If you’ve walked into one of the more than 1,000 JCPenney stores across the U.S. and Puerto Rico lately, you may have been surprised to find what looks like–pardon the pun–
a shiny, new Penney.
Many of the stores have been refreshed with updated areas showcasing handbags and jewelry, called center core. This year, an additional 60 stores have seen the introduction of a Sephora inside JCPenney makeup boutique. Also, 120 of the chain’s hair salons have been rebranded in a partnership with InStyle magazine and now have attractive features, such as modern signage and exposed brick.
The numbers behind the retailer are looking just as bright. It has 87 million active shoppers, having recouped the 20 million shoppers it lost between 2011 and 2013. Sales per square foot were $165 in fiscal 2015, up 12% from two years prior–the best they’ve been since fiscal 2011.
With the first half of the year demonstrating growth–comparable store sales rose 2.2% in the second quarter–JCPenney is sticking to its earnings estimates. It’s projecting EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1 billion for 2016 and $1.2 billion for 2017, up from an adjusted $715 million in 2015 and a restated $377 million in 2014. All of this good news has boosted analyst and investor confidence in the stock; JCPenney shares have rallied more than 47% this year.
The man behind the turnaround, Chairman and CEO Marvin R. Ellison, is–not surprisingly–also making headlines. But the 51-year-old, who became president in 2014 and took over as chief executive last year, is more often lauded for his steadiness than his shine. Last year, The Dallas Morning News proclaimed that Ellison’s story is “classic JCPenneyâ€ with his hardworking, middle-income upbringing, and his willingness to grind every day. A Fortune cover story in March dubbed him “the opposite of flashy,â€ with astute attention to details, especially those often overlooked as obvious, and a relatability to the Penney customer.
While Ellison may lack flash, he’s got no shortage of brilliance. JCPenney executives describe him as an intelligent, inspiring, driven leader, who has coalesced the company’s 100,000 employees around a singular mission: to help their customer find what she loves with less time, money, and effort. His leadership in restoring the value of JCPenney for its customers, associates, and shareholders is precisely why Ellison has been named the 2016 Black Enterprise Corporate Executive of the Year.
Teaching an Old Retailer New Tricks
It’s no small task to bring a legacy retailer like the 114-year-old JCPenney–founded as “The Golden Ruleâ€ by James Cash Penney, in Kemmerer, Wyoming–into the age of Amazon. However, that challenge becomes gargantuan when the company is reeling from a failed reinvention, which saw sales plummet by 35% and resulted in the layoff of 40,000 employees.
“I don’t think anyone in the external environment can really understand how difficult the situation was that Mike Ullman walked into in 2013,â€ Ellison said of his predecessor at this year’s analyst meeting, adding that when he took over, he’d counted more than 150 projects the company was trying to tackle simultaneously to turn itself around.
“When I started, one of the first things I would ask the team was, ‘Describe our customer. Outline who our three chief competitors are. What are some of the key financial milestones we need to try to hit? Really, what’s our mission, as a company?’ Those sound like very basic and fundamental questions,â€ Ellison says, “but if you’re in the midst of a turnaround, everything’s important. You want to serve every customer. You want to chase every financial measure. But, when you’re chasing so many different things, you’re diluting your focus and you’re diluting your ability to solve the biggest, most importunate issues.â€
In addition to streamlining and clarifying the company’s objectives, Ellison had to build a team that could take them through the next phase of the turnaround. Of the original 13 people that reported to the CEO when he first arrived, only two remain today. All are focused on the framework of three areas that are key to the company’s resurgence. Ellison calls them the “strategic pillarsâ€: revenue per customer, omnichannel, and private brands.
One of the ways the company plans to increase revenue per customer is with its center core concept, which it tested in 12 of its stores for almost a year before rolling it out to a third of all stores; those stores are now outperforming the chain. Such data-driven decisions and similar testing are hallmarks of new initiatives, such as a return to selling appliances after a 30-year hiatus.
The omnichannel strategy is all about balancing traditional sales and e-commerce. “We’re all facing the same challenges, and that is how you create a seamless connection between brick-and-mortar and your digital customer. It is critically important in any traditional retailer. There is no perfect science, but we were way behind,â€ Ellison says.
JCPenney’s been working hard to catch up, with this year’s chainwide rollout of its “buy online, pick up in storeâ€ service and a redesigned mobile app. “Streamlining the experience, so customers can find what they want, when they want, and how they want, is something that we’re keenly focused on. We’re continuing to make shopping simpler than it ever has been before,â€ says Michael Amend, executive vice president of omnichannel.
Private labels currently account for just over half of the retailer’s sales, or $6 billion in 2015, but the company plans to grow that to as much as 70% within the next three years. Just this quarter, it has announced a new signature line of high-end cookware from Cooks and a plus-size line from Project Runway winner Ashley Nell Tipton.
One of the private label success stories is Collection by Michael Strahan, a menswear line from the NFL player turned television host that launched last year online and in 200 stores with suits, sports coats, dress shirts, and accessories such as ties, belts, cufflinks, and suspenders. This year saw the addition of shoes to the collection as well as a new line of activewear under the label MSX by Michael Strahan. Both lines are available in extended sizes and are now in 500 stores.
“I remember the JCPenney catalog as a kid. That was always a big thing when that came in the mail,â€ Strahan told USA Today when the first collection launched. “They have always made fashionable, stylish clothing, but most important, affordable clothing. I thought that was very important to make things people can actually afford and that are fashion-forward. I’m glad that we’re partners.â€
Gross profit margins are higher on private brands, at a reported 40% for JCPenney compared to 30% for the national brands it carries. “How we build our private brands and build value into them is going to be the key,â€ says Chief Merchant John Tighe. “Marvin has helped us find ways to expand our brands, expand our offering, and get better every day in what we do.â€
“As long as we can give the customers a reason to shop [with] us in store and online, and we can offer products that create a level of differentiation between us and everyone else, this company will continue to be successful,â€ Ellison says. “If we can hit our financial plan for the second half of the year, we will bring this company back from the brink of extinction to profitability.â€
The Right Man for the Job
At the time of Ellison’s hiring in 2014, Thomas J. Engibous, then chairman of JCPenney’s board of directors, said in a press release, “The Board has completed its search for the right CEO to lead the next stage of JCPenney’s growth. We are delighted to have found that person in Marvin Ellison, a highly accomplished retail executive with a history of delivering top and bottom line results at major American retailers. … We believe he is well equipped to return the company to profitable growth.â€
Ellison’s predecessor, former CEO Ullman, agreed: “Over the course of his career, he has proven his ability to produce results by improving operations, building customer loyalty, and motivating his teams. His experience and leadership are exactly what we need to accelerate the progress we have made over the last 18 months.â€
A lot of what Ellison has been able to accomplish since then has been data-driven, which is part of the science of retail. However, there’s also an art to what he does, and his retail instincts have served him well, especially in this position.
“Because I grew up most of my life with value and saving money as the primary expectation around how to live life, as we think about the ways we can serve customers, operating in the same demographic and the same household income, I connect really well with that,â€ he says. Simply put, Ellison knows the JCPenney customer so intimately, because he’s been the JCPenney customer.
The fourth of seven children, Ellison grew up in the small town of Brownsville, Tennessee, roughly an hour and 20 minutes northeast of Memphis. “There was a JCPenney in Jackson, Tennessee, about 20 minutes from our home. We would oftentimes shop there for back-to-school and for Christmas,â€ Ellison says.
“My parents, for many years, struggled financially to maintain a good household; making sure that we had clothes to wear, we had food to eat, we had a place to stay, and that we could get up every day and feel good about ourselves. But, we also operated on a pretty tight budget. We had an understanding that it was important for us to be really, really smart about everything we did, and how we spent our money. Growing up that way, working my way through college, and in some cases, having to work two jobs while going to school full time, gives you a sense of appreciation for anyone operating on a budget and customers that are looking for value,â€ he says.
Ironically, it was his need to work during college that ignited Ellison’s career in retail. He went to his school’s employment office with one simple request: employment at the highest paying, part-time job that they had available. It happened to be at Target, and it paid four dollars and thirty-five cents an hour.
Ellison’s start at Target as an hourly store security officer marked the beginning of both his love of retail and his leadership philosophy of listening to the employees on the front lines. He went on to earn a business administration degree in marketing from the University of Memphis and an M.B.A. from Emory University. He also spent 15 years working his way up the ranks, before heading to The Home Depot for a 12-year stint that led to his rise to executive vice president of U.S. stores, with responsibility for more than 700 stores and 150,000 associates.
“I’ve always had big dreams and aspirations. I had no idea how I would get there, but my parents were so wise that they never snuffed out a dream. It didn’t matter if it didn’t make any sense at all, they would just say, ‘You can do it. Focus on your education, put God first, be a good person, work hard, and you can achieve all your dreams in life,’â€ he says.
Ellison was very serious about those big dreams, as his wife, Sharyn, can attest, “I used to tell him, when we were in college, ‘You’re going to be real good at being old, because you’re getting so much practice right now.’ Well, he’s actually a lot lighter now than he was when we were in college, because he was very serious. He was stricken with wisdom at an early age.â€
The Secret to His Success
So how has Ellison been able to translate that wisdom into forward momentum, across an organization as weary and wary of change as JCPenney must have been after its failed makeover? According to the executive team Ellison’s built to help him effect that change, it involves getting a lot of feedback, setting a crystal-clear vision, and getting everyone on board.
“Marvin has the ability to put himself in other people’s shoes in a really profound way. I don’t think he’s ever forgotten where he’s come from. Even as he interacts with people on a day-to-day basis, he starts with positive intent and an ability to understand where that person is coming from. He’s an incredible listener and an incredible storyteller,â€ says Chief Customer and Marketing Officer Mary Beth West, one of Black Enterprise’s “75 Most Powerful Women in Businessâ€ and “Top Women in Advertising and Marketing.â€ West, who had served on JCPenney’s board since 2005 when she was tapped for the position last year, has brought 25 years of marketing leadership and brand management from Kraft and MondelÄ”z to the retailer.
Ellison’s listening skills are a strength mentioned again and again by his colleagues. “If you talk to those who have worked for and with Marvin, the feedback from them would be that he truly looks to engage each and every individual throughout the organization, hear what their input is, and see what they are seeing,â€ Amend says.
Joe McFarland, executive vice president of stores, who followedÂ Ellison from Home Depot, agrees, “He understands how to motivate people. He understands the buttons to push to get the best out of a person. Marvin has extremely high standards, as it relates to performance. There are no free rides. He sets a very aggressive timeline for us, but he’s also a great mentor to guide you on the how to get there. You’ll never have one of those moments where you sit back and ask yourself, ‘Am I on the right track?’ The way that he leads, he brings you along with him.â€
That ride is a long way from over. There’s still a lot of work to be done at JCPenney. The share price, at just under $10, is still well below its $86 peak from 2007. Average annual sales per square foot are still significantly below competitors, such as Kohl’s, and total sales are nowhere near the $18 billion the retailer produced in 2009.
But analysts are seeing the bright side. Earlier this year, Deutsche Bank reiterated its “Buyâ€ rating on the stock. “JCP is taking market share from peers which likely include other department stores as well as specialty apparel players, many of whom are closing doors at an accelerated pace. This top-line resurgence is occurring while the company is right-sizing the entity,â€ analyst Paul Trussell reported. “CEO Marvin Ellison has his newly assembled team focused, and his recent open market purchase [Ellison bought 50,000 shares of JCP stock in March] highlights his personal conviction in the opportunity that lies ahead.â€
And Ellison himself believes the company is in its final phase of the turnaround, which he’s calling the “growth and profitabilityâ€ phase. “We’ve been working our way over the past twelve months, and we’ve made great progress,â€ he says. “We have a lot of work to do, but the journey has at least started.â€
This story appeared in the September 2016 issue of Black Enterprise magazine.