How J.C. Penney is making stores earn their keep

J.C. Penney Co. Inc. is serious about making its e-commerce work in concert with its stores.

“Omnichannel is not a catchphrase at J.C. Penney,” said CEO Marvin Ellison last week during a conference call with analysts. “It is a strategic process.”

The department store chain released earnings and other measurements that appear to show its omnichannel strategy is working. While J.C. Penney does not break out online sales from total sales, it said digital and stores sales were both in positive territory in Q2.

“We are committed to becoming a world-class omnichannel retailer, and we’re very pleased with our growth and improved functionality,” Ellison said. “This was evident in the second quarter as we delivered another significant increase in our digital business.” The retailer provided no other figures on web sales growth.

Total sales grew 1.4% to $2.92 billion from $2.88 billion, and comparable store sales were up 2.2%. While still the red with a net loss of $54 million in the quarter, it is half the loss it posted a year earlier. Ellison has cut losses quarter over quarter since taking over as CEO one year ago. J.C. Penney is No. 33 in theInternet Retailer 2016 Top 500 Guide.

Ellison said more than 50% of JCP.com orders go through stores in some way. This includes products ordered from within the store, goods bought online but returned to the store, goods shipped from store inventory to an online customer and orders being placed online for pick up at a J.C. Penney store, which is available at all J.C. Penney stores. (The retailer operated 1,021 stores as of Jan. 30.) When a customer orders online and goes to Penney’s to pick up the order, 40% now buy another product during the trip—that’s an improvement from the 20% rate Penney’s said it had during the first quarter of 2015. Penney’s does encourage that behavior. When an online customer places an order for in-store pickup, the email confirmation regularly includes a percentage-off coupon she can redeem when picking up the web order.

Other omnichannel improvements during the quarter were the chain-wide roll out of same-day pickup for online orders—J.C. Penney says it has 16,000 SKUs available for same-day pick up—and the addition of major appliances for sale online and in 200-plus stores. The retailer first debuted the 1,200 appliance SKUs on JCP.com in May, before they were available in stores. “I am pleased to say that our appliance sales in-store and online are exceeding our expectations,” Ellison said. It plans on having appliances available in 500 stores this fall.

Ellison and chief financial officer Edward Record emphasized the online/store mix and how the two play into J.C. Penney’s plans. Online sales cost J.C. Penney more than store sales due to shipping expenses, Record said, which cuts into margin. The benefit of getting customers to come to the store to pick up their online order is twofold: Penney’s preserves more margin by not having to pay to ship the order to the consumer’s home, plus Penney’s gets foot traffic in the store, where the consumer is increasingly likely to buy something else. For the online customer who wants their order delivered, the retailer is now fulfilling online orders from 250 stores in addition to its three online fulfillment centers. Using stores as fulfillment centers can mean a shorter delivery time and cheaper shipping fees for J.C. Penney.

“Any brick-and-mortar retailer that thinks they can go head-to-head with a pure-play e-commerce company by simply doing it online, I think is in for a rude awakening,” Ellison said, pointing to the need for retailers to leverage store assets to reduce delivery costs and drive foot traffic. “We’re going to continue to scrutinize the number of stores. But if we believe a store can be a strategic initiative to help us to get products to customer faster, it will stay within our portfolio. If we believe that store is insignificant or doesn’t add any value to our strategic vision of getting products to our customers fast and at a great value, then those stores are no longer going to be around.”

From Internet Retailer