J.C. Penney is exiting the home appliance business Feb. 28 and may reduce store space in the process.
The decision by CEO Jill Soltau unravels a major initiative started by her predecessor Marvin Ellison, who left Penney last May to become CEO at Lowe’s home improvement chain.
By removing appliances from 600 home departments, Penney said in a statement that it expects “to better meet customer expectations, improve financial performance and drive profitable growth.”
The home department reorganization involves more than washing machines and refrigerators.
Furniture, which is now in 105 stores, will only be available on jcp.com and some stores in Puerto Rico. Mattress departments, which were also added and reconfigured with the appliance rollout, will remain in 450 stores and online, said Penney spokeswoman Daphne Avila.
The decision also reduces inventory, which Soltau has said is an area she is working on, and gives stores the space to “create an enhanced shopping experience that inspires repeat shopping trips,” the retailer’s statement said.
“Optimizing the allocation of store space will enable us to prioritize and focus on the company’s legacy strengths in apparel and soft home furnishings, which represent higher margin opportunity,” the company said.
Men’s, women’s and children’s apparel, along with window coverings, bed, bath and kitchen merchandise, have been Penney’s core merchandise categories since the 1970s and 1980s.
Analysts had speculated that nixing appliances would be Soltau’s first big change, but the company wasn’t ready to answer the question until Wednesday. Since she assumed the CEO job in mid-October, Soltau has been going over every aspect of the business and meeting with employees and customers.
On her first earnings call with analysts in November, she said she wasn’t ready to discuss her turnaround plan.
Penney’s appliance showrooms vary in space from 1,000 to 4,800 square feet and furniture sections take up about 4,000 square feet, Avila said. Some of that space may be closed off in some stores, she said.
Ellison added major kitchen and laundry appliances in Penney’s home departments in 2016 after testing it in three markets. It was a bet that shoppers in malls where Sears stores were closing would turn to Penney, particularly those who needed credit to make an often unexpected big-ticket purchase.
Early on, there was some success as Penney hired experienced sales staff for the effort, but it wasn’t providing the sales lift Penney had expected.
Penney owns all the appliances that are in its stores, but not the appliances it sells. Customer purchases are filled by the manufacturers: GE, Samsung, LG and Frigidaire. The way the contract was structured, Penney needed high sales volumes to make it worthwhile.
Penney’s home business took the biggest hit in the effort from 2011 to 2013 by former CEO Ron Johnson to reinvent the department store. Entire sections of home were dedicated to Martha Stewart paper goods and party accessories and Michael Graves serving pieces and fancy toasters. The new departments were attractive, but confused Penney’s customers who went elsewhere for their new sheets and pillows while Penney wasn’t able to attract new customers who might be looking for affordable Jonathan Adler bedding.
The financial rationale behind the decision to exit appliances will be explained Feb. 28, when Penney is scheduled to report year-end results, Avila said.
Penney is waiting until the end of the month because it wants to capture President’s Day sales and give credit card customers a chance to make purchases and earn rewards, Avila said.
Details about how appliances will be liquidated after the end of February weren’t yet available, she said.
Analysts are expecting Penney to post a fourth-quarter profit of 11 cents a share, down significantly from last year’s 57 cents a share, on sales of $3.79 billion, according to Refinitiv. That represents a sales decline of 5.9 percent.
Penney operates 860 stores and may announce additional store closings when it reports its fourth-quarter.
Furniture, which is now in 105 stores, will only be available on jcp.com and some stores in Puerto Rico. Mattress departments, which were also added and reconfigured with the appliance rollout, will remain in 450 stores and online.