J.C. Penney Closing 140 Stores, Adding 70 Sephoras

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J.C. Penney Closing 140 Stores, Adding 70 Sephoras

03/03/2017

J.C. Penney plans to close 130 to 140 store locations and two distribution centers in 2017. However, the department store retailer plans to add an additional 70 new Sephora inside JCPenney shops and expand 32 highly-productive existing locations in 2017. It opened 61 Sephora shops in 2016 to bring the total to 577.

"During the year, it became evident the stores that could fully execute the company's growth initiatives of beauty, home refresh, and special sizes generated significantly higher sales and a more vibrant in-store shopping environment," CEO Marvin Ellison.

The reason for the closures, according to the retailer, is the threat of online retailers.
"It is essential to retain those locations that present the best expression of the JCPenney brand and function as a seamless extension of the omnichannel experience through online order fulfillment, same-day pick up, exchanges and returns," said Ellison.

In 2016 approximately 75% of all jcpenney.com online orders touched a physical store.

"While many pure play e-commerce companies are experiencing dramatically increasing fulfillment costs, we are pleased with the double digit growth of jcpenney.com and how leveraging our brick and mortar locations is enabling us to offset the last-mile delivery cost," said Ellison. "We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce, while leveraging physical locations to minimize the growing operational costs of delivery."

"By effectively leveraging their in-store inventory, actively promoting more click-and-collect sales, and routing more orders to ship-from-store – they have a momentous opportunity to significantly boost margins and bounce back," said Nick McLean, CEO, OrderDynamics."Several of our clients have already shown improved margins by increasing their ship-from-store capabilities, and closing DCs profitably. With the right order management technology, this could be a boost for J.C. Penney.” 

JCPenney will close a distribution center located in Lakeland, Fl. in early June, and is in the process of selling its supply chain facility in Buena Park, CA.
"We expect these initiatives will allow us to offset the expected pressure from our appliances and online businesses and drive margin up," said CFO Edward J. Record.

“At first, this might look at first like a classic retail cost cutting exercise in retail to maintain profitability in a tough trading environment and appease stockholders, but it appears that there is more to it than that," explained Stuart Aldridge, Principal, Columbus Consulting International. "The decision to close two distribution centers at the same time could easily be interpreted as part of a review of the distribution mechanics in response to fulfilling online business. In addition, the decision to shake up the product categories suggests that the company is well aware of the shifting nature of its customer base, both in desires and demographics."

The company's online business delivered double-digit growth in both the quarter and the full-year. In the fourth quarter, it increased online SKUs by 40% and the company plans for continued SKU expansion throughout 2017. 

"We're also pleased with the overall improvement and functionality of our website, to that point, ForeSee, which provides an annual customer service experience ranking of e-commerce sites, ranked jcpenney.com as the fifth highest rated website for 2016, highlighting a 300 basis point improvement over last year, making JCPenney one of the most improved websites in 2016," said Ellison.