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JCPenney: What Are Its Key Strategic Priorities for Fiscal 2016?

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Strategic priorities

In the company’s 4Q15 conference call, JCPenney’s (JCP) chief executive officer Marvin R. Ellison highlighted three strategic priorities to improve its sales. These strategic priorities include a focus on private brands, omnichannel capabilities, and increasing revenue per customer.

In fiscal 2015 ended January 30, 2016, JCPenney’s net sales grew by 3% over those of the previous year. To compare, the sales growth rates of Nordstrom (JWN) and Kohl’s (KSS) fiscal 2015 sales were 6.9% and 1%, respectively. The net sales of Macy’s (M) declined by 3.7% in fiscal 2015.

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Focus on private brands

JCPenney plans to increase its private brand penetration supported by its strong sourcing capabilities, which includes sourcing offices around the world and over 200 in-house designers. JCPenney’s private brands carry higher margins than the national brands and reduce the company’s dependency on third parties or middlemen. According to JCPenney’s CEO, private brands such as Arizona, St. John’s Bay, Liz Claiborne, Xersion, Worthington, Stafford, and JCP Home will play a crucial role in enhancing the company’s sales as well as profitability.

JCPenney plans to expand the Collection by Michael Strahan to ~500 doors later this year. The company also plans to launch an exclusive Athleisure activewear brand called MSX by Michael Strahan. JCPenney will launch these goods in nearly 500 stores prior to Father’s Day. JCPenney also plans to expand its millennial-focused, fast-fashion brand BELLE + SKY to 500 stores.

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Omnichannel capabilities

JCPenney continues to enhance its omnichannel capabilities. In 4Q15, the company began to test the “Order Online, Pick Up In Store” facility in over 10% of the stores. The company plans to roll out the facility throughout the chain prior to the back-to-school selling season this year. The company is also focused on enhancing its mobile channel. In 4Q15, the company’s mobile traffic grew by 25%. JCPenney constitutes 1.3% of the SPDR S&P Retail ETF (XRT).

Increasing revenue per customer

JCPenney plans to increase the frequency of visits of active customers and the amount they spend on every transaction. The company plans to achieve this through several strategies.

  • The company will be focusing on the growth of Sephora stores-within-stores. The company plans to open approximately 60 new Sephora locations in fiscal 2016.
  • The company plans to promote “Get Your Penney’s Worth,” a unique promotional campaign that makes select items from the company’s assortment of private brands available for just a penny.
  • The company plans to upgrade the center core shopping area of over one-third of the company’s stores. This center core area is adjacent to Sephora stores-in-stores and includes fashion jewelry, handbags, sunglasses, and fashion accessories.

We’ll assess the movement in the company’s stock price in the next part of this series.

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