What J.C. Penney Can Learn From Home Depot

Image: J.C. Penney.

For years, retailer J.C. Penney (JCPN.Q) has struggled to find a viable strategy to put an end to its declining financial prospects and get back on a sustainable growth trajectory. Having reversed course from its failed transformation earlier in the decade, Penney has largely returned to its discounting roots, yet it has also tried to expand on the more successful of its recent strategic moves. In particular, with CEO-to-be Marvin Ellison having come from home improvement retail giant Home Depot (HD 0.02%), J.C. Penney will likely look to adapt Home Depot's money-making tactics for its own use going forward. Let's look at some of the lessons that J.C. Penney might be able to learn from Home Depot's success.

Turning to technology
One thing that J.C. Penney hasn't done a particularly good job of is giving its customers as many ways as possible to make purchases. In particular, the rise of technology and the mobile revolution has led shoppers to expect that every retailer will make it not only possible, but easy to make purchases online or by mobile device, and integrating technology into the in-store shopping experience has become a vital component of overall retail sales strategy industrywide.

For J.C. Penney's part, though, the retailer is behind the curve. As Ellison pointed out at a recent conference, Penney is one of the few retailers with a major brick-and-mortar presence where customers lack the ability to make a purchase online and pick it up from a store location the same day. That has put Penney at a competitive disadvantage to other department-store retailers, most of which have embraced same-day in-store pickup and seen positive results from it.

Ellison's experience at Home Depot speaks to the potential gains from adding same-day in-store pickup to a retailer's sales arsenal. As he sees it, the significance of the move is that it "creates [a] same-day, real-time ability to connect the customer online to the brick-and-mortar locations." Home Depot has seen that not only does in-store pickup give online customers a better service experience by getting products sooner than they would through home delivery, but it also leads to in-store sales from those customers choosing to do further shopping during their visit. Similarly, Penney hopes that getting people through its store doors who might otherwise never choose to visit a physical store location will give its marketing efforts a chance to resonate and encourage repeat visits in the future.

Using stores as distribution centers
J.C. Penney expects to try to draw more customers into its stores, but it's also looking to make better use of its nationwide store network. For those customers who don't want to visit store locations, Penney hopes to make better use of its brick-and-mortar real-estate portfolio to ship products directly from local stores to nearby customers. By doing so, Penney can gain an advantage over online retailers with more limited distribution infrastructure, potentially offering faster shipping options more cheaply than competitors. Home Depot recently started testing its similar initiative to allow products to get shipped from stores, and its leadership is hopeful that it will further expand Home Depot's capacity to meet customer needs.

Already, Penney has had substantial success with this framework. Ellison said that Penney has around 200 stores that currently offer ship-from-store options, making them what he called "enterprise fulfillment locations." Given Penney's past experience as a catalog-based retailer, the company also has some primary central distribution centers that it formerly used for catalog order shipping, and by integrating those centers into its holistic e-commerce and shipping strategy, Penney could build out a much more impressive capacity to serve customers on all channels.

J.C. Penney has a long history as a retailer and has plenty of expertise on which to draw for its future strategic direction. Yet by learning lessons from Home Depot and other peers in the industry, Penney could improve its chances of a successful turnaround in the long run.