J.C. Penney Brings Back Commissions to Boost Turnaround

J.C. Penney Store
An employee loads a gift card at the J.C. Penney Co. store in Glendale, California. In November, the chain posted its first gain in monthly sales in almost two years amid rising demand for home products, men’s apparel and women’s accessories. Photographer: Patrick T. Fallon/Bloomberg

J.C. Penney Co. is reviving sales commissions, reversing Ron Johnson’s decision to kill the practice during his tenure, as the battered department-store chain seeks to ignite revenue growth and persuade high-performing employees to stick around.

Beginning next month, the retailer will start compensating more than 3,000 staff members for their sales chops, Daphne Avila, a J.C. Penney spokeswoman, confirmed in a phone interview. The move is designed to sell more fine jewelry and home furnishings, she said. Avila also said J.C. Penney will cut hourly pay for these workers while declining to disclose by how much or what percentage they’ll receive in commissions.

“As we continue to stabilize the business and regain market share, one of our most important goals is to reconnect with our customer,” Avila said.

Johnson, ousted as chief executive officer in April, ditched commissions because he wanted salespeople to focus more on customer service than racking up sales. While his previous employer, Apple Inc., doesn’t pay its salespeople commissions, the practice is relatively common at department-store chains. Nordstrom Inc., Macy’s Inc. and Sears Holdings Corp. all pay commissions to some of their employees. Big-box retailers such as Wal-Mart Stores Inc. don’t, preferring to use everyday low prices to drive sales.

‘Bullish Sign’

“If you’re net increasing the amount of service in the store and willing to pay people more, that’s a bullish sign,” Paul Swinand, an analyst for Morningstar Inc. in Chicago, said in an interview.

J.C. Penney rose 1.2 percent to $7.01 at the close in New York. The shares have declined 23 percent this year.

Avila declined to say what percentage of hourly workers are moving to commission and said the move will have no material effect on store operating costs. J.C. Penney employed 116,000 people as of Feb. 2, 2013.

One of the few negatives could be that the salespeople moved to commission could make less than they did before because J.C. Penney has fewer customers visiting its stores, said Rick Snyder, an analyst for Maxim Group LLC in New York.

“They could get frustrated and leave,” Snyder said. And that would mean J.C. Penney would be losing some of its best salespeople, he said.

Ullman’s Initiatives

Since replacing Johnson as CEO, Mike Ullman has reversed several of his initiatives -- restoring promotions and popular private-label brands -- and killed a plan to turn stores into collections of boutiques. Ullman also shored up J.C. Penney’s liquidity by raising $3.89 billion through borrowings and selling shares. In November, the chain reported its first gain in monthly sales in almost two years amid rising demand for home products, men’s apparel and women’s accessories.

On Jan. 8, the Plano, Texas-based company reiterated its forecast that same-store sales would improve in the fourth quarter and that it would have more than $2 billion in liquidity at the end of the period. Still, the company failed to provide December sales data it had made public the previous three months. The shares dropped 10 percent that day and have fallen 56 percent since the company announced Ullman was returning as CEO.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE