New York
CNN Business
—
When Marc Rosen got the top job offer at JCPenney last year, he didn’t hesitate.
JCPenney, a twentieth-century retail powerhouse for middle-class Americans looking for affordable clothing and home goods, struggled for more than a decade and collapsed in 2020 shortly after the Covid-19 pandemic.
But Rosen, a retail veteran who previously worked at Walmart and Levi’s, said he has “no personal hesitation” about reviving the 120-year-old brand and keeping JCPenney from disappearing like Barney’s, Lord & Taylor and Century. 21 and other indoor retailers.
“I believe I’m about to start a massive transformation,” Rosen, 54, told CNN Business in a video interview this month. “There was an opportunity to really take that brand and make it relevant again.”
Rosen bases his turnaround plan on appealing to “America’s diverse working families.”
The average income of a typical customer at JCPenney is between $50,000 and $75,000. About 30% of the retailer’s customers are Black, Indigenous and people of color, a larger share than many competitors, according to the company.
So JCPenney is chasing those shoppers with an overhauled beauty strategy after its longtime partnership with Sephora ended. It renovated the stores and added new mainstream brands and private label clothing and homeware labels. The company has also improved its technology and online experience to attract more online sales. Only a quarter of JCPenney’s sales are online, leaving its competitors behind.
Rosen said customers are now shopping more frequently at JCPenney, a first for the brand in years, and it has regained market share in key departments such as home goods. (JCPenney does not disclose sales publicly.)
But there are signs of pressure: According to data from Placer.ai, visits to all JCPenney stores were down 29% for the month of October compared to the same time a year ago. Traffic to JCPenney’s website in October was up just 1.26% from a year ago, according to SimilarWeb.
Now, a year into Rosen’s tenure, he faces the biggest challenge yet at JCPenney: holiday shopping. And it comes at an uncertain time for the U.S. economy and shoppers.
The company said it had a strong start to the holiday season. But JCPenney’s core customers are suffering from the highest inflation in 40 years and have shown signs of pulling back from discretionary goods, the bulk of what JCPenney sells.
Rosen must also shake off years of mismanagement and failed strategies at the company.
The company faces relentless pressure from larger retailers like Amazon ( AMZN ), Walmart ( WMT ) and Target ( TGT ). TJX ( TJX ), which owns TJMaxx and Marshalls, and other “off-price” retailers have undermined the department store model by selling designer brands at bargain prices.
“The future is going to be tough because it’s difficult for department stores to navigate even in the best of circumstances,” said Erin Schmidt, senior analyst at retail advisory and research firm Coresight Research. “The competition is really fierce.”
JCPenney began in 1902 as the Golden Rule, a dry goods store in Kemmerer, Wyoming.
Its founder, James Cash Penney, quickly expanded the business, and by 1917 there were 175 stores, later renamed JCPenney. By 1929, just before the stock market crashed and the Great Depression, JCPenney had 1,000 stores.
His stores were known for their cheap prices. Goods can only be purchased in cash, not on credit.
JCPenney survived the Depression, and by 1950 Fortune magazine declared the company the “King of Soft Goods.” Penny himself became known as the “Man of a Thousand Partners.”
When he died in 1971, JCPenney had more than 1,600 stores, many in newly built suburban malls, and was the fifth largest retailer in the United States.
But the company’s mid-market appeal was tested by increased competition in the 1980s and 1990s. Discount stores, including Walmart and Target, have stolen JCPenney’s budget-conscious customers.
The company was hit hard by the Great Recession in 2008. It lost shoppers to discount stores and struggled to win them back when the economy began to recover.
By the end of 2010, JCPenney’s sales were down 10% from 2006’s $20 billion level, and the company attracted the attention of hedge fund manager Bill Ackman. Ackman bought part of Penney and appointed Ron Johnson, a former head of Apple stores, as CEO.
Without first testing shoppers’ reactions, under Johnson’s leadership, JCPenney changed its advertising, logo and store designs.
The chain ditched its top private label brands with loyal followings and introduced new ones that matter less to its middle-income customers. And it ended coupons that alienated loyal shoppers.
JCPenney’s sales fell to $4.3 billion in 2012, down 25% from the previous year. Johnson left in 2013 after 17 months on the job.
The company went through several CEOs and strategies in the years that followed, and brought back devices for the first time in decades that didn’t resonate with customers. The company has been unprofitable every year since 2011, and sales have declined every year since 2015.
In May 2020, shortly after the Covid-19 pandemic began and JCPenney was forced to temporarily close stores, the company filed for bankruptcy after 118 years of operation.
At the time, JCPenney had more than 800 stores and 85,000 employees.
JCPenney today has about 670 stores and is debt-free for the first time in years.
The company is owned by shopping center owners Simon Property Group (SPG) and Brookfield Asset Management (BAM). The two firms rescued JCPenney from bankruptcy in the fall of 2020 for $1.75 billion. That was their interest. JCPenney was a major tenant in hundreds of malls, and the liquidation would leave their malls vacant.
During the bankruptcy process, JCPenney restructured its debt and closed more than 200 stores.
JCPenney now has the financial flexibility to invest in improving its technology, supply chain and renovating stores under new owners, Rosen said.
“That alignment with ownership is critical, especially when you’re going through a transformation that requires significant investment,” he said.
Instead of driving away new shoppers, as several of Rosen’s predecessors had tried to do, he built a strategy aimed at persuading existing budget-conscious customers to visit more often and buy a wider variety of items at JCPenney instead of other stores.
The company tries to emphasize goods and services, such as hair salons and family portrait offerings, that resonate with mainstream working-class families. Teachers are the number one occupation among their customers, so JCPenney is focused on providing clothing they want to wear to work in stores.
JCPenney’s 14-year partnership with Sephora ended in 2020 and began replacing many Sephora stores with new beauty departments. About 20% of the new beauty products come from a partnership with Thirteen Lune, an e-commerce company that offers brands created by color creators.
“Customers want to see brands that were brought to them by the founders of Brown and Black, and they want to see brands that look good on their skin types,” Rosen said.
Retail experts say JCPenney is improving under Rosen’s leadership, and its strategy to target customers different from its competitors is smart. The stores are better lit than they were before the bankruptcy, and the best salesmen are again selling for the company.
“A lot of people in the industry wrote them off,” said David Katz, chief marketing officer of Randa Apparel & Accessories, which makes Levi’s, Dockers, Haggar and other brands. “Today they are good partners. We are giving them more financial credit than before. We are developing more products for them because we are confident that they can sell the product effectively.”
Still, JCPenney faces both short-term challenges and long-term questions about its survival.
Inflation is squeezing customers, especially middle-income shoppers. It’s not the only retailer facing this problem — Kohl’s said last week that its middle-income customers are buying fewer products when they shop and are switching to private brands.
More JCPenney customers are buying the company’s lowest-priced products and switching to its cheaper private brands, Rosen said. The company will sell some of its products during the holidays, including St. John’s Bay also plans to offer cable sweaters at 2019 prices.
The bigger question remains whether there is room for JCPenney in the changing era of retail and whether it can attract younger customers.
Fierce competition has affected the entire department store landscape, including Kohl’s ( KSS ), Nordstrom ( JWN ), and Macy’s ( M ).
Coresight’s Schmidt said JCPenney can’t rely on winning more business from existing shoppers who only have limited discretionary ability. The chain also needs to attract new customers. But gaining new customers has never been so difficult.
“They’re doing really well in terms of their position,” Schmidt said. “But the department store is a difficult place. It will be a difficult road.”