J.C. Penney Gets The Net

Its quiet mastery of e-biz has helped turn the department store around

Which brick-and-mortar retailer attracts the most shoppers to its Internet store? The answer may surprise you: J.C. Penney Corp. (JCP ), the century-old, moderate-priced department store chain so troubled six years ago that many were predicting its imminent demise.

In recent years, Penney's has consistently ranked among the top five Web sites in terms of the number of paying customers it attracts, according to Nielsen//NetRatings (NTRT ). In the first quarter, jcp.com drew 926,000 such shoppers, which put it in the company of eBay (EBAY ), Amazon.com (AMZN ), Ticketmaster, and Bertelsmann's online music business. The achievement has gone largely unnoticed, with most of the talk about Penney's turnaround centering on the revitalization of its merchandise. "The perception out there is that we are an old store doing well," says CEO Myron "Mike" Ullman III. "Most don't think of Penney and the Internet in the same sentence."

Penney's online success reflects a broader trend among traditional retailers: using the Net not only as a place to make a sale but also as a tool to lure shoppers to stores. Penney led the way, though, in encouraging cooperation between its Web site and its stores. "Most retailers fought territorial battles as the Internet started to eat into store sales," says Jim Okamura, senior partner at J.C. Williams Group. "Penney embraced the Internet from the outset."

Necessity can foster innovation. Penney's catalog revenues peaked at about $4 billion in the late 1990s and have fallen every year since, though at a slower rate recently. Last year they were $1.7 billion. Online sales, meanwhile, totaled $1.3 billion in 2006.

When Penney launched its Web site in 1994, it sold one product: Power Rangers. It was a modest start, but the company—long comfortable selling directly to consumers through its catalog—had the right mind-set to make a smooth transition to the Internet.


Since then, Penney's Internet, store, and catalog businesses have become far more intertwined. Like Sears Holdings Corp. (SHLD ), it sells a wider variety of goods on the Internet: nearly three times the number of products available in its 1,000 stores. That has proved to be a cost-effective way to sell slow-moving items, says Bernie Feiwus, senior vice-president of Penney Direct, who has experience in the dot-com world as well as at Neiman Marcus. Shoppers have responded. Candy Washington, a Cochranville (Pa.) nurse, says she often shops at jcp.com with her 9-year-old daughter because it has more items in the larger size her child wears.

Feiwus says that mailing specialty catalogs, such as for baby furniture, spurs sales online as well. In August, Penney became one of the few retailers to make Internet access available at its 35,000 checkout registers. And it was one of the first to allow online shoppers to pick up and return orders at stores. Now they can check which clothes are in stock at local stores, too, a feature no other major apparel retailer offers.

As a result, Penney has one of the most productive Web sites among mainstream retailers, says Heather Dougherty, a Nielsen analyst. Internet sales accounted for 6% of Penney's $20 billion in total sales in 2006. That compares with 4% at Sears and less than 1% at Wal-Mart Stores Inc. (WMT ), according to Internet Retailer. Even more promising for Penney: The average age of its online shoppers is 25 to 35, considerably younger than those in its stores.

By Robert Berner

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