J.C. Penney Co. Inc. has made a series of moves in the past year to mix up its product offer and entice shoppers back into its stores, but the retailer has more to do to stave off the threat from Amazon.com Inc.
That’s according to analysts and experts, who commend the company for at least trying something new, even if it has taken a rather scattershot approach. J.C. Penney JCP, -0.39% has added toy shops in all of its stores, unveiled a deal to offer furnishings to the hotel industry through a B2B program, expanded its Sephora store-in-store locations, rebranded salons and more.
“They’re making bets to be more competitive, but not doing anything that puts them in a leadership position,” said Brittain Ladd, a Seattle-based global strategy and supply chain consultant. Ladd spent about two years through March working with Amazon AMZN, +0.68% on issues related to the supply chain, delivery, Amazon Fresh, and more.
“I think J.C. Penney should be complimented. But are they doing anything to be a leader? No,” he said.
Analysts at Gordon Haskett Research Advisors upgraded J.C. Penney at the end of June to hold from reduce, based on signs that the company’s same-store sales are reaching a bottom. Analysts highlighted a comment from Chief Executive Marvin Ellison that same-store sales for the month of May were positive. In a June 26 note they said they expect gains from areas like cosmetics and footwear, which should offset apparel weakness.
But even with all the changes and additions, growth won’t be meaningful.
“I applaud them for trying to improve the business and for trying to be innovative while some of their peers are sticking to the same formula that hasn’t worked for the last several years,” Gordon Haskett managing director Chuck Grom told MarketWatch. “They’re all nice additions but not significant needle movers.”
J.C. Penney told MarketWatch the new areas were selected to increase customer frequency and spend. “They are also areas that our customers told us that they wanted J.C. Penney to offer,” said spokesperson Sarah Holland.
The company tested toy shops and found that toy customers spend more per transaction and visit more frequently, according to Holland. J.C. Penney research found that appliances are a top search term on the retailer’s website, while in apparel, the company’s private and exclusive brands get high customer ratings.
“We understand that to remain competitive, we need to diversify our business so we have been exploring new services and product categories, and implementing these ideas as they prove successful,” said Holland.
Gordon Haskett’s Grom questioned some of those choices, noting that toys is a whole new category for J.C. Penney. “They need to get relevant with the millennial customer, give people reasons to go to the store and fix their apparel business, which has been their Achilles’ heel,” he said.
On the company’s first-quarter earnings call in May, Ellison said it was “critical” to improve the “all-important apparel business,” according to a FactSet transcript. He admitted that it was struggling, but said he saw signs of encouragement, for instance, with the Now Trending items for women.
“Survival will come down to their ability to tailor their assortment to their core customer and then present it to them in a way that offers a compelling experience, good value and convenience,” said Jared Wiesel, partner at consulting firm Revenue Analytics. “If they can’t hit all these core elements then survival will become increasingly difficult.”
Like its rivals, J.C. Penney needs to find a way to differentiate itself, “enough to survive in this crowded and hypercompetitive retail landscape,” he said.
J.C. Penney may need to think even more unconventionally. Maybe if they can’t beat the competition, they ought to join them.
“It would be wise for J.C. Penney to ask: Is there a way to leverage Amazon rather than trying to compete with them?” said Ladd.
J.C. Penney shares were down 1.7% Tuesday, and are down 12.3% for the past three months. The SPDR S&P Retail exchange-traded fund XRT, -0.15% has fallen 5.1% in the same period, while the S&P 500 index SPX, -0.12% has gained nearly 5%.