Article

J.C. Penney gets 'maniacal' about digital commerce

The department store chain is looking to grow its online business by $1 billion within five years.

July 11, 2010

What follows is an excerpt from one of RetailWire's recent online discussions featuring commentary from its "BrainTrust" panel of retail industry experts.

J.C. Penney has seen the future and it's digital. The department store chain is looking to grow its online business by $1 billion within five years, according to a Dow Jones Newswire report, as it "restructures itself into a digital marketplace."

As the same article points out, Penney isn't about to close its stores, but it will put more emphasis on using kiosks, mobile device apps and other tactics to meld the physical and virtual worlds. Currently, online sales represent about 10 percent of the chain's total.

"We see JCP.com now as our flagship experience, our largest store," Mike Boylson, chief marketing officer at J.C. Penney told an audience at Goldman Sachs' e-commerce conference. "This is the growth engine in the company and it plays a key role in our merchandise initiatives."

Penney executive vice president and chief information officer Thomas Nealon described the company's online emphasis as being "on the verge of maniacal."

Mr. Nealon predicted a huge jump in mobile commerce in the years to come. He characterized as conservate estimates that the U.S. market will grow from a current annual rate of $2.5 billion to $5 billion to as much as $15 billion a year over the next five years.

Andrew Lipsman, a senior analyst with ComScore, told the News Quench website, "The entire retail industry, in one way or another, is becoming driven by digital, and the days of just going to the store and shopping are really declining."

Discussion Questions: Is the future of J.C. Penney and other department stores for that matter online? What traditional retailers do you think are doing the best job of melding their physical store and digital operations?

The online and offline efforts of retailers must be complimentary, as each plays a vital role in the sales process. Offline allows consumers to physically connect with products--touch them, try them out and see if they fit. Online offers the ability to compare a broader inventory, look for better pricing and gather valuable information. All retailers should consider how they meld these two worlds.

Going digital must mean more than kiosks in stores or making computer terminals available to consumers. Consumers should be able to buy something online and pick it up at the store. They should also be able to seamlessly return items to the store. - Max Goldberg, Founding Partner, The Radical Clarity Group

Yeah, while it's true that anybody with sense is going to go where the growth is happening--and for department stores, the only growth right now is clearly online--I hesitate whenever anyone seems to be going to an extreme. The growth is being captured online, but that doesn't mean that online is the growth engine for the company. To put it another way: how much of that online growth is driven by store experience? Either positive (as in, I saw it in the store but chose to buy online) or negative (as in, the store experience is so horrible that I would rather take a chance online than deal with the store)? It doesn't make sense to go all-in on a digital experience, when it is the physical in-store one that is the most at risk today. - Nikki Baird, Managing Partner, Retail Systems Research

I don't want to be disrespectful (he says, being a bit disrespectful). The core asset and investment JCP and other retailers have is their stores. Their first and top opportunity is making their stores into becoming a Direct Selling Media and digital should be a key and growing aspect of communicating (as in selling to) with shoppers where and when they make buying decisions. - Sandy Miller, President, Miller Zell

It seems to me that J.C. Penney is getting maniacal about their digital growth because Sears has done such a good job capitalizing on the media. Their website is a go-to destination for shopping for home appliances, and increasingly, electronics. Sears was one of the first to break into site-to-store. No wonder J.C. Penney is running hard to catch up.

While I believe that Sears had this vision back when it mattered, it is true that home goods categories do lend themselves to digitized, long-tail patterns because the purchase cycles are so long. The role of the store then evolves into more of a showroom for bigger purchases (longer cycle) with site-to-store service, and limited in-store inventory. - Liz Crawford, SVP, MARS Advertising

If someone were going to start a new retail business today, would they start it with a brick and mortar store or would they start it online? The future is online. This is not a fad. The advantage that brick and mortar retailers will have is to fully integrate their two businesses. They must see them as one. Online is not a stepchild, but in fact the driver of the business. It provides efficient reach that the store never could.

Efficiency? Every Thursday the recycle bin in the mailroom of our apartment building is full of Penney's FSIs that go right from the mailboxes to the bin. They never even make it to the people's apartment to get a glance. Every day the package room is filled with deliveries from Amazon, Zappos, Ideeli, et al. How much are those retailers spending to fill up the recycle bin? - Gene Detroyer, Entrepreneur, Advisor, Consultant, Counselor, Independent

Forty-six percent of in store purchases now rely on online research to validate that purchase decision. It is becoming mandatory for retailers to close the cross channel divide by linking the physical store to the digital world that consumers rely upon. Only a handful of the big box retailers are realizing that digital is playing an ever increasing role in driving in store sales. - Doug Thompson, partner, LaunchMedia

I like Penney's commitment. It is about time a conventional retailer takes the lead in retail innovation. Throughout the last 150 years, innovation has always come from outside the industry. Montgomery Ward was a copy editor before he saw the need for a retail catalog. The founders of eBay were computer programmers. Apple has become a great retailer on the backs of innovation. Michael Dell and Jeff Bezos have shown the conventional retail world how to harness the Internet for shopping.

In the end, it comes down to investment. Penney's is spending a substantial amount of its capital expenditure on digital commerce. Apparently this is a smarter investment to its board than new or refurbished stores in malls. Perhaps, at last, innovation can come from within the industry.- Bill Robinson, Senior Advisor, QuantiSense