J.C. Penney (JCP) has long fashioned itself as a department store where customers can buy stylish, though not too fashion-forward clothes, at good prices.
But now the retailer is shifting some of its focus away from clothing at a time when one store chain after another, from Macy’s (M) to Kohl’s (KSS) to Gap (GPS) to L Brands’ Victoria Secret and even Nordstrom (JWN)has reported alarming declines in sales.
Penney itself was not exempt, reporting its first decline in comparable sales in 10 quarters and stirring fears its turnaround is already stalled. Culprit No. 1 was weak clothes sales.
“Candidly, our over-reliance on apparel hurt us at times in the first quarter,” Penney CEO Marvin Ellison told Wall Street analysts on Friday. “We know we must continue to pivot our merchandise assortment toward less weather-sensitive categories while providing customers with more reasons to shop in our stores.”
While Ellison pointed to uncooperative weather during the quarter, earlier this week Kohl’s finance chief admitted that retailers hadn’t done enough to make their clothing exciting and new.
So it’s no surprise that apparel sales have either slowly migrated to off-price stores like T.J. Maxx (TJX) or come from a steady drumbeat of deep discounts at the traditional specialty and department stores.
According to the Department of Commerce, apparel sales rose 1.9% in April compared with a year earlier, one of the weakest categories in terms of growth.
For a store like Penney, which gets 57% of its revenue from clothes, weak apparel sales are a big problem. And changing apparel will involve a major re-thinking for a retailer with billion-dollar clothing brands like St. John’s Bay.
Ellison, who was a Home Depot (HD) executive for 12 years, had already telegraphed this pivot earlier this year when he revealed to Fortune Penney would resume selling appliances after 33 years. Penney is now rolling out its appliance areas to 500 stores after a pilot. The idea is to sell more big-ticket items and bring in new customers. (Ellison told analysts that one third of its appliance customers were new and spent on average $1,200 per transaction.)
Earlier this week, Penney announced new initiatives related to bigger home items: it is adding Signature Design by Ashley to its furniture assortment in some stores to expand its living, dining and bedroom offering. And it is testing store-within-a-store sports for Empire Today to sell items like carpet, hardwood, laminate, vinyl and tile samples.
Penney is also trying to get back to its leading position in window treatments, an area it used to dominate decades ago, by increasing the floor space it gives the category another 25%. (Home goods now generate only 12% of Penney sales, down from 20% a decade ago.)
But even in the softer goods area, the new shift is on display. Penney has been giving more space to shoes, handbags and fashion accessories, and generally less to apparel. The Sephora cosmetics shops have provided a much needed boon to Penney, generating about four times more sales per square foot than the store average. Penney now has Sephora boutiques at 546 of its 1,000 stores, with more to come.
“We’re taking square footage away from apparel,” Ellison said, referring to Sephora in an interview with Fortune on Friday. “That’s an example of being thoughtful about which categories should grow, which categories should shrink.”
It’s not to say Penney is turning its back on apparel. The retailer recently launched boutiques for plus-sized women at its stores and is adding activewear to its Michael Strahan line of menswear.
But it seems clear that Penney understands what a commodity clothing has become unless it really stands out. And this week’s retail bloodbath shows what consumers think of products they can find anywhere.