BY LAURA HELLER
The news coming out of JCPenney (JCP) is bad and keeps getting weirder -- the exit of President Michael Francis after a mere eight months is just the most recent example. But as the retailer continues down a path set by former Apple (AAPL) retail chief Ron Johnson, perhaps it’s time to stop merely looking at JCPenney in a vacuum and size the company up versus its competitors.
Sure, to date Johnson’s strategy of ending constant sales and switching to every day low prices makes JCPenney look like its own worst enemy.
The company has lost half its value since its peak in January when new Johnson announced JCPenney’s new strategy. It sounded pretty good to the market at the time.
Then came the disastrous first quarter results:
JCP Profit Margin data by YCharts
Johnson’s plan still may succeed and the contrarians among us stand to win big should that happen. But JCPenney needs to be clear about who its shoppers are and which retailers its competing against to keep and win shoppers. The most commonly held believe is that JCPenney competes most directly with Macy’s (M). Both are department stores, both sell apparel, jewelry, accessories, shoes and home furnishings. Both chains operate in or near regional malls and both are bucking for the role of America’s store.
Retail consultancy Big Insight recently looked at 10 years of shopper data and took a closer look at who is JCPenney’s closest competitor. Walmart (WMT) and Kohl’s (KSS) rank first and second as favorite shopping destinations for apparel, and JCPenney and Macy’s have been grappling for third place.
But here’s the kicker: once JCPenney’s new “fair and square” pricing policy was announced, shoppers seemed to flee Penney for Macy’s. Uh oh.
According to Big Insight, just prior to the pricing shift, 6% of women 18 and older said they shopped most often for apparel at Macy’s while 7% named JCPenney. By the next month that number was tied and in April just 8.5% of shoppers preferred JCPenney compared to 10% of those who shopped at Macy’s for apparel. That roughly 1.5% preference for Macy’s has held through the beginning of June when the research was conducted.
It’s pretty clear that Johnson and company know they must compete with Macy’s. The plan to build brand partnerships like the already announced programs with Nanette Lepore and Martha Stewart Living (MSO) are geared toward that. Stewart herself has defected from Macy’s, put her other retail initiatives at risk and gotten herself sued in order to align with the new concept.
The planned Main Street of shops is similar to those developed for Marshall Field’s flagship store (now part of Macy’s) in Chicago. That program brought in-store shops from brands like Thomas Pink, Levenger and local retailer Merz Apothecary to create shopper excitement and dress things up as Target (TGT) prepared to sell the chain. It quickly did, to Macy’s.
It’s no small coincidence that JCPenney’s Johnson was at Target just prior to the Marshall Field’s initiative and he is credited with putting together Target’s first and pivotal designer partnership with Michael Graves. All of this predates his time at Apple.
There’s no evidence of JCPenney’s Main Street currently in stores. Whether it will help or be rolled out in time remains to be seen, but clearly the chain is gunning to get the Macy’s shopper. It’s new spokeswoman, Ellen Degeneres, is both down to earth and adds a little edge thanks to her sexual orientation. The retailer has gone further to woo both gays and the more urbane shopper with the appearance of same sex couples in both its Mother’s Day and Father’s Day ads.
Then there’s Kohl’s, which may be a stripped down department store, but it’s heavy on apparel, plays to Middle America and is located in smaller markets that can’t support a Macy’s but do have JCPenney stores. Here JCPenney and Kohl’s compete head to head, and Kohl’s and Macy’s are benefiting from JCPenney’s new pricing policy.
JCP Revenue Growth data by YCharts
The stores that compete most directly with each other look nearly identical.
How JCPenney plans to differentiate these non-mall stores is a bit fuzzier. The Kohl’s shopper is intently focused on value, loves a sale and devours deals and points programs. The very shopper JCPenney has thus far alienated with its abrupt abandonment of sales.
Better merchandise, name brands and a more interesting retail environment should help JCPenney to better compete with Kohl’s, especially in markets without a Macy’s or other higher end department store. Here, JCPenney likely competes as much with Target and Walmart, as it does with Kohl’s for apparel and home sales. But again, it’s a value-driven customer base.
A rejuvenated JCPenney with better merchandise and designer exclusives could well bring a better department store experience to markets with no other alternatives, while at the same time allowing it to better compete with Macy’s in the malls where they go head to head. Two shoppers. Two retail competitors. One strategy. If only the Apple Guy can pull it off.
Laura Heller is an editor for the YCharts Pro
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