On Comeback Trail, What Can JCPenney, Best Buy Teach Other Retailers?

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JCPenney and Best Buy have shown signs of life in their earnings reports in recent days, providing some hope to brand leaders, other employees, investors and communities associated with the companies. Do their unlikely, though still very tentative, comebacks provide some lessons for other retailers that now are afflicted with big leaks in their own boats, such as Walmart, Target and Sears?

One of the main lessons of the improved recent performances by Minneapolis-based Best Buy and Dallas-based JCPenney is that major shifts in strategy may be required to survive today’s extremely challenging retail scene—and that some determination in following them can pay off relatively quickly.

Best Buy has shown some progress under new CEO Hubert Joly in implementing its “Renew Blue” plan, which focuses on boosting online sales, enhancing the in-store experience and leveraging the retailer’s multichannel presence.[more]

Brick-and-mortar traffic continued to decline for Best Buy in the last quarter, as it has for many other retailers, especially in consumer electronics. But customers who did come in were more likely to buy, he said. Joly believes that Best Buy has greatly stemmed the plague of “showrooming” in which consumers come into the store to do research and gauge prices, and then buy online instead.

“Like other retailers and as reflected in this quarter’s performance, we continued to see a shift in consumer behavior: consumers are increasingly researching and buying onlline,” he said.

At least Best Buy ultimately is getting more of those sales, with online revenues up 22 percent in the second quarter. One reason is that each of its stores now can ship products directly to online buyers. Another is that Best Buy is matching online competitors on price under Joly. But, of course, Best Buy is far from over the hump online.

Joly sees a new development in hardware actually helping prospects for Best Buy in the near future: the slowdown in the tablet market, and a renaissance in laptop sales. As more consumers apparently opt for laptops after experiencing the limitations of tablets—or, simply choose not to upgrade their tablets—such a shift will benefit PC retailers such as Best Buy because Apple dominates the tablet market, and Best Buy doesn’t sell Apple laptops.

As for JCPenney, the company under CEO Myron Ullman has continued to roll back the strategy of predecessor Ron Johnson, and consumers and investors continue to like the changes they’re seeing. The company is aggressively price-promoting (Johnson didn’t want to do that), re-investing in its private labels ranging from St. John’s Bay to Xersion (Johnson largely pooh-poohed them) and appealing more to younger shoppers (which Johnson sought to do but failed to do). As a result, more shoppers are returning to JCPenney than before and at least giving Ullman a chance to completely work the company through its financial challenges.

And many of them remain. JCPenney’s costs are still too high; its debt is huge; and the retailing environment remains treacherous. It is expanding online efforts but not necessarily improving customer service. The upcoming, crucial holiday season promises to offer another brutal test of JCPenney’s embryonic comeback.

But some of the new high-profile things that JCPenney is doing now are being greeted warmly rather than with amazement, as under Johnson. One of them is opening a store in Brooklyn even as analysts insist that JCPenney still needs to close dozens of stores overall. Another new gambit is a big national advertising campaign for Liz Claiborne, a JCPenney private label. With “Love, Liz Claiborne,” the company is trying to appeal to younger customers for its apparel, footwear, jewelry and home goods, with phrases such as “throw away the to-do list” and “a little impulsivity goes a long way.”

Both chains’ comebacks remain iffy. Have they accomplished enough to establish a playbook for Walmart, Target and Sears—each of which has slid into trouble these days from much stronger positions a couple of years ago, even while JCPenney and Best Buy were bouncing back from their darkest days?

Besides the importance of changing up their business models, so far Best Buy and JCPenney also have demonstrated that price aggressiveness can pay off even though their margins are dangerously slim. They also are demonstrating that the online realm still holds both the most promise and the biggest peril for traditional brick-and-mortar operations like those two brands.

Certainly other troubled retailers have been coming to the same realizations, with both Target and Walmart making great investments in digital transactions. But will they prove even as effective as JCPenney and Best Buy in dealing with the implications?

• Connect with Dale on Twitter: @daledbuss

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