J.C. Penney Makes Presence in Bengaluru’s Tech Hub

Retailer’s tech center to manage IT systems and develop e-commerce and analytics solutions

Source: Company's Website
Source: Company’s Website

The J.C. Penney Company (NYSE: JCP) has joined the list of global retailers such as Target Corp. (NYSE: TGT), Tesco PLC, Amazon.com Inc. (NASDAQ: AMZN), Victoria’s Secret, and Lowe’s Companies Inc. (NYSE: LOW) to set up its technology center in India’s Silicon Valley, Bengaluru. Bengaluru, the capital of Karnataka, has emerged as the preferred destination for global corporations looking to set up their back offices, due to its engineering and analytics talent, apart from high-quality manpower base and cost efficiencies. In fact, Bengaluru is home to 35% of the 1,000 R&D centers of MNCs in India.

J.C. Penney has been sourcing from India for over a decade through J.C. Penney Purchasing India Private Limited. The retailer has around 1,000 stores in the US and mainly competes with market leader Macy’s Inc. (NYSE: M), the largest US department-store company.

The US retailer’s technology center in Bengaluru is expected to house 1,000 employees when fully operational in about two years. To start with the Company expects to hire 450 people by the end of 2016. The center will have engineers to manage its internal IT systems and also to develop digital, e-commerce and analytics solutions. J.C. Penney has teamed up with ANSR Consulting, a global in-house center (GIC) strategy consultation and implementation firm, to set up its tech center in Bengaluru.

In India, J.C. Penney has strategic ties with IT majors such as Infosys Ltd (NYSE: INFY), Tata Consultancy Services, and Accenture PLC (NYSE: ACN). Putting these aside, the new technology center will focus on strategic IT solutions and will aim to build in-house talent in the retail and e-commerce areas.

Transformational phase

J.C. Penney is going through a transformational phase amidst tough market conditions and intense market competition; the Company recognizes the need to change its department store model by resorting to digital and omni channel retailing. The Company’s brick-and-mortar departmental store model seem to have lost its luster over the years and is witnessing shrinking footprints, with consumers increasing turning to online shopping in a big way. Consequently, J.C. Penney is focusing on creating a seamless experience for shoppers across its online stores, jcp.com, and all its digital channels.

In a desperate bid to salvage its brick-and-mortar stores, the Company went into revamp mode back in 2012, when then-CEO, Ron Johnson, ordered a change from the traditional department format to branded boutiques. The company replaced cash registers with coffee and juice bars, bought 55,000 mannequins to place at strategic locations, and created hang-out areas called “Town Squares”. However, the revamp efforts failed miserably with Johnson being ousted, leaving the Company carrying $5.6 billion of debt at the end of 2013. However, by the intelligent use of excess cash, this massive debt has been reduced to $4.7 billion as of the end of Q1 FY16.

The current CEO Marvin Ellison’s mantra is to achieve future growth over the next few years through tie-ups with private brands, enhancing omni-channel presence, and improving revenue per customer. As part of these plans, the Company is working on different initiatives such as redesigning its mobile app to allow users to pull up products easily, integrating wallet features for easy payment, and capability to save coupons and offers. The Company is also improving its website capabilities by enhancing desktop experience, allowing greater personalization, and introducing analytics to better understand customer preferences.

Q1 FY16 financial results

J.C. Penney’s Q1 FY16 bears a general similarity to the slump in the retail sector at large, where same-store sales were battered either by poor product mix, choppy weather, and soft buying sentiment among consumers for certain categories of non-durable items. Supermarket chains in general witnessed low demand for their products owing to intense competition from big box online retailers despite store expansions and increase of product categories during the Easter season. Many U.S. brick-and-mortar retailers, such as Wal-Mart Stores Inc. (NYSE: WMT), Macy’s, and Target Corp. (NYSE: TGT), have been unable to ward off intense competition from online merchants like Amazon.com Inc. (NASDAQ: AMZN) and fast-expanding dollar store chains that offer competitive pricing with a shorter delivery time.

J.C. Penney’s Q1 FY16 net sales fell 1.6% to $2.81 billion from $2.86 billion in the year-ago quarter. Same store sales fell 0.4% during the quarter. On the brighter side, the Company was able to narrow its loss to $68 million, or $0.22 per share, compared to a loss of $150 million in the year-ago quarter.

During Q1 FY16, Sephora beauty shops continued to drive in-store traffic. J.C. Penney plans to set up an appliance showroom in nearly 500 stores with the aim to boost sales throughout the rest of FY16. The Company’s appliance test that started in February 2016 has already been drawing in new customers and improving sales.

Stock Performance

J2JC Penney’s stock stood at $8.88, flat for the day, at the close on Thursday, June 30th, 2016, having vacillated between an intraday a low of $8.74 and a high of $8.92 during the session. The stock’s trading volume was at 9,799,229 shares. The Company’s market cap was at $2.73 billion as of Thursday’s close.

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