opinion without the data,” Amend said.

Besides changing the way employees in the online operation work, Penney set out to “democratize access to the data,” so that not only the technical staff could understand it, he said. “It was a pain to get someone to give you access to the data.”

Research from comScore tells Penney that it has one of the lowest customer overlaps with Prime members of any mass retailer and department store.

Now dashboards and heat maps allow the artful side of the business — the merchants — to measure such things as sales to in-stock levels or pricing to customer behavior, Amend said. “And these are thought of as company sales, not online sales and store sales, just J.C. Penney customers.”

New merchandise is being added weekly, including expanded sizes. Penney believes it can serve big and tall and plus-sized customers by giving them a reliable fit with its private and exclusive brands.

Penney, which used to sell bicycles year-round, has added them back. People are looking for one-stop shopping online, too, Amend said. It works well with its new Rewards program to have more items people can buy to earn points.

“Culturally, we had to figure out how do you operate a 115-year-old company in a digital era?” Amend said. “We’ve moved from a traditional retailer to a more technology-centered organization.”

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