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With web sales in the third quarter that grew 24%, J.C. Penney’s floundering e-commerce channel finally showed some signs of rejuvenation.
For the quarter ended Nov. 2, e-commerce sales for J.C. Penney Co. Inc., No. 34 in the Internet Retailer Top 500, increased 24.3% to $266 million from $214 million in the third quarter of 2012. But if J.C. Penney wants any chance at successfully rebuilding its e-commerce channel for the long haul and reaching web sales that topped out at $1.59 billion in 2011, e-commerce and retail analysts says the company needs to keep on winning back customers—and fast.
J.C. Penney says its e-commerce department is working overtime to win back web and store customers, CEO Myron Ullman told Wall Street analysts on yesterday’s third quarter earnings call. In the quarter, J.C. Penney initiated several initiatives to drive web site traffic and sales. Penney launched a new product lineup of toys and clothes for kids from Walt Disney Co. that sold well, Ullman told analysts. The company also brought back its old customer loyalty program with new updates such as more $10 coupons good for discounts on a bigger number of products and for a longer time period.
“We know that customer experience is important to our success and JCP.com is performing very well across the board,” Ullman told analysts. “During the third quarter, we continued to improve the customer experience in our stores and online in direct response to customer and associate feedback. For instance, we restored the three tiers of our popular JCP Rewards program and re-launched the program this quarter.”
Ullman says Penney is ramping up customer service online and in stores to win back more customers. And the level of service is improving, according to new data from customer service satisfaction measurement provider StellaService. J.C. Penney's shipping performance has been consistent throughout 2013, averaging between four and five days for delivering orders. The third quarter average was about 4.8 days with 89% of all deliveries arriving in seven days or less. The retailer’s customer service agents also responded to 98% of all customer e-mails within 72 hours, with 69% of those e-mails answered in less than five hours, according to StellaService.
Overall, J.C. Penney’s third quarter shipping and e-mail response times were much higher than the industry average for department stores. The only department store beating J.C. Penney on this front was Saks Fifth Avenue, which delivered 83% of packages in five days or less, “The total time for a J.C. Penney customer to reach a live agent on the phone was 1 minute and 16 seconds on average and that represents the highest baseline performance out of all department stores,” StellaService says.
Ullman, who came out of retirement in April to replace Ron Johnson as CEO, says J.C. Penney is committed to bringing back more of its private-label brands as it seeks to lure more of its core online shopping audience, which is female shoppers over 35 with annual household income ranging from $30,000 to $100,000. “The most important ingredient in the customer experience is the quality of the services received,” Ullman told analysts.
But even with improved customer service, J.C. Penney must overcome a series of challenges to once more become a viable long-term web retailer, analysts say. From 2008 through 2010 web sales at J.C. Penney were essentially flat at about $1.50 billion. And even though the retailer did raise e-commerce sales to $1.59 billion in 2011, web sales in 2012 dropped 36% to $1.02 billion. While it posted growth in web sales of 24% in the most recent quarter, J.C. Penney had experienced a drop in web sales in the eight previous quarters dating back to the second quarter of 2011 when web sales grew 2.8% and reached $326 million.
In the last year, based on data compiled from Top500Guide.com, J.C. Penney also has experienced other drops in key e-commerce metrics. In 2012, monthly web site visits declined 7.1% to 22.3 million while the number of monthly unique visitors decreased 1.6% to $12.1 million, according to web measurement provider comScore Inc. J.C. Penney’s customer satisfaction score from ForeSee dropped to 78 in 2012 from 80 in 2011, while conversion rate and average ticket remained flat at Internet Retailer estimates of 2.7% and $160, respectively.
For J.C. Penney to regain its former e-commerce prominence, the retailer must work equally as hard at generating traffic and sales from new customers as well as retargeting existing web shoppers, says Paula Rosenblum, managing partner at research and advisory firm RSR Research LLC. “J.C. Penney’s problem remains finding new customers without alienating the old,” Rosenblum says. “Ullman has brought back the originals, but now he has to attract the new people former CEO Ron Johnson was trying to bring in.”
On improving its e-commerce channel, J.C. Penney can look back to a long history of innovation, she says. “I was always pretty impressed with Penney’s e-commerce initiatives,” Rosenblum says. “Penney was an early mobile player and I thought its web site was quite adequate for its time, so from a pure e-commerce perspective I like their chances.”
Web sales were a bright spot in an otherwise bleak third quarter for J.C. Penney. While e-commerce grew, total sales declined year over year 4.8% to $2.78 billion and comparable-store sales declined 4.8%. For the first three quarters of the year, web sales increased 0.4% to $698 million from $695.4 million in the prior year. Total sales declined 11% to $8.10 billion from $9.10 billion in the first three quarters of 2012. For the nine months J.C. Penney didn’t break out same-store sales, but net loss was $1.4 billion compared with a net loss of $433 million in the first nine months of the prior year.
E-commerce growth alone won’t fix all of J.C. Penney’s ongoing financial woes, Rosenblum says. “The company is up against such soft numbers that it's hard to even talk about year over year growth,” she says. “While it is commendable that Penney has regained some of its former customers, it's not clear that those customers will help it create any kind of continued upward trajectory.”