December 26, 2000, 9:55 AM

Consumer trust and a three-channel approach drive J.C. Penney`s leap into virtual retailing

What is frightening about joining a startup is the unknown duration of the fast-paced adventure. Paul Pappajohn, 34, does not have such worries.

President of JCPenney.com since November, Pappajohn is working for a very profitable dot-com and is aligned with parent company J.C. Penney, the nation’s largest catalog retailer.

“The assets J.C. Penney brings to the table are unparalleled,” Pappajohn says. He points out that the bricks-and-mortar operation is the sixth largest in the nation, which, along with its successful catalog and web businesses, provide numerous opportunities for synergies.

Barrett Ladd, senior analyst at Boston-based Gomez Advisors, agrees: “JCPenney.com’s conversion rates are very high and above their competition’s, because people are already comfortable with the J.C. Penney name and know the types of products they are buying.”

But Pappajohn is not free from challenge. He is tackling such issues as personalizing the shopping experience, linking to a real-time inventory system and staying a cyber-step ahead of his bricks-and-mortar competitors.

Breeding success

Pappajohn brings to JCPenney.com a track record of fueling online companies’ success. WashingtonPost.Newsweek Interactive burgeoned to one of the top five national news site during his tenure as vice president of development and e-commerce, from 1997 to 1999.

Still, he joins an Internet operation leading its competition in many areas. JCPenney.com has a database of 52 million customers across all three channels.

And now J.C. Penney is taking that cross-promotion a major step forward. While J.C. Penney has consistently promoted its online business in catalogs and in store signs and promotions, company executives are heightening the cross-marketing. In one of its new Texas stores, J.C. Penney is testing JCPenney.com kiosks, and in another store, a comfort station with computers.

The comfort station, dubbed Cyberexpo, allows users free Internet access at three computer terminals, surrounded by chairs and a lounge. Although the stations highlight the company and its online services, users can surf any other site, or even check their email.

Another Texas store is testing touch-screen terminals that link to the JCPenney.com site in various departments, so customers can find items not available at the stores.

Although that may be a good way to attract new Internet users or to provide instant gratification to those seeking out-of-stock items, J.C. Penney has already succeeded in creating a bond with its Internet customers. Over 2.4 million shoppers have opted to receive email promotions from JCPenney.com, and the retailer has obliged with several targeted promotions.

Meanwhile, 10-15% of JCPenney.com shoppers are completely new to J.C. Penney, according to Boston Consulting Group and Shop.org.

“Our ability to focus on strategic investments in the Internet is due to the fact that we don’t have to worry about building at-scale fulfillment and customer service, because we already have that,” Pappajohn says.

Customers can have orders delivered to their homes within 24 to 72 hours, or pick them up at one of the company’s will-call desks in more than 2,000 J.C. Penney and Eckerd stores, as well as stand-alone locations. Shoppers can return purchases at J.C. Penney stores, catalog desks at other locations and several Eckerd stores.

“While other companies have scrambled to build those capabilities, we’ve built a web infrastructure and begun focusing on how to achieve leadership positions,” Pappajohn says.

Analysts also praise the site’s Just For Me, which allows shoppers to create a virtual model and try on clothes before purchasing. Expanded in recent months from large sizes to petites and talls, the offering is one of the most popular on the site.

A March re-launch of that service, including a mix-and-match function for choosing and trying on clothes as well as additional zoom features and content provided by Mode magazine significantly boosted participation. About 20,000 models were created immediately following the re-launch.

Brightening the bottom line

The company started e-rtailing nearly six years ago, offering its full catalog-250,000 SKUs. The site has not only made money, but buoyed the mother company in choppy waters.

JCPenny.com sales have soared to $79 million so far this year. Pappajohn expects sales will reach $280 million by the year’s end. That is nearly a three-fold increase from 1999’s $102 million. The average JCPenney.com shopper spends slightly more than $100 at the site.

JCPenney.com is the bright spot in bleak J.C. Penney corporate earnings. The company suffered a net loss of $118 million for the first quarter of 2000, compared to net income of $167 million for the first quarter of 1999. The corporation attributed the shortfall to the closing of under-performing J.C. Penney and Eckerd drug stores, as well as a massive restructuring of J.C. Penney’s merchandising process.

Despite JCPenney.com’s strengths, the e-retailer has its weaknesses.

Unlike Amazon and others, the JCPenney.com site is not personalized. And until April, the site told shoppers only at check out if the item they wanted was out of stock. Now, shoppers know when they try to place the item in their shopping cart if it is not available. According to Ladd, checking out is laborious. “It takes several clicks to put items in a bag, then check out. They are not really leading you through the process efficiently,” she says.

The organization challenge

However, Ladd acknowledges that JCPenney.com’s large selection makes organization a challenge-and could be key to the site’s success or failure.

When shoppers visit other linked business sites, they have trouble getting back to the home page or another page. “There are a bunch of sites that take you off the site, and it is difficult to find your way back home,” Ladd says.

Pappajohn recognizes the site’s pitfalls and is planning a re-launch this fall. The re-launch will transform the site from a product-oriented site to a personalized shopping site. In addition to better merchandising, promotions will be delivered in real time and the shopping experience will be tailored to each customer.

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