Penney expands platform on Web

DALLAS — Mike Amend likes to say he heads a startup business inside 115-year-old J.C. Penney.

The division he leads as executive vice president of omnichannel is housed in newly converted space inside Penney’s suburban Dallas headquarters. The gray-fabric cubicles are all gone.

Amend, 39, who in his LinkedIn profile summary refers to himself as a “Future CEO,” has a standing desk on one side of the large, open office. It’s staffed with rows of data scientists, site reliability engineers, page designers and product managers. Upholstered furniture settings are mixed in for small groups to meet. There are phone rooms for private calls.

Another large, L-shaped space has glass walls, whiteboards and the department’s only large conference table. Around the corner are foosball and indoor basketball table games.

The setting “releases our capabilities,” Amend said, and is intended to reflect a new workflow with empowered teams completing twoweek implementations of decisions that are driven by

data. “Sure, we still have one, two- and three-year visions and strategies, but we have to break up the execution into chunks.”

Having a strong digital platform is even more important as Penney has been closing stores. Chief Executive Officer Marvin Ellison has said more could shut down. But for now, Penney still has 875 stores, and those locations have been immersed in the online business.

Amend spoke confidently about progress in Penney’s online operation during interviews last month, at about the same time Amazon.com and Sears were announcing that they’re working in tandem to sell Kenmore appliances. Just a year ago, Penney started selling GE, LG and Samsung kitchen and laundry appliances, first online and then in 600 stores.

In a second punch, Nike confirmed that it’s working with Amazon on a limited assortment. Penney expanded its Nike merchandise earlier this year and carved out 500 square feet of prominent space in 600 of its stores for Nike men’s shops. Then Amazon offered to buy items in high demand from tens of thousands of its third-party merchants and U.S. retailers for full price. Amazon confirmed to CNBC that it made the offer because it wants to be able to deliver those goods faster from its own warehouses.

Asked about the daily barrage of new challenges, Amend said niches of competition are constantly springing up. Penney is in the mattress business fighting with new online-only sellers Casper and Helix, “just two of so many home-goods competitors,” he said.

“There are hundreds of millions of customers out there. We focus on our customers,

and we’re not trying to be Amazon. They are doing interesting things and having success,” Amend said, “but we have a huge customer base, and we can serve them better and get more of their wallet.”

And Penney customers may not fit the typical higherincome customer profile of an Amazon Prime member, he said.

Research from comScore tells Penney that it has one of the lowest customer overlaps with Prime members of any mass retailer and department store.

Penney had sales of $12.5 billion last year, proof that there are customers out there. Sears still has a lot of customers, too, and they are up for grabs as Sears accelerates its store closings. Sears has been shrinking for more than a decade, and many analysts predict it will go bankrupt soon. Last year, Sears had retail sales of $19.2 billion.

“Our customers have household incomes of $60,000 to $90,000, and they tend to be hardworking, two-income families living both in rural and urban settings,” Amend said. “They don’t have the discretionary income to commit to membership fees.”

In June at a Piper Jaffray conference, Ellison said it was important to state clearly where Penney stood.

“There was no retailer our size as behind the curve on ecommerce and omnichannel,” Ellison said. “We were woefully behind in every respect.”

Ellison brought in Amend, Mike Robbins as executive vice president of supply chain and Therace Risch as chief information officer. Amend had worked with Ellison at Home Depot. Amend was vice president of online, mobile and omnichannel when Home Depot received industry accolades for building its online business. The home improvement

retailer’s online sales grew to $3 billion.

In 2015, still stabilizing its business from a failed attempt to reinvent the department store by former CEO Ron Johnson, Penney lacked a basic online shopping service: the capability to buy online and pick up in stores. That was just added a year ago.

“That’s table stakes,” Amend said, a poker term that’s come to mean the minimum a business needs to be in the game.

Penney is still catching up. Last month, Penney added the ability to ship from all its stores, which immediately made about $1 billion of store inventory available to online customers and cut the distance for delivery.

About 80 percent of a store’s inventory is eligible for free same-day pickup.

In July, it offered free shipping to stores with no minimum purchase price. Large items like refrigerators and trampolines are excluded.

JCPenney.com now stocks four times the assortment found in its largest store by working with other brands and manufacturers. More than 50 percent of its online assortment is drop-shipped by suppliers and doesn’t go through Penney’s distribution. Added categories include bathroom and kitchen hardware, sporting goods, pets and toys.

New merchandise is being added weekly, including expanded sizes. Penney believes it can serve big and tall and plus-sized customers by giving them a reliable fit with its private and exclusive brands.

People are looking for onestop shopping online, too, Amend said. It works well with the company’s new rewards program to have more items that people can buy to earn points.

“Culturally, we had to figure out how do you operate a 115-year-old company in a digital era?” Amend said. “We’ve moved from a traditional retailer to a more technology-centered organization.”