While they once ruled the roost, department stores fell from grace in recent years. Since the dawn of online shopping, fewer consumers trek to the mall when they need new clothes, opting instead to browse without leaving the house. This was a direct hit to the department store business model, which offers a layout that's specifically designed for in-person shopping. Still, JCPenney is one of the few big names that's managed to stay afloat, along with Macy's and Nordstrom, but new data suggests that shoppers are abandoning the retailer.
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In a financial filing with the U.S. Securities and Exchange Commission (SEC) this week, JCPenney reported results from the third financial quarter, which ended Oct. 28. When compared with the same period in 2022, the company saw a 10.7 percent decline in net sales, dropping to $1.5 billion from $1.7 billion. In addition, total revenue was down by 11.1 percent during the quarter, following down to $1.6 billion from $1.8 billion.
In the report, JCPenney said the sales decline was due to ongoing "macroeconomic challenges," which also affected the credit card component of the business. The company noted that credit card approval rates were strong and the portfolio itself was healthy, even with rising interest rates and declining consumer savings. However, "declining late fees, cyclical rising losses and higher program costs" reduced credit income when compared with 2022.
There were some positive aspects from the quarter, with JCPenney attributing successes to the introduction of its $1 billion strategic plan, "Make It Count," which went into effect in early September. With the initiative, JCPenney said it observed an improvement in digital sales and store traffic, as well as customers' shopping frequency.
There was also an 11 percent increase in customers' average sales, which JCPenney cited as "a reflection of customers' confidence in the value and quality of the merchandise."
The retailer also improved merchandise gross profit. This was thanks to the reintroduction of national brands like Adidas, Dickies, and Wrangler, as well as margin improvements in private brands like St. John's Bay and Liz Claiborne, JCPenney said in the SEC filing. The company's inventory also improved, with the total down by 12 percent from the same time last year.
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However, in conversation with Retail Dive, GlobalData Managing Director Neil Saunders said that the positives may not outweigh the negatives for the department store chain.
“Many of the steps are about bringing JC Penney up-to-date on retail fundamentals rather than being truly innovative and transformative,” he told the outlet about JCPenney's relaunch. “The rise in foot traffic is a green shoot of hope, but the challenge is converting this into regular custom and harnessing it to grow the sales line.”
Saunders also pointed out that JCPenney is already a "weak player in a weak segment of retail," making it that much more difficult to survive in the "relatively weak consumer economy."
The latest sales decline is in line with results from the second quarter, where net sales were down as well, per a July filing with the SEC. Again, JCPenney attributed difficulties to the "macroeconomic environment" putting pressure on discretionary spending.
Despite some disconcerting data, according to reporting by Glossy, there is some hope for JCPenney during the current holiday season. The retailer is standing out from the crowd by offering pre-inflation prices.
“Our customer is definitely impacted by inflation. Everyone is,” Michelle Wlazlo, chief merchandising officer at JCPenney, told the outlet. “We kept our prices flat because we know our customer is having to make tradeoffs right now.”
