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J.C. Penney CEO Ellison makes $1 billion promise


J.C. Penney CEO Marvin Ellison contends the retailer’s turnaround plan is working and by executing three key strategies it will achieve a financial milestone that was unthinkable a few years ago.

Ellison drew a line in the sand on Oct. 8 when he told attendees at a retail conference that the company is on track to reach $1.2 billion in earnings by 2017. In addition to the financial target, Ellison shared his thoughts on the retailer’s strengths, shortcomings and key growth strategies with roughly 300 attendees gathered at the Westin Galleria in Dallas for the 30th annual Retailing Summit organized by the Texas A&M Center for Retailing Studies at Mays Business School.

The theme of the event, “Redefining Retail,” was a perfect fit for Ellison given the change he is driving at J.C. Penney. He has the retailer focused on implementing a strategic framework that revolves around providing a seamless shopping experience, strengthening private brands and increasing revenue per customer.

“We believe that (our) turnaround will be driven by three things,” Ellison said. “We have to make sure that we have a great omnichannel experience for customers, ensure that our private brands are something that create key points of differentiation, and we have to monetize every engagement with the customer so that when he or she comes in we offer them something that gives them the ability to solve a problem, serve a need and excite them to come back the next day.”

Ellison said these three strategic pillars are necessary to create customer loyalty and are the underpinning of the company’s strategy going forward.

The company is also looking at what it does well and not so well, and he likened the analysis to a balance between art and science. The company does a great job with “art” and must get better at “science,” according to Ellison. He described “art” as the retailer’s fashion partnerships with celebrities such as Michael Strahan, merchandising, presentation, the Sephora and Disney shops, the beauty salons, and other features in-store.

“We’re the only department store with Disney shops. We have the Sephora stores, which is a great brand with great loyalty,” Ellison said. “But there must be a balance between art and science. We have to create that balance. What is the science? We don’t have great analytics. We need e-commerce, supply chain, data processing help.”

The company is getting that help by adding executives to its ranks who have expertise in areas such as omnichannel, supply chain, credit and customer data. Most notably in the omnichannel area, J.C. Penney two months ago created the role of executive VP of omnichannel, and to fill the position it hired Michael Amend, Home Depot’s former VP of online, mobile and omnichannel. Complementing the omnichannel role, J.C. Penney named Mike Robbins to the role of senior VP of supply chain. Robbins most recently served as Target’s senior VP of global supply chain.

“Their backgrounds perfectly align with our long-term growth plan to become a world-class omnichannel retailer,” Ellison said when the appointments were made.

While Amend and Robbins were external hires, the company looked internally to fill its head merchant role last month. Veteran J.C. Penney merchant John Tighe was elevated from his role as senior VP and general merchandise manager to fill the chief merchant job held by the retiring Liz Sweney. [pb]

“We have a lot of work to do, but we feel really good about creating that balance between art and science,” Ellison said. “And with that balance we believe that we can reach our objective of getting to $1.2 billion in earnings by 2017.”

The company has a long way to go, but if J.C. Penney can achieve that financial target it will be one of the more remarkable turnaround stories in retail. Ellison came to J.C. Penney last November from Home Depot, where he was executive VP over its 2,000 U.S. stores. He spent 12 years at Home Depot and before that, 15 years at Target. Ellison took over the reins from Mike Ullman, who was CEO of J.C. Penney from 2004 to 2011. Ullman had left the company and J.C. Penney sought a new direction under the leadership of former Apple executive Ron Johnson. However, the strategies Johnson implemented alienated shoppers and caused month after month of double-digit comp declines, which caused his tenure to be short-lived and saw Ullman return as CEO in April 2013.

“The revenue decline at J.C. Penney was not driven by technology, or a competitor, or customers leaving the company,” Ellison said. “It was driven by bad decisions from one leader. Can you reverse it? Yes, we can and we have started to do that.”

Indeed, there are signs in the company’s financial results that it is overcoming self-inflicted wounds and more effectively serving shoppers with an omnichannel approach.

Total sales in the second quarter ended Aug. 1, increased 2.7% to $2.89 billion from $2.8 billion and most impressively, same store sales increased 4.1% and exceeded the quarterly comp from rivals Macy’s, Kohl’s and Dillard’s. Despite the top line improvement, the company still posted a net loss of $138 million, or 45 cents a share, but that was an improvement from the same quarter the prior year when the company had a loss of $172 million, or 56 cents a share.

As for what’s next, Ellison is about focus, strategic refinement and acknowledges that, “we can’t serve everybody.”

“What we are trying to do is focus on the customers that we believe will love coming to shop at J.C. Penney, customers that will embrace our environment, and we’re going to offer those customers an exceptional experience,” Ellison said.

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