A rocky road leads Direct somewhere
By Staff -- Home Textiles Today, 6/9/2003 12:00:00 AM
The mixed performance of JCPenney's direct business illuminates the tension between repairing the mistakes of the past and pursing the promise of the future. On the one hand, sales at Penney's Internet operation continue to grow at a double-digit pace. On the other, Penney's Big Book — though now a small profit contributor — continues to post sales declines at such a rate that, despite robust Internet growth, total sales for the direct unit are expected to drop another 5 percent to 10 percent over the course of 2003.
Penney is now looking to build its customer base as well as sales and profits in the direct channel through five key initiatives:
Launching a series of smaller, more targeted specialty publications that can reach customers with greater frequency than the annual Big Book.
Paring pages even further in the Big Book and focusing on greater depth in key items and more values to boost page productivity.
Mirroring storewide sales events on the Internet.
Offering more size and style choices in key departments, including home, on the Internet.
Reinforcing JCPenney's multi-channel sales strategy with in-store POP signage in key departments, including window; providing specialty catalogs in related key departments, such as cookware; and making some specialty catalogs available at centralized checkouts along with the Big Book.
As has been the case across the operation, Penney's direct channel has been working to streamline its distribution and simultaneously boost operating efficiencies. The completion of Penney's store support center (SSC) network this month concentrates fulfillment for direct orders at distribution centers in Ohio, Kansas, Georgia, Wisconsin and Connecticut.
The multi-channel maneuver
Penney is nearly done paring redundancies. The company has closed two call centers and will eliminate yet another this year, leaving 10 in operation. It has culled five outlet centers used to liquidate catalog inventory, and now operates 22. It has shuttered one catalog fulfillment center and will darken a second in Atlanta this year, leaving it with four. Those moves will save $30 million annually, and the company's ledger will realize the full benefits in 2004, according to John Irvin, evp, president of catalog and Internet.
"Our cost structure is in line with our business," Irvin said. "The tougher decisions we've had to make are behind us."
Penney's new strategic model attempts to maximize category overlaps across the channels, and at the same time allow each channel — store, Internet and catalog — to create unique product that improves channel-specific competitiveness.
The company is doing more cross-selling on the Internet — insetting on a product page compatible products with higher mark-up to improve the margin on the transaction. A shower curtain page, for example, will offer wicker storage hampers and decorative curtain rods under the heading "You might also like…"
Penney's Web site is a key player in the cross-merchandising effort. Store-wide sales events now take place on line as well, Penney circulars are carried on the site and key product categories offer broader assortments on line than are available in stores or catalogs.
"Window is our best example of the three-channel synergy," Irvin said.
In-store signage in the window department invites customers to shop the catalog for additional sizes and colors. Penney's Web site features "customer solutions," offering how-to and product advice designed to boost add-on sales in the process. And, the fall Big Book for 2003 will present JCPenney as the Internet window authority to drive on-line traffic, he said.
"We've taken valuable space in the catalog, but we think the commitment is important because it leads that customer back on line," he said.
Building the Big Book
JCPenney's spring 2003 Big Book will be slimmer by about 200 pages than its predecessors of last year and 400 pages lighter than the big books of the late '90s. It will also put more marketing muscle behind key items, and will provide greater assortments within key items.
Although Penney is the last retailer still publishing a Big Book, the company remains committed to forging a profitable formula for the concept, chairman and ceo Allen Questrom told analysts in April. Penney execs acknowledged that in a rapid-paced retail world, the book's schedule also poses a challenge. Final buying decisions are made in fall, the book is printed in April, released in June and remains active until the following February.
"We found the retail timing and color palettes didn't always meet the needs of the catalog," Irvin commented. "Our customers told us we didn't have enough uniqueness in our assortments. We've been developing catalog-only and Internet-only assortments over the last two years to meet those customer needs."
The catalog is now pursuing higher margins on better assortments, improved cross-selling on the Internet and less dependence on surplus sales. Penney last year also improved the quality of the catalog's paper stock, photography, layout and production.
Together, those changes showed early signs of making a difference with the fall/winter 2002 book, Irvin said. While the big fall/winter catalog had a relatively flat productivity per paid circulation — the amount of sales dollars for every page circulated — rebuy rates showed improvement, a trend that carried into spring, he said.
"I strongly believe we have a solid foundation in place to begin to regrow this business," he added. "I know that everyone's anxious about us beginning to grow our top line again. That will happen — sooner than later. You can expect that our sales trend will continue to improve month to month. We will continue to be a profit contributor to JCPenney."
Small catalog launches
In the meantime, Penney has been launching volleys of test concept magazines that strike key merchandise niches and can reach consumers with more frequency.
The initiative began last fall with three publications: JCP Cooks, On Trend (fashion apparel & accessories), and men's outdoor apparel. Cooks and the women's book bolted out of the starting gate and are being rolled out this year.
In recent weeks, Penney tested three new niche books: Traditions (an apparel book aimed at a somewhat older, more traditional customer); Living Spaces (the best of bedding, featuring high style and high quality); and a fashion swimwear catalog. Traditions and the swimwear book were performing ahead of plan in the early going. "We're still evaluating Living Spaces," Irvin said.
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