Why J.C. Penney Is Betting Big on Toys

Jul 13, 2017

J.C. Penney (jcp) CEO Marvin Ellison was not kidding when he said he wanted to make the department store retailer less reliant on apparel.

On Thursday, J.C. Penney announced it is rolling out toy shops in all of its 1,000 or so department stores. The addition is the latest signal the retailer is serious about lessening its reliance on apparel (a category that generates 60% of the its sales). Last year, the department-store chain resumed selling large household appliances for the first time in decades.

It's easy to understand why Penney sees opportunity in the $26 billion toy industry. According to the Toy Association, U.S. industry sales rose 5% last year, on top of a 7% increase the year before. (Apparel sales meanwhile have seen tepid growth industrywide, with the notable exceptions of discount chains like T.J. Maxx.)

Photograph by J.C. Penney 

The department store chain could certainly use the boost. In its first quarter, comparable sales fell 3.5%, its third straight decline. Shares are currently trading near all-time lows.

Penney's new 500 square-foot toy shops will offer merchandise such as Barbie dolls, Hatchimals, and Star Wars light sabers in a bid to bring in younger parents. There will also be small play areas. The move has a certain back-to-the-future aspect to it: J.C. Penney sold toys from 1963 and 2004 in its Christmas catalog (see the 1967 edition below). The 115-year-old chain even offered house toy brands like Little Jim and Mary Lu back in the late 1920s.

"We brought toys back last holiday season to see if they would resonate once again," Penney Chief Merchant John Tighe, said in a statement. Last holiday season, Penney carried a limited section from two leading two brands. But now the retailer wants to build on that opportunity as it looks to differentiate its assortment vis-à-vis those of rivals like Kohl's (kss) and Macy's (m).

The Penney toy shops will be located adjacent to the Disney (dis)shop-in-shops collections, which, for all of Penney's overall challenges, have been a large success. Online, Penney will offer a broader toy selection, along with big-ticket items such as bikes and trampolines.

While traditional toy retailers are struggling -- Toys R Us' sales fell 6.3% las quarter -- Penney still faces some stiff competition in the form of Walmart (wmt), Target (tgt) and Amazon.com (amzn). Together, these three mass retailers essentially own the toy market.

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