JC Penney CEO: Online Retail, Like Catalogs, Will Eventually Plateau (JCP)

Posted by · July 18, 2012 2:05 pm

JC Penney at The Shops at Tanforan in San Brun...Oh silly Internet, when will people smarten up and realize that you’re just a fad? I mean, how long do you actually expect people to use websites, with their vast inventories and all, when they can waste gas driving to countless physical locations that may or may not have what they’re looking for? It’s just a matter of time before consumers realize that saving time, money and hassle isn’t all that it’s cracked up to be.

As ridiculous as that rant may sound, a recent interview with JC Penney CEO Ron Johnson at Fortune’s Brainstorm Tech conference in Colorado this week wasn’t much better. Fortune senior writer Miguel Helft gave us his takeaways from the interview with Johnson, who has had a rough time since leaving Apple’s retail operation to assume the helm at the waning retail giant last November.

Helft’s article recounts:

Johnson…highlighted some of the improvements he is making in the stores. He announced that JC Penney had scrapped an outdated technology infrastructure and replaced it with an Oracle-based system. The new technology will allow the company to improve the in-store experience with mobile checkouts, self checkouts and tags based on RFID instead of bar codes, which would speed up purchases.

Johnson [also] said that JC Penney would begin launching mini-stores within thousands of its retail outlets in order to offer more compelling shopping experiences intended to bring customers back.

Granted, this first part sounds reasonable. As retailers continue to experience increased online traffic by maintaining a strong, convenient web presence—which, as a result, predictably slows foot traffic at physical locations—it makes sense to look for ways to cut back the considerable overhead and inventory costs that these big box stores once had to absorb in order to offer such massive selection at each individual location. One valid approach is that of “mini-stores,” which could reduce crippling expenditures by shifting marketing emphasis away from the expensive-to-maintain wide selection approach of the pre-digital era and toward the mass appeal of a pleasantly convenient shopping experience.

Whether it will actually be enough to placate the concerns of these retail chains—whose individual stores operate on slim margins as it is—remains a different matter altogether. However, it is in the latter half of Johnson’s interview at Brainstorm Tech that his strategy becomes less convincing, if not laughable.

Helft continues:

Facing an audience that largely believes that online retail will obliterate physical stores, Johnson took a contrarian view. He said he is bullish on physical retailing, and predicted that online retailing, just like catalog shopping a few decades ago, will eventually reach a plateau. He said different categories of retailing will level off at different points, and that “the physical store will have a permanent place.” If he had to choose between a bricks and mortar retailer and an online only merchant, Johnson said, “I take a physical retailer in a heartbeat.”

Although it’s admirable, it seems as if Johnson is missing two key aspects of the business he is in by making such claims.

First, he is clearly comparing the success of his experience as head of retail at Apple to his mission at JC Penney. The problem with this perspective is that Apple sells iPhones, iPads, iMacs and other devices—you know, products whose inventories are easier to maintain in smaller storefronts and, more importantly, whose purchasers are more likely to want a physical location to test those products and get professional assistance. Meanwhile, JC Penney, which specializes in far bulkier items like home furnishings, clothes, and other accessories—products that require larger storefronts to adequately display and store merchandise.

Although the argument could be made that people like to try on clothing and test out furniture before purchasing, the dearth of foot traffic in the physical locations of JC Penney and other similar retailers is testament to the frailty of that argument.

The second reason I question Johnson’s optimism is that consumers aren’t necessarily choosing between “a bricks and mortar retailer and an online only merchant” (emphasis added) as the JC Penney CEO suggests. Instead, it’s often a debate between going to a retailer’s nearest physical location—which, despite its expansive inventory, may or may not have what you’re looking for—and logging onto the website of that same retailer, browsing the entirety of its offerings, and having those purchases delivered to your front door.

Somewhat ironically, JC Penney is one of those stores with physical and online locations, which only makes it easier not to waste time, money, and gas going to a physical location.

For Johnson to compare retail websites—which in themselves comprise both an easily updatable, navigable catalog experience and the entire purchasing process—to a static, bulky catalog that still requires readers to either visit a physical location or deal with the hassle of over-the-phone ordering is to demonstrate a serious disconnect with the trajectory of consumer behavior. In fact, it’s about as ridiculous as claiming that the Internet itself is little more than a fleeting fad, destined to plateau in like manner to that of the rotary phone.

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