August 17, 2010, 5:13 PM
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J.C. Penney ups its web game

Mark Brohan

Research Director

A little addition to its latest quarterly earnings release last week shows just how serious J.C. Penney is about upping its e-commerce game.

In its financial press release for the second quarter ended July 31, J.C. Penney, No. 16 in the Internet Retailer Top 500 Guide, reported actual web sales for the very first time. For almost a decade, J.C. Penney disclosed the percent increase for JCP.com in its quarterly release, but not an actual number. But in the numbers the chain disclosed for Q2, J.C. Penney said web sales increased year over year about 4% to $317 million from $305.1 million in the second quarter of 2009.

That number—and the fact that J.C. Penney is shining more light on its quarterly e-commerce sales performance—are very significant. For starters, J.C. Penney is now giving Wall Street analysts, employees, customers and business journalists more insight into what I see as its most important channel: e-commerce. These days what metrics the big chain retailers publicly report on their clicks, conversions and online sales are just as important as the figures they disclose on comparable-stores sales, lease rates and sales per square foot.

More important, the disclosure of actual web sales shows just how vital a healthy and growing web channel is to the future of J.C. Penney—and how far the company must go to get back to the top of the summit in online retailing.

A decade ago J.C. Penney leveraged its large catalog operation to become a substantial online retailer. By 2007, while other chains still didn’t grasp the strategic importance of e-commerce, J.C. Penney sailed past $1 billion in annual web sales.

But in recent years, annual web sales for J.C. Penney have topped out at about $1.5 billion. The chain’s older catalog shoppers are now its primary web shoppers, but the push is on to retool JCP.com and appeal to a younger audience with more private label merchandise.

In June chief information officer and newly appointed chief e-commerce executive Tom Nealon told attendees at the Goldman Sachs Dot Commerce conference in New York that J.C. Penney will use an aggressive mix of new e-commerce technology and other tactics to generate $1 billion in new Internet revenue over the next four to five years.

With store sales that grew only 0.9 in the second quarter and 1.3% so far this year, J.C. Penney needs a bolder, more aggressive and youth-oriented approach to e-commerce—and now.

While J.C. Penney was tooling along with its existing e-commerce platform and mediocre performance online, it was losing revenue and customers to more ambitious competitors such as Amazon.com, which grew sales in the second quarter year over year 41.3% $6.57 billion from $4.65 billion, and Sears Holdings Corp, which is practically reinventing its entire brand strategy online these days.

But now J.C. Penney is shaking off the rust and looking to show its investors and customers that it’s not game over for its once ambitious e-commerce channel. In fact, J.C. Penney will replace all of the key components of its e-commerce infrastructure over the next 18 months. With a new infrastructure in place, J.C. Penney will then be able to expand its social marketing program and develop full-scale mobile commerce technology. When fully rolled out, J.C. Penney’s mobile commerce program will include more couponing and support multiple wireless device operating systems, including iPhone and Android, the retailer says.

I, for one, applaud J.C. Penney’s willingness to reinvent its e-commerce channel and in charting future progress by giving out actual quarterly web sales.

J.C. Penney still has to play some serious catch-up ball with its rivals, but it’s not game over. I look forward to J.C. Penney’s third quarter earnings release on Nov. 12 and to seeing what the e-commerce scorecard shows. I expect to see some pretty decent progress.

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