J.C. Penney Co. Inc. can’t beat the e-commerce boom, so it decided to expand its footprint by looking to become the Amazon for businesses in the $200 billion hospitality industry.
More important for investors, the company’s investment in an area of strength is a sign of management’s resolve to thrive, rather than just survive, in the new retail environment.
The department store chain has been among the hardest hit by secular changes in the retail industry, as consumers have increasingly chosen the convenience of shopping for clothes at home on their phones over making trips to the mall.
The stock JCP, >+1.07% slumped 3.9% to $4.49 Thursday, to close just above the May 15 record low close of $4.34, which followed the company’s disappointing fiscal first-quarter results. The stock has plunged 46% year to date, while the SPDR S&P Retail exchange-traded fund XRT, >+0.02% has shed 7.1% and the S&P 500 index SPX, >+0.03% has gained 5.7%.
“For all the trouble they’ve had, what’s kept them alive is that they’re investing in growth categories.”
On Thursday, the company announced plans to take advantage of areas in which sales trends were improving, such as major appliances, by offering business-to-business (B2B) services for the hotel and lodging and multiunit residential industries.
“Our entry into the B2B program reinforces our home refresh initiative, while providing new and innovative ways to achieve sustainable growth and profitability,” said Chief Executive Marvin Ellison in a statement. “The idea first stemmed from hotel operators who were already ordering large volume purchases of bedding, bath and window treatments at JCPenney.com.”
B2B was a term made popular during the 1990s internet boom to differentiate between web-based transactions between businesses, and online sales made direct to consumers, or B2C, which is the space currently dominated by Amazon.com Inc. AMZN, >+0.24%
“The move to B2B makes a lot of sense,” said Maureen Mullen, chief strategy officer at consumer brand consulting firm L2, in a phone interview with MarketWatch. “For one, [J.C. Penney] is entering an area that Amazon is not playing.”
J.C. Penney said its B2B program will use its nationwide network of brick-and-mortar stores and its vast supply chain network. “JCPenney offers an important competitive advantage by being one of the most experienced retail sourcing organizations in the industry,” the company said in a statement.
But the company indicated that the move was about more than just finding a way to avoid competing with Amazon. J.C. Penney said it recognized that with its experience in designing and sourcing home textiles and its recent re-entry into the major appliance market, it was in a good position to supply hotels, innkeepers and property management companies with bulk purchase needs, an industry representing about $200 billion in sales a year.
The company did not respond for request for further comment.
Sarah Diseker, vice president of growth and business development at customer-relationship-management data analysis company Ansira, said J.C. Penney basically looked at what it was good at, and proactively used what it knew about its customers to create a road map for new revenue streams.
“What J.C. Penney is doing is a smart move,” Diseker said. “They really decided to get down to the basics, to say what are we missing, and the data revealed to them that they had this whole segment of buyer that could be serviced better.”
L2’s Mullen said what’s encouraging about J.C. Penney’s move going forward, is the company was looking to invest in opportunities, rather than just focus on fixing its problems.
“For all the trouble they’ve had, what’s kept them alive is that they’re investing in growth categories,” Mullen said. “It’s a signal to the market that they are not going to be just left for dead.”