February 13, 2007
Penney Aspires to Grab Share from Macy’s
Mike Ullman thinks his company is in a good position to take market share away from Macy’s.
The chairman and CEO of J.C. Penney believes his company has built a business around trendy new brands and the type of customer service that more affluent consumers demand and will pay for. According to Women’s Wear Daily, Penney’s has an average retail unit sale of $16 versus $28 for Macy’s.
“We’re rebranding the company because of our service,” he said. “We were running nice advertising, but it wasn’t building on itself.” The difference now, he told WWD, was “engaged’ associates.
“They need to have the tools and the wherewithal to make decisions. If not, they’re clerks,” he said. You also get what you pay for, according to Mr. Ullman. “Be competitive with compensation. Pay the median and no less for talent,” he said.
He also said that the company was also stronger because now it could integrate items with “better styling and quality” into its mix. These goods represent the “aspirational” selection Penney presents to its customers.
The term “aspirational” is an individual reference point, Mr. Ullman said. “I’m
not the type of person who wants to pay five cents more for paper towels, but
I’ll pay $600 for an Hermès cashmere sweater. In Greenwich, Conn., Starbucks
coffee is coffee. In South Central Los Angeles, it’s aspirational.”
Mr. Ullman sees a number of challenges ahead for Penney as it looks to take on Macy’s and others. For one, Penney’s core 30- to 45-year-old core consumer group is shrinking as a larger percentage of the population reaches the AARP years.
There are other changes, as well. “Customers have no patience for things that don’t work. The ones that have no money need solutions and price performance. What attracted customers to department stores used to be credit cards. Now they have lots of choices: online, discounters, factory outlets. To return J.C. Penney to the place it was 10 years ago is irrelevant.”
Penney is also looking to attract more affluent shoppers through remodels. “We have lots of stores that haven’t had any investment for years,” he said. “We didn’t have any money for 15 years. We’re going to renovate 70 stores a year and build 50 new stores a year. We’re spending $1 billion a year.”
Discussion Questions: How important a factor has the “aspirational” aspect of shopping become in retailing today, specifically as it relates to Penney and its main competitors? What do you see as the keys to whether or not Penney can take share of market from chains such as Macy’s, Kohl’s, etc?
BrainTrust
Recent Discussions
Discussion Questions
Poll
One aspect of the American Dream is an expectation of an ever increasing standard of living and lifestyle experience. Although this generation is finding it much harder to create that reality than others in the past, it remains fixed in our collective psyche. Aspirational retail is simply the fulfillment of that need.
Awareness of differentials in average check sizes, market basket compositions and disparities in category shopping are all important insights into a retailer’s business. However, as WM has painfully shown, loudly and visibly “aspiring” after a new consumer segment isn’t a successful strategy, particularly if it’s done to some degree at the perceived expense of your core consumer.
JCP is very well positioned to fill the vacuum created by the death of the moderate department store. Should JCP aspire to an average transaction value equivalent to Macy’s? I don’t know about that. Average transaction values increase for a combination of only two reasons. Either more ends up in the shopping bag, or higher ticket items make up a greater part of the mix in the bag. Period.
Brick and mortar retail has fixed space limitations. Inherently, this means if you want to add more expensive items to your mix, something has to come off the floor. It is very possible to carefully edit the assortment of the least productive lower price point segments without significantly impacting core customer experience. It’s also very possible to carefully and gradually move the mix of merchandise to a higher price point weighting without creating sticker shock.
Ultimately, these are just mechanics. The real “grail” lies in consumer satisfaction. By being truly focused on improving the life, lifestyle and experience of their consumer, many of these mechanics make sense. Without that underlying commitment to the customer, they are just tactics to increase sales.
Both Penney and Kohl’s are in position to take share away from Macy’s once it becomes apparent how much share Federated has lost in former May Company stores. (Of course, Federated typically won’t report comp sales in those doors until they have nowhere to go but up.) Penney has an opportunity to be perceived as the mall-based value leader–the space that Macy’s has chosen to vacate–and Kohl’s continues to combine its value positioning with an off-mall convenience-based strategy.
The most interesting battle will continue to be between Penney and Kohl’s themselves. Value, store design, service…all important areas for competition but it’s eventually about content. Both retailers have focused on exclusive private brands as well as new strategies to develop more “fast fashion” like H&M, Zara and so on. As Penney and Kohl’s sharpen their positioning against each other, expect Macy’s to be caught in the crossfire.
The question implies a retailing world of rigid channel distinctions that no longer exists (if it ever did). I bet that quantitative research regarding shopper decision trees and creating competitive interaction indices would show that there is already substantial interplay among these retailers and that many shoppers are very comfortable in both Penney’s and Macy’s. Perhaps the biggest risk for Penney’s is to think too much about taking business from a competitor (Red Ocean) rather than to focus on key customers and find ways to be contemporary and relevant (Blue Ocean). If they succeed the business will come from Macy’s and from numerous other places as well.
I like Joel’s characterization of a retail world without rigid channel distinctions. It certainly mirrors the blurring of formerly held socio-economic distinctions.
As the parts of the engine of the American economy change and evolve, so too does the character of the workforce. The distinction between “blue collar” and “white collar” used to be hourly versus salary. As the economy and the way that people are compensated changes (service economies have millions of hourly “white collar” jobs) so too do the values and shopping habits of the public.
Joel further suspects, and I agree, that today’s customers spend their money across an increasingly diverse and accessible retail landscape.
I don’t believe that this is an anomaly; there is a new enemy at the gate for retailers and it is not their historical competition. The focus should be on delivering unique and valued product, not on executing what everyone else is doing better.
I am always wary of retailers using terms that customers do not. So I never do, since I think the best retailers always think and talk like their customers…so let’s throw away the word “aspirational.” Kohl’s and Penney’s want to be considered direct competitors with Macy’s and they want to be considered department stores…primarily to distance themselves from Target, Wal-Mart and Costco who all can beat them. It remains to be seen whether or not they can do this, but right now it looks like Penney’s with moves like bringing in Sephora, pricing up and getting younger has a better chance than Kohl’s.
I’m not sure about this, but I believe the euphemism “Jacques Pennét” may even precede “Chez Targét.” J.C. Penney has done a good job of positioning itself away from Sears and as a more affordable alternative to high end department stores. If Target is representative, it should be a good place to be.
Appealing to the aspirations of the consumer is certainly not a new concept. The key for Penney’s would be to provide value in the shopping experience as well as the product line.
For years, marketers have targeted a consumer segment by using models or spokespeople they emulate. Cosmetics designed for an aging, older population may still feature a young and beautiful model. Products are often marketed to children by positioning them as favorites of their older siblings.
In retailing, the shopping experience is as much about the environment as it is about the merchandise. It’s not just about carrying $600 cashmere sweaters. That will just frustrate the shopper who can’t afford them.
Real aspirational shopping would be giving the consumer the elegant feel of an upscale shop but still providing them with the merchandise they can afford. That way they walk away feeling good about the store and the product value.
I find it interesting that J.C. Penney wants to be like Macy’s, because Macy’s is becoming more and more like J.C. Penney. If J.C. Penny is going after Macy’s, they should go after the pre-Federated Macy’s. The Macy’s that had service, variety, an edge and elegance. Federated has no interest in that Macy’s anymore. Then J.C. Penney should jump at the chance. Variety, quality, edge, elegance and good service never go out of style. Nordstrom is a good example.
First thing they could do to bring it up several notches; de-clutter, cut 50% of the merchandise off the floor. Stop with the clothing hanging off the columns and walls up to the ceilings and packed so tight, one can hardly move between racks. That’s always a sign of a low-end store. For example, Zara’s clothing is not terribly expensive yet the stores are beautiful and spacious. Take a clue from Zara and another attractive store, Crate and Barrel.
Though often criticized, short term memory and lack of loyalty can be a plus when they allow you to re-invent yourself overnight: just a few weeks ago the claim was being offered that J.C.Penney = Bloomingdale’s. And while few believed that, it’s nevertheless true that many don’t care what image Penney’s used to have…and, of course, going upscale – while hardly innovative – is a tried-and-true strategy.
But it can last only as long as it has support, and in today’s world that will be until there are 2 months of sales stagnation, and “The Street” demands that expenses be cut….say goodbye to all that “aspirational” sales assistance.
I’m with the folks that say the retail channels are blurred. Upscale people shop at Target. And Target has designers previously known only in Madison Avenue Boutiques (Liz Lange, Isaac Misrahi).
So it’s not so much about “taking on” Macy’s. Distinctions like that are not even relevant in a world that has become so fluid. In addition to shoppers’ perceptions of themselves being fluid (I shop at Hermes, but also Target), their ability to move between stores is made instantaneous by the Internet.
By the way, if Penney’s wants to keep its share of younger consumers, it could really do a better job with its web strategy (so could Macy’s for that matter). The Target site blows both these two away.
The aspirational aspect was illustrated, to an extent, in our discussion last week about women flocking to high street stores when they launched designer ranges, particularly when they were labeled “limited edition.” Getting hold of one of these dresses ostensibly gave them a boost in terms of fashionability and stylishness. As for Penney vs. Macy’s, I shopped both these stores during my recent trip (the former in California, the latter in a New York suburb) and spoke to a handful of customers. Admittedly not the least bit scientific or systematic but enlightening nonetheless. For someone who can only be considered affluent for this very short period of time when the exchange rate is so much in my favour, I did not feel that Penney was targeting affluent customers. They had a lot of choice, a lot of named designers and a lot of inexpensive lines. I didn’t see much in the way of customer service; the store I was in had cashiers but few floor staff and the one I actually asked for information and directions was less than knowledgeable, to put it mildly. The quality of what I bought in Macy’s was considerably better as was what I managed to find out about the service. I think Mr. Jones makes a good point in his definition of aspirational–improve the look and feel of the store as well as the appearance (number and quality) of staff so that customers feel they are being taken care of and spoiled. That, combined with lots of choice and low prices could make Penney a more aspirational destination.
To compare various retailers, it pays to look at the American Customer Satisfaction Index scores. See http://www.theacsi.org
Since 1994, J.C. Penney consistently ranked higher than Federated. Low-ranked retailers include Home Depot and Wal-Mart. Highest-ranked retailers include Costco, Target, and J.C. Penney. Over the past dozen years, Wal-Mart has steadily declined. Home Depot’s highest score was 2001. Other modest scores: Safeway and Sears. A dozen years ago, Federated ranked slightly below Safeway and Sears. Today, the ranking is only a little better than them.
Perhaps Penney should choose a better-performing target than Macy’s.
I also agree that the real competition here is a battle between JCP and Kohl’s. Busy harried people have come to love Kohl’s especially given their off mall stance. Having said that, people also seem to be re-discovering JCP as JCP over the last 5-8 years has done such a great job of creating more relevance and interest through its brands and assortments. Many of the JCP stores are attractive and ALL the JCP’s I have been in are neat and ordered- something that can not be said of Macy’s. I also agree that JCP should set their sights higher than Macy’s — actually, they just need to keep doing what they are doing– focusing on the customer and improving service where possible. An upscaling of merchandise should be slow and resolute while not overbearing so as not to alienate the less well heeled who definitely rely on JCP as a “better” alternative. This situation may not be so evident on the coasts but I believe from what I have seen and people I have spoken with, that it is prevalent in mid America–especially in more rural settings.
JCP can not be all things to all people — as no one can– but I do believe it has a great chance of becoming America’s trusted moderate department store. Mr. Ullman and his team have done an outstanding job so far. JCP also has the benefit of a long standing mail order business and should rely on this strength — or rediscover this strength, as a spring board to gain in alternative selling channels.
More Discussions
Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?Should IKEA Be Flattening Management?
Should IKEA be trimming down its management headcount?Is Legislation the Answer on Visa, Mastercard Swipe Fees as ~$200 Billion Record Is Set?
Is lawmaking the way forward on swipe fees?
One aspect of the American Dream is an expectation of an ever increasing standard of living and lifestyle experience. Although this generation is finding it much harder to create that reality than others in the past, it remains fixed in our collective psyche. Aspirational retail is simply the fulfillment of that need.
Awareness of differentials in average check sizes, market basket compositions and disparities in category shopping are all important insights into a retailer’s business. However, as WM has painfully shown, loudly and visibly “aspiring” after a new consumer segment isn’t a successful strategy, particularly if it’s done to some degree at the perceived expense of your core consumer.
JCP is very well positioned to fill the vacuum created by the death of the moderate department store. Should JCP aspire to an average transaction value equivalent to Macy’s? I don’t know about that. Average transaction values increase for a combination of only two reasons. Either more ends up in the shopping bag, or higher ticket items make up a greater part of the mix in the bag. Period.
Brick and mortar retail has fixed space limitations. Inherently, this means if you want to add more expensive items to your mix, something has to come off the floor. It is very possible to carefully edit the assortment of the least productive lower price point segments without significantly impacting core customer experience. It’s also very possible to carefully and gradually move the mix of merchandise to a higher price point weighting without creating sticker shock.
Ultimately, these are just mechanics. The real “grail” lies in consumer satisfaction. By being truly focused on improving the life, lifestyle and experience of their consumer, many of these mechanics make sense. Without that underlying commitment to the customer, they are just tactics to increase sales.
Both Penney and Kohl’s are in position to take share away from Macy’s once it becomes apparent how much share Federated has lost in former May Company stores. (Of course, Federated typically won’t report comp sales in those doors until they have nowhere to go but up.) Penney has an opportunity to be perceived as the mall-based value leader–the space that Macy’s has chosen to vacate–and Kohl’s continues to combine its value positioning with an off-mall convenience-based strategy.
The most interesting battle will continue to be between Penney and Kohl’s themselves. Value, store design, service…all important areas for competition but it’s eventually about content. Both retailers have focused on exclusive private brands as well as new strategies to develop more “fast fashion” like H&M, Zara and so on. As Penney and Kohl’s sharpen their positioning against each other, expect Macy’s to be caught in the crossfire.
The question implies a retailing world of rigid channel distinctions that no longer exists (if it ever did). I bet that quantitative research regarding shopper decision trees and creating competitive interaction indices would show that there is already substantial interplay among these retailers and that many shoppers are very comfortable in both Penney’s and Macy’s. Perhaps the biggest risk for Penney’s is to think too much about taking business from a competitor (Red Ocean) rather than to focus on key customers and find ways to be contemporary and relevant (Blue Ocean). If they succeed the business will come from Macy’s and from numerous other places as well.
I like Joel’s characterization of a retail world without rigid channel distinctions. It certainly mirrors the blurring of formerly held socio-economic distinctions.
As the parts of the engine of the American economy change and evolve, so too does the character of the workforce. The distinction between “blue collar” and “white collar” used to be hourly versus salary. As the economy and the way that people are compensated changes (service economies have millions of hourly “white collar” jobs) so too do the values and shopping habits of the public.
Joel further suspects, and I agree, that today’s customers spend their money across an increasingly diverse and accessible retail landscape.
I don’t believe that this is an anomaly; there is a new enemy at the gate for retailers and it is not their historical competition. The focus should be on delivering unique and valued product, not on executing what everyone else is doing better.
I am always wary of retailers using terms that customers do not. So I never do, since I think the best retailers always think and talk like their customers…so let’s throw away the word “aspirational.” Kohl’s and Penney’s want to be considered direct competitors with Macy’s and they want to be considered department stores…primarily to distance themselves from Target, Wal-Mart and Costco who all can beat them. It remains to be seen whether or not they can do this, but right now it looks like Penney’s with moves like bringing in Sephora, pricing up and getting younger has a better chance than Kohl’s.
I’m not sure about this, but I believe the euphemism “Jacques Pennét” may even precede “Chez Targét.” J.C. Penney has done a good job of positioning itself away from Sears and as a more affordable alternative to high end department stores. If Target is representative, it should be a good place to be.
Appealing to the aspirations of the consumer is certainly not a new concept. The key for Penney’s would be to provide value in the shopping experience as well as the product line.
For years, marketers have targeted a consumer segment by using models or spokespeople they emulate. Cosmetics designed for an aging, older population may still feature a young and beautiful model. Products are often marketed to children by positioning them as favorites of their older siblings.
In retailing, the shopping experience is as much about the environment as it is about the merchandise. It’s not just about carrying $600 cashmere sweaters. That will just frustrate the shopper who can’t afford them.
Real aspirational shopping would be giving the consumer the elegant feel of an upscale shop but still providing them with the merchandise they can afford. That way they walk away feeling good about the store and the product value.
I find it interesting that J.C. Penney wants to be like Macy’s, because Macy’s is becoming more and more like J.C. Penney. If J.C. Penny is going after Macy’s, they should go after the pre-Federated Macy’s. The Macy’s that had service, variety, an edge and elegance. Federated has no interest in that Macy’s anymore. Then J.C. Penney should jump at the chance. Variety, quality, edge, elegance and good service never go out of style. Nordstrom is a good example.
First thing they could do to bring it up several notches; de-clutter, cut 50% of the merchandise off the floor. Stop with the clothing hanging off the columns and walls up to the ceilings and packed so tight, one can hardly move between racks. That’s always a sign of a low-end store. For example, Zara’s clothing is not terribly expensive yet the stores are beautiful and spacious. Take a clue from Zara and another attractive store, Crate and Barrel.
Though often criticized, short term memory and lack of loyalty can be a plus when they allow you to re-invent yourself overnight: just a few weeks ago the claim was being offered that J.C.Penney = Bloomingdale’s. And while few believed that, it’s nevertheless true that many don’t care what image Penney’s used to have…and, of course, going upscale – while hardly innovative – is a tried-and-true strategy.
But it can last only as long as it has support, and in today’s world that will be until there are 2 months of sales stagnation, and “The Street” demands that expenses be cut….say goodbye to all that “aspirational” sales assistance.
I’m with the folks that say the retail channels are blurred. Upscale people shop at Target. And Target has designers previously known only in Madison Avenue Boutiques (Liz Lange, Isaac Misrahi).
So it’s not so much about “taking on” Macy’s. Distinctions like that are not even relevant in a world that has become so fluid. In addition to shoppers’ perceptions of themselves being fluid (I shop at Hermes, but also Target), their ability to move between stores is made instantaneous by the Internet.
By the way, if Penney’s wants to keep its share of younger consumers, it could really do a better job with its web strategy (so could Macy’s for that matter). The Target site blows both these two away.
The aspirational aspect was illustrated, to an extent, in our discussion last week about women flocking to high street stores when they launched designer ranges, particularly when they were labeled “limited edition.” Getting hold of one of these dresses ostensibly gave them a boost in terms of fashionability and stylishness. As for Penney vs. Macy’s, I shopped both these stores during my recent trip (the former in California, the latter in a New York suburb) and spoke to a handful of customers. Admittedly not the least bit scientific or systematic but enlightening nonetheless. For someone who can only be considered affluent for this very short period of time when the exchange rate is so much in my favour, I did not feel that Penney was targeting affluent customers. They had a lot of choice, a lot of named designers and a lot of inexpensive lines. I didn’t see much in the way of customer service; the store I was in had cashiers but few floor staff and the one I actually asked for information and directions was less than knowledgeable, to put it mildly. The quality of what I bought in Macy’s was considerably better as was what I managed to find out about the service. I think Mr. Jones makes a good point in his definition of aspirational–improve the look and feel of the store as well as the appearance (number and quality) of staff so that customers feel they are being taken care of and spoiled. That, combined with lots of choice and low prices could make Penney a more aspirational destination.
To compare various retailers, it pays to look at the American Customer Satisfaction Index scores. See http://www.theacsi.org
Since 1994, J.C. Penney consistently ranked higher than Federated. Low-ranked retailers include Home Depot and Wal-Mart. Highest-ranked retailers include Costco, Target, and J.C. Penney. Over the past dozen years, Wal-Mart has steadily declined. Home Depot’s highest score was 2001. Other modest scores: Safeway and Sears. A dozen years ago, Federated ranked slightly below Safeway and Sears. Today, the ranking is only a little better than them.
Perhaps Penney should choose a better-performing target than Macy’s.
I also agree that the real competition here is a battle between JCP and Kohl’s. Busy harried people have come to love Kohl’s especially given their off mall stance. Having said that, people also seem to be re-discovering JCP as JCP over the last 5-8 years has done such a great job of creating more relevance and interest through its brands and assortments. Many of the JCP stores are attractive and ALL the JCP’s I have been in are neat and ordered- something that can not be said of Macy’s. I also agree that JCP should set their sights higher than Macy’s — actually, they just need to keep doing what they are doing– focusing on the customer and improving service where possible. An upscaling of merchandise should be slow and resolute while not overbearing so as not to alienate the less well heeled who definitely rely on JCP as a “better” alternative. This situation may not be so evident on the coasts but I believe from what I have seen and people I have spoken with, that it is prevalent in mid America–especially in more rural settings.
JCP can not be all things to all people — as no one can– but I do believe it has a great chance of becoming America’s trusted moderate department store. Mr. Ullman and his team have done an outstanding job so far. JCP also has the benefit of a long standing mail order business and should rely on this strength — or rediscover this strength, as a spring board to gain in alternative selling channels.