J.C. Penney ends up in mall catbird seat
As rivals retrench, retailer earnings rise
J.C. Penney Co. is in a surprising position more than four years after it was almost run aground by a former chief executive officer: It could be the last department store standing at your local mall.
As rivals retrench, J.C. Penney is adding new merchandise, exclusive partnerships and services to draw shoppers to its more than 1,000 stores. Sears has closed stores amid $9 billion in losses in recent years and Macy’s said this month it would shutter 100 in as-yet unidentified locations — an act likely to leave J.C. Penney as the main anchor in some malls.
“When I joined the company, my first thought was, ‘Man, we’ve got a lot of stores to close,’” Marvin Ellison, who became president in 2014 and CEO last August, said in an interview. “It was the opposite.’’
Some of J.C. Penney’s most profitable locations turned out to be small stores in rural areas where the retailer pays almost no rent; two California stores opening this year will be completely funded by the landlord.
Ellison’s focus on mall negotiations, coupled with the changes in merchandising, are helping to move the retailer beyond $1 billion in earnings before interest, taxes, depreciation and amortization this year for the first time since fiscal 2012. Its stock surged 48 percent this year, compared with 14 percent for Macy’s Inc. and a 29 percent decline at Sears Holdings Corp.
Today J.C. Penney has fewer than 10 stores that aren’t making money, Ellison said. The Plano, Texas-based company’s fiscal second-quarter net loss was smaller than analysts predicted, and it has outlined a path back to profitability even without achieving the $18 billion in sales it last hit in 2009. Comparable-store sales, a key industry metric, rose 2.2 percent last quarter.
“They have really unique opportunity, given there’s a strong employee commitment to service and a customer focus,” said Oliver Chen, an analyst at Cowen & Co. “They have to prove it to everybody that their strategy will yield comparable store sales in an environment that’s seen lots of volatility.”
Ellison, a former Home Depot Inc. executive, succeeded Mike Ullman, who had returned as CEO after Ron Johnson’s disastrous run ended in 2013. Ullman had tossed much of Johnson’s strategy and stabilized the chain’s finances through loans and stock offerings. That set the stage for Ellison to focus on improving customer service, selling more private brands and revamping online operations.
While the turnaround isn’t complete — at about $10, its shares are far below a 2007 peak near $86 — the company is strong enough to take advantage as rivals pull back. When a Sears or Macy’s closes, J.C. Penney uses direct mail in the ZIP code to convert those customers. “You make sure you invite them in,’’ said Ellison, 51.