When retail businesses are not doing well, they normally head on to bring a change in the merchandise or the merchandising. Where merchandise is the variety of collection being offered at the stores, merchandising is the way those goods/services are presented to the customers. Given limited budgets in recessionary times, firms normally have the option to bring a change in only one of them. However, this decision is absolutely crucial for the future of that company. In order to understand how disastrous a wrong strategy can be and how fruitful going in the right direction can be, you will have to read the following:
Throughout 2012 as JC Penney embarked on its transformation, the company’s management placed a significant emphasis on the merchandising of products and the in-store experience instead of focusing on key in-demand merchandise categories (such as footwear, accessories, and beauty), or defending its home business. The reasoning behind management’s focus on the store environment was the idea that e-commerce has made the physical shopping experience much more important. In theory, it sounded like a good plan: Shop-in-shops among coffee bars, free Wi-Fi, LEGO pits for kids and comfortable seating areas would result in a great time for the shopper in the hopes of driving traffic and keeping the customer lingering. However, since JC Penney embarked on its massive project of revamping most of its store base, traffic has been down significantly and sales have been down even more so. To be fair, most of the aforementioned amenities have not yet been installed in the stores, but the physical change of the stores to shop-in-shops has been quite evident, and the merchandising of the products has changed drastically. What the company has done so far to change the store base has resulted in worse than expected sales and declining traffic.
JC Penney’s turnaround lies in stark contrast to Dillard’s, a very successful turnaround effort. For most of the mid-2000’s, there was no question that Dillard’s was struggling, reporting quarter after quarter of negative comp store sales and clearly in need of a change. As a result, beginning in mid-2000’s, the company began executing a shift in strategy which involved making subtle, yet effective refinements to its business. These included closing underperforming stores, slowly bringing in top brands and altering its merchandise mix with a focus on key categories that resonate with its core customer base (i.e. “FAB”). Notably, Dillard’s turnaround did not involve large CapEx spend or significant physical changes to the stores. After making these strategic refinements, Dillard’s began to reap the benefits. Not only has comp store sales growth exceeded market expectations, but the company has reported record earnings growth, all of which benefit its share price.