Three reasons 2016 may be one of J.C. Penney’s best years yet

Leadership and business strategy shakeups inside J.C. Penney Co. Inc. (NYSE: JCP) in 2015 might lead to the company’s best year since 2011.

Perhaps the Plano retailer’s biggest change this year was a leadership transition from former CEO Mike Ullman to current top executive Marvin Ellison, who took over the position in August. Ellison joined J.C. Penney in November 2014 as CEO designee before taking over the top spot.

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J.C. Penney CEO Marvin Ellison predicts the company will reach 1.2 billion in earnings before interest, taxes, depreciation and amortization by 2017.

Since taking over, Ellison has worked to shift the retailer’s sales strategy. While the company operates 1,020 department stores, Ellison is diversifying beyond brick and mortar, emphasizing omnichannel, which refers to a customer’s ability to buy a company’s products by multiple methods, including online and in stores.

Some of Ellison’s omnichannel initiatives include selling Sephora cosmetics on jcp.com and enhancing the the website’s functionality for users. The company also launched an Apple Watch app in March.

In addition to diversifying buying options, Ellison said he will emphasize J.C. Penney’s private brands, which make up roughly 51 percent of the company’s sales. Stocking clothing lines and collections not found in other stores differentiates J.C. Penney not only from other brick and mortar retailers, but online retailers as well.

Ellison believes those factors will drive higher revenue per customer. In 2011, J.C. Penney had 87 million active customers, the same number it boasted in 2015. But last year the company posted $6 billion less in sales.

His goal is to boost the the frequency of trips to and amount of money spent in J.C. Penney stores with a better shopping experience and private brands, along with supply chain efficiencies, localizing product offerings, analyzing pricing and other tools

With his strategies, Ellison believes J.C. Penney will reach $1.2 billion in earnings before interest, taxes, depreciation and amortization by 2017.

The Plano-based retailer has a way to go. In its third quarter 2015 earnings, the company posted a loss of $137 million, or 47 cents per share. But revenue of $2.9 billion beat analyst expectations of $2.88 billion off a comparable store sales increase of 6.4 percent.

A successful holiday season might mean more good news for fourth quarter 2015, with analysts at The Motley Fool predicting J.C. Penney would post its first quarterly profit since 2011.

Besides a successful fourth quarter, here are three reasons J.C. Penney might be dressed for success in 2016:

A new CEO

Ellison is the former vice president of stores for Home Depot (NYSE: HD), and during his 12-year tenure with the company oversaw around 2,000 of its locations in positions such as president of Home Depot’s northern division and senior vice president of global logistics. His resume also includes stints with Target Corp. (NYSE: TGT) and a board position with FedEx Corp. (NYSE: FDX).

Marvin Ellison seems to be the right man for the job,” said Jeremy Bowman, a contributor with The Motley Fool. “He’s proven himself with impressive results leading Home Depot’s U.S. stores, and seems to bring the right mix of new ideas and understanding of the business, unlike (Ron) Johnson who went overboard, or Ullman, the former CEO who mostly returned the company to its pre-Johnson state.”

In-store experience

In an attempt to show it offers more than apparel, J.C. Penney is working on two new initiatives designed to make it a more attractive place to shop over rival department stores like Macy’s (NYSE: M) or Nordstrom (NYSE: JWN). The company first partnered with cosmetics company Sephora in 2006 and has since rolled out 500 store-within-a-store Sephora concepts inside its locations. Bowman says having Sephora inside J.C. Penney stores has “proven to be a driver of millennials and other customers who may not normally visit.”

It also partnered with InStyle magazine to launch the Salon by InStyle, which is now in fifteen stores nationwide. Salons have been a part of J.C. Penney stores for 50 years and serve more than 10 million customers annually. With the InStyle partnership, the salons now offer 35 services, including hair cuts, nail services and waxing, and have a more modern atmosphere.

Based on the success of the first 15 salons, the retailer said it will look at expanding the concept to all 850 of its salons nationwide in the spring.

Online shopping improvements

This year, Ellison brought on new executives to help build J.C. Penney’s omnichannel and online shopping strategy, including hiring Michael Amend as executive vice president of omnichannel. Amend is the former vice president of online, mobile and omnichannel with Home Depot. While there, Amend helped roll out pick-up in store, buy online, ship to store, buy online and deliver to store options.

Mike Robbins also signed on in August as senior vice president of supply chain after previously serving in same position with Target Corp.’s U.S. stores. And in December, former Country Financial executive Therace Risch was hired as J.C. Penney’s chief information officer.

In 2016, the company will further enhance online shopping by rolling out in-store pick up for online orders and adding to the number of products customers can purchase online.

“There is plenty of low-hanging for J.C. Penney to take advantage of including improvements to its data collection and e-commerce platform,” Bowman said. “The company plans to … make improvements in areas like more assortments online, reducing out-of-stock inventory and other logistical enhancements.”

Korri covers retailing, restaurants and public companies. Subscribe to our email newsletters.

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