A recent news report from the New York Post suggests that J C Penney Company Inc (NYSE:JCP) is copying Wal-Mart Stores, Inc. (NYSE:WMT) by putting greeters at the front of its stores. The test, which is being conducted at some JCPenney stores in the Northeast region is a bit of twist on Walmart’s use of greeters.
Rather than employing full-time employees at the front of the store for the entire day, they’re being asked to greet customers between the hours of noon and 2 p.m.
Why these two hours in the middle of the day?
While it’s not entirely clear, I would assume it’s because JCPenney considers these two hours, what they term “power hours,” to be the period in the day where greeters can make the greatest difference between mediocre and above-average revenue at a particular store.
Greeters have been successful for Walmart since it reintroduced the idea back in 2012. According to a Cowen and Company survey from late in 2015, 75% of 2,506 Walmart customers surveyed said they were happy with their shopping experience, while 60% found the customer service to be satisfactory. That might not seem like a lot but it’s WMT’s best result in two years.
Exactly what does this have to do with JCP and JCPenney stock?
Well, despite some employees complaining the two-hour customer schmooze fest was increasing lines at the cash registers, the reality is that JCP has figured out that if it’s to survive and even thrive, it has got to do a better job engaging the customer. It’s not enough to have employees sit at the cash register and take the customers’ money, they’ve got to be out in the front of the store welcoming people.
What’s Giving JCPenney Stock New Life?
While still early in the test, it’s a good example of why I believe JCPenney stock is going in the right direction compared to Sears Holdings Corp (NASDAQ:SHLD), whose latest move to sell its Craftsman brand for up to $2 billion, is proof positive the once great department store is gradually winding down its retail operations. Everything most go, including its iconic brands such as Craftsmen and Kenmore.
Meanwhile, over at JCP, it’s ramping up appliance sales at its stores, something it abandoned 33 years ago to focus on apparel. JCPenney CEO Marvin Ellison just happens to be a veteran in appliances having been in charge of this product category over the 12 years he was at Home Depot Inc (NYSE:HD).
He certainly made a few connections in the appliance industry during his time at Big Orange. Those will come in handy as it takes the fight to Sears. With something like one-third of JCPenney’s customers buying appliances at other stores where it has locations, it’s a natural fit.
Even better — Sears currently generates approximately $4 billion in annual appliances revenue. With Lampert’s company reeling, Ellison is wise to strike while the iron’s hot. A decade ago, the company generated 21% of its overall revenue from home goods. Today, thanks to Ron Johnson’s failed changes, that number’s down to 12%.
In the incredibly competitive world of department store retail, JCP has to push as many buttons as it can to attract profitable business. It might not get back to its heyday in 2007, when it generated almost $20 billion in annual revenue, but initiatives like appliances can help it take market share from its peers, including Sears.
Ellison’s plan is a simple one.
He wants to focus on better customer service, growing its private label brands, stronger e-commerce and better communication between employees. The more time employees spend with customers rather than in back-room tasks, the stronger its business will be.
Expected to generate more than $1 billion in EBITDA in fiscal 2016, Ellison’s taking all the things that worked at Home Depot and applying them to JCPenney.
With just 10 stores losing money out of slightly more than 1,000, JCPenney is in better shape financially than it has been in the past several years.
Bottom Line on JCP
JCPenney stock once traded near $90.
While it has a long way to go to get to that point, I think Ellison’s got it headed in the right direction. In addition, with both Sears and Macy’s Inc (NYSE:M) closing stores, JCP has found itself the lucky beneficiary of their misfortune, sometimes resulting in it being the only anchor location left in some of its malls.
“They’re second movers in things, and being second mover can be turned into a strength,” Cowen & Co. analyst Oliver Chen recently said. “The world’s not really growing, but you have other retailers with problems that give J.C. Penney an opportunity to execute on.”
It might not be the vision Ron Johnson had for the company, but the approach Ellison is taking seems certain to ensure long-term success for the 114-year-old retailer and JCPenney stock.
By continuing to take market share from Sears and others in the department store space, I believe JCP could be the next great retailer in America.
That’s not something you would have said about JCPenney stock when former CEO Mike Ullman returned to the company in 2013.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
