In a previous era, JCPenney and Sears competed against each other for sales in just about everything from apparel to appliances to towels and sheets. Gradually, the rivals’ paths diverged somewhat: JCPenney focused on clothing, while Sears lowered its price point to push its core business of tools and appliances. So why, with Sears in the process of closing so many of its stores, is JCPenney once again going head-to-head with its old nemesis by getting back into the appliance game?
Money, of course.
With Sears shedding stores by the dozens this year, it’s a prime opportunity for other retailers to jump into the one department Sears once dominated: appliances.
JCPenney, which ditched fridges and dishwashers some 30 years ago, is in a prime position to pounce on the gap left by all these newly shuttered Sears stores, analyst Jan Kniffen tells Consumerist.
For one, the two companies have a large overlap not only in sales, but in locations and customers.
“They can position selves to get Sears’ business,” Kniffen explains. “They have about an 83% overlap on locations, and about a 70% overlap on customers. Clearly, Sears sells that customer more basics — appliances, and tools. JCPenney sells that customer more fashion and soft home. But, the product overlap is still large.”
By reentering the appliance business, JCPenney isn’t just looking to sell refrigerators, ovens, and dishwashers. It also hopes that the shoppers attracted by these items will then also buy clothing and other home goods.
“One thing you can get from appliances are lookers,” Kniffen says. “They can get people to come into that part of the store. When customers come to look at appliances, they can get an increase of sales in other areas because of foot traffic.”
That’s a point JCPenney CEO Marvin Ellison addressed on an investor call Friday, noting that nearly one-third of sales during the company’s appliance pilot came from shoppers new to the store, the New York Times reports.
But if Sears is struggling enough in sales to close dozens of store across the country, why would JCPenney seemingly take on an avenue of retail that isn’t always profitable?
“The simplest reason is that Sears does $17 billion in sales that everyone believes will go somewhere else at some point,” explains Kniffen. “JCPenney does $14 billion in sales and they want some of it.”
JCPenney may have looked at this impending crack in the retail appliance market and realized that it was the one area it could improve.
“They look at this and think we need to drive business here,” says Kniffen. “Their home business suffered under (former CEO) Ron Johnson. The apparel business came back, but not home. And (new CEO) Marvin (Ellison) understands that business.”
Additionally, JCPenney won’t have to remove other departments to make way for appliances, as the retailer’s locations are often already large.
“As more business moves online, they have more space to move things in that will attract footsteps and sales,” Kniffen says. “It takes up a lot of square footage and inventory dollars, but it’s not a good reason for JCPenney to not be in this business.”
Kniffen cautions that JCPenney isn’t actually becoming Sears; the retailer is simply evolving, like other large retailers.
“You’re seeing an evolution in JCPenney that is the same thing that Macy’s has done,” he notes, pointing to Macy’s recent practice of leasing space inside stores to other companies like Sunglass Hut. “They have to find a way to get more out of their stores. JCPenney is positioning itself to take whatever Sears sheds.”
JCPenney is already subletting floor space in some locations, where Sephora operates small in–store beauty shops.
Ellison addressed the transition into appliances on Friday, noting that the company was listening to customers and would eventually depend less on profitable apparel sales.
“We look at our categories, and we look at what customers are spending,” said Ellison. “You heard the data all week. (It’s) entertainment, it’s experiences, it’s home beautification. So we’re listening. We’re addressing those customers’ needs.”
by Ashlee Kieler via Consumerist