Knowing its customers and integrating across channels has catapulted J.C. Penney to a top position in the Internet Retailer Top 500.
By Mark Brohan
When J.C. Penney Co. Inc. opened an online channel in 1994 with just a bare bones web site and some Power Rangers toys as inventory, the idea that annual e-commerce sales would one day top $1 billion hardly seemed plausible. After all, first-year web sales barely topped $1,000 and the new e-commerce site seemed better suited for liquidating excess inventory than as a dynamic new sales channel.
What’s more almost nobody in 1994, not even one of the biggest retail chains, could predict with any certainty that customers would seriously use the Internet to shop online and then electronically pay for their order with a credit card.
Next goal: $2 billion
But after 12 years of pioneering, persevering and taking a longer view of business-to-consumer e-commerce than most other chain retailers, J.C. Penney (No. 13) reached a significant milestone. For the first time, web sales topped $1 billion. Today, J.C. Penney is on track to achieve $2 billion in annual Internet sales possibly as soon as 2010. That projection is based on J.C. Penney’s annual growth in web sales, which in recent years has ranged from 28% to 50%. The retailer won’t release any specific dates about reaching the $2 billion mark, but does expect to keep growing annual sales around the industry average of 20% to 25% per year. “It took us 11 years to hit $1 billion, but we’re going to surpass $2 billion online in the foreseeable futur e,” says John Irvin, president of JCPDirect, the company’s Internet and catalog division. “The web will become the hub of our multi-channel strategy and the repository of all things J.C. Penney.”
J.C. Penney credits a number of factors in helping JCP.com, its newly re-branded web site, evolve from a basic site with limited technical features into a mass merchandise destination that frequently draws more than 9 million unique visitors per month, according to comScore Networks Inc. Some companies such as Amazon.com Inc. (No.1), Office Depot Inc. (No. 2), Staples Inc. (No. 3), Dell Inc. (No. 4), OfficeMax Inc. (No. 6), CDW Corp. (No. 8) and Newegg.com (No. 10) topped $1 billion in annual web sales sooner. That’s because books, electronics and office supplies are easier to sell online than apparel, accessories and home furnishings, which constitutes J.C. Penney’s web inventory.
But J.C. Penney also knew its core customers—women 30 to 50 with annual household income of around $50,000—are loyal shoppers who like buying direct from the J.C. Penney Big Book or using the catalog order desk at a store and picking up their merchandise later. With an established base of stores, catalogs and loyal customers, J.C. Penney knew its shoppers would eventually embrace online shopping—provided that Penney devoted the time and resources and built an appealing web site with the right mix of merchandising, pricing and technical features. “We know who our customers are and we understand their shopping behavior across multiple channels,” Irvin says. “Our customers had been shopping with us across two channels since 1963 when we first published a catalog. We knew if we did the job right they would embrace our web channel as well.”
Surpassing catalogs
Today J.C. Penney is a long way from speculating whether its customers prefer shopping online. They clearly do and in 2006 the web will surpass J.C. Penney’s catalog operation, which includes 94 editions and almost 400 million copies, as the company’s biggest direct marketing channel. “The web caught hold with our customers because we could bring significant development resources to bear,” Irvin says. “The web was new in 1994, but we were doing multi-channel retailing long before it became a buzzword. We already had suppliers, fulfillment hubs and customer contact centers. We had an infrastructure we could leverage and build on.”
J.C. Penney is able to consistently grow its web sales at a rate higher than the industry average of about 25% because it thinks of e-commerce in ways that extend the retailer’s brand across all channels, says Jim Okamura, senior partner with retail consultants J.C. Williams Group. “They’ve been at this longer and they’ve thought harder about using the web to drive sales across all channels than many other chains,” he says. “They aren’t just big and can commit resources to e-commerce. They think of using the web in ways their competitors won’t.”
E-commerce still only represents about 5.5% of J.C. Penney’s total 2005 sales of $18.8 billion, compared with 4.4% on total sales of $18.2 billion in 2004. But J.C. Penney’s average monthly sales conversion rate at JCP.com is about 10%, which is double or triple the 3% to 5% conversion rates of many other mass merchant and department store sites. “They made it easy to shop online and their higher conversion rate speaks volumes about what their customers think of the web site and the brand,” Okamura says. Not to mention the $1 billion in sales.
J.C. Penney began promoting its e-commerce site across multiple channels early on. It first mentioned e-commerce in 1995 on the customer service pages in its catalog. The first store promotion started in 1998 when J.C. Penney adopted a new logo and the theme “Come in, Call In, Log On.” The theme was featured on signs and other print materials posted in more than 1,000 stores. And the JCPenney.com URL was part of the cover art for the 1999 fall/winter Big Book. “Other chains talk about using the web to create a seamless shopping experience, but J.C. Penney is now a $1 billion web player because they’ve been executing on that strategy for more than a decade,” Okamura says.
Not an isolated business
J.C. Penney didn’t make the early mistake of looking at the web as an isolated business and the fact that e-commerce is integrated throughout J.C. Penney’s various retail operations makes it easier to launch Internet initiatives, Irvin says. The retailer also sees its web operation as a prime opportunity to tie customers even more closely to its brand. By December, J.C. Penney expects to equip 1,000 stores with 35,000 web-enabled point-of-sale terminals from NCR Corp. The web-connected terminals will give store employees access to the entire inventory on JCP.com and the opportunity to generate more cross-selling opportunities. “If a customer is buying maternity clothes, we can ask if they need a crib, show them right at the terminal what’s available by clicking on JCP.com and see if they are ready to make a purchase,” Irvin says.
With better multi-channel integration, J.C. Penney is working on other ways to integrate the Internet even further into its store operations. For instance, J.C. Penney is testing a new concept in at least one store. The test involves placing web-enabled computers and large flat screen monitors in the children’s department and other heavily trafficked areas. If the customer is looking for bedding or matching accessories and can’t find a particular item or style, she can use the computer station to click on JCP.com and see the available inventory in all colors and sizes. “The web-enabled POS devices aren’t the end game,” Irvin says.
Another prime example of how J.C. Penney is using the web across channels was its virtual store in New York City’s Times Square that gave customers access to the 250,000 items available on its web site via interactive kiosks. Its aim was to build brand awareness and showcase JCP.com.
The store, at 42nd Street and Broadway, was modeled after J.C. Penney’s signature trademark Big Red Box. Though the store closed on March 26 and was part of a broader brand awareness campaign to showcase new private label brands and coincide with J.C. Penney’s annual sponsorship of the Academy Awards, the effort drove home the fact that shoppers could access J.C. Penney across multiple channels, Irvin says.
The interactive store also demonstrated that J.C. Penney is thinking long term about e-commerce and blending the web and store experience. “The Times Square location was done up as a store and featured their private label brands as well as everything else available on their site,” Okamura says. “They do the little things right. Customers expect to have a similar experience if they’re shopping a big retailer and the Times Square effort married J.C. Penney’s web and store programs very effectively.”
Meeting rising expectations
Going forward retail analysts say J.C. Penney’s biggest challenge will be meeting the expectations of changing customer demand, especially as shoppers expect even more merchandise online, detailed product pages and better technical features such as faster search and richer media. If it expands its Times Square program, J.C. Penney also needs to refine the concept by offering more physical inventory and making other improvements. “At the very least, future interactive stores should sell the clothes and accessories on display in the physical store and then use the kiosks to build outfits on a particular selection,” Forrester Research analyst Carrie Johnson said in a recent research brief. “The store was a great experiment in blending the digital and physical environments, although some aspects of the execution were not wholly successful.”
Irvin says J.C. Penney is already at work diversifying JCP.com. Under an arrangement scheduled to begin in the fall, Sephora U.S.A. Inc. will become the exclusive beauty offering at JCP.com and in J.C. Penney stores. “They’ve leveraged their catalog heritage nicely and keep adding a better mix of merchandise because they have a better understanding of their store and web customers,” says Arvin Jawa, vice president with retail consulting firm LakeWest Group LLC.
Another web initiative is building more fitting guides that enable shoppers to zoom in on products such as jeans and create more custom-fitted orders. “We started online in 1994 with a plan that was both innovative and defensive,” Irvin says. “Hitting $1 billion in web sales is a big milestone, but we’re already moving down the road. These days we plan our web future in five-year increments and we’re already at 2010 and beyond.”
mark@verticalwebmedia.com
