After abandoning the category years ago, JCPenney is getting back into the home appliance game in a big way, an announcement that caused a flurry of conversation across our analysts, especially our home improvement team. The plan is to launch around 500 showrooms in its stores by the end of the year, while continuing to ramp up its home furnishings offer by dedicating 25% more floor space to curtains and other custom window dressings. Home has been a top priority for the retailer since former Home Depot executive Marvin Ellison took the helm last year, and looks to be leveraging his years in home improvement to help the department store grow. With Q1 comps barely flat after several quarters of growth, a successful new category entry could be just what the retailer needs to re-energize sales growth. But will this strategy work for JCPenney? Will they be able to gain enough market share to compete with the heavy hitters already established in the category? And more interestingly, do they need to?

Share of Market vs. Share of Life

Adding big-ticket appliances is somewhat of a natural extension for a department store with a strong home focus. The additional sales could help offset the steep declines in apparel spending across all apparel retailers. JCPenney reports it now has 87 million “active customers,” which matches its peak total in 2011, and has been focused on increasing revenue per customer to grow both comps and sales.

The strategy also puts JCPenney into direct competition with a new set of retailers, including The Home Depot, Lowe’s, and Best Buy, all of which have well-established appliance offers … not to mention that  appliances is one of the core categories keeping Sears afloat and driving new innovation. This intimidating lineup of competitors will likely make it tough for JCPenney to make any significant headway in gaining market share in appliances.

Luckily, I don’t think this is JCPenney’s plan. It isn’t looking to become a leader in appliances specifically or home improvement more broadly, but a leader in its shoppers’ lives.  It is looking to gain share of life and share of wallet over market share, looking to provide more ways for its current, and potentially some new shoppers, to spend money under the JCPenney roof. Ellison stated that the appliance trial “confirmed that we should not limit our business to apparel and soft home in order to achieve significant revenue growth,” indicating that this is a major growth initiative. Kantar Retail ShopperScape® data also indicates that JCPenney shoppers are more likely that all shoppers to be buying their appliances at Sears, so this strategy positions them to gain market share from Sears.

The Right to Brand

The brands JCPenney plans to carry (Samsung, LG, and GE, among others) are aligned with the higher end of the appliance market, potentially a disconnect with its core value-focused apparel shoppers. However, this could also attract a new or even a lapsed more affluent shopper. Older shoppers will remember JCPenney’s days as a leading home furnishings retailer and may be more inclined to return to a retailer they still trust.

But what about younger shoppers who don’t have that inherent brand affinity?  While the brand names themselves could be a draw, this likely relates to JCPenney’s larger strategy of capturing Millennials at key life stages. They’ve been investing in making the Modern Bride collection a destination for wedding jewelry, and could appeal to this same pool of shoppers as they continue through to the home buying phase in their lives.

Differentiation Is Key

As is true for almost any retailer in today’s saturated market, JCPenney will need to provide something more than just convenience and brands to attract its shoppers to buy appliances under its roof, rather than going to an established specialist.  Even if JCPenney doesn’t need to gain significant market share in the appliance category to really make this strategy work, it will need to provide a unique kind of value to shoppers to make the offer appealing, especially to Millennial shoppers. Providing excellent customer service should be a given, but additional benefits, such as loyalty or credit card perks, product customization, and installation services are all potential levers JCPenney can use. The biggest differentiator however may be Marvin Ellison, who understands the appliance market much better than the average department store CEO. His leadership and expertise in the category could be just what JCPenney needs to make this strategy work.

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