Discount department store chain J.C. Penney is prepared to shutter locations that don’t meet its “brand standard,” CEO Marvin Ellison said on Wednesday at the Weitzman Annual Forecast conference, The Dallas Morning News reports.
While a J.C. Penney spokesperson told Retail Dive via email Thursday morning that "We have not made any announcements regarding store closures," Ellison on Wednesday called Penney’s store total of 1,014 “too many,” and said that the company hadn’t adequately invested in its stores, the News said. He also called on mall developers to work more closely with retailers to bring malls into the omnichannel age, by consolidating fulfillment and deliveries, and to ensure that malls are themselves well cared for and appointed and cater to the neighborhoods they’re in.
J.C. Penney closed seven stores last year and recently sold off its Dallas area headquarters. Still, Ellison insisted that physical stores remain important to the company's future, noting that its omnichannel services have increased sales and that e-commerce fulfillment is high. Sales in physical stores do and will continue to dominate, he added.
Ellison’s remarks come just days after J.C. Penney announced disappointing holiday results, stalling (at least temporarily) a comeback that has taken many analysts by surprise.
The retailer said last week that same-store sales for its nine-week November and December holiday period fell 0.8% compared to the same period last year, with e-commerce sales experiencing double-digit growth in the period. Appliances, outerwear, boots, toys, Sephora cosmetics and fine jewelry fared well, but weakness in women's apparel took a bite out of overall holiday performance.
That Sephora partnership, which has buoyed Penney in many quarters and has turned out to be a significant win for both retailers, is a major incentive to keep physical stores. Many of those concessions are in the middle of stores and have become a big draw for Penney customers.
Moreover, Ellison’s argument for the continued importance of brick and mortar is backed up by research from many quarters. In a report last year touting the continued healthy growth of e-commerce and warning about retailers with too many stores, Moody’s Investors Service cautioned retailers against closing physical stores without first assessing their impact on all sales. While “almost all non-food brick-and-mortar retailers are still too big,” and most retailers must either repurpose many of their stores to accommodate omnichannel efforts and “tactically close” many other locations, online sales often decrease in zip codes surrounding a shuttered store, according to Moody’s.
“[W]ell-run brick-and-mortar retailers will not only survive online, but can and already are thriving there thanks to leveraging their considerable physical assets,” Moody’s lead retail analyst Charlie O’Shea said in a statement about the report.
And in a survey last year of more than 2,500 U.S. consumers, global management consulting firm A.T. Kearney found that among those who prefer to buy online, fully two-thirds say they still rely on a physical store either before or after their purchase. “That means that when you’re buying a dress online, it’s likely that you’re going to be looking at that dress — the feeling, the color — and to do that, you leverage a physical environment prior to the purchase,” A.T. Kearney partner Andres Mendoza Pena told Retail Dive last year.
Beyond that emotional pull, though, physical stores have also proven to be integral to customer loyalty, returns, fulfillment and a driver of online sales. “We found 'If I don’t have a store near my house to make an eventual return, I don’t make the purchase,'" Pena said. “So let’s agree that a physical store adds value to consumers, even when they transact online.”
In fact, returns to physical stores (including returns of online orders) are helping Penney’s sales, Ellison said. “Roughly 92% of all of our e-commerce returns take place in a physical store,” he said, according to the News report. “Roughly 40% of the time someone comes in to return something, they buy something. Typically what they buy is two times [the cost of] what they’re returning.”
Of course, the crux of the matter is what entails what Moody’s describes as a “well run” store, and Ellison said that includes addressing deterioration of stores or the malls they are in, and working to localize the merchandise mix.