JC Penney’s 'Missing Middle' Strategy

If you watched the Academy Awards last Sunday (Feb. 27), then you were sure to have seen commercials from JC Penney. This is noteworthy because it marks the launch of JC Penney’s marketing strategy to appeal to the so-called Missing Middle.

With upscale retailers like Neiman Marcus & Nordstrom attracting the affluent shopper and with downscale retailers like Wal*Mart & Target appealing to the bargain shopper … it doesn’t leave much space in the middle for retailers selling moderately priced goods.

Yet, this is exactly where JC Penney is banking its retailing strategy on – the Missing Middle.

As Mike Ullman, Penney’s CEO & Chairman, puts it, “The core of America is up for grabs in terms of their heart and soul. This customer is underserved.”

The driving force behind Penney’s decision to focus on the Missing Middle comes from research the retailer did to define/understand its target customer better. According to JC Penney, the Missing Middle customer is:

Female

Age 35 – 54

$69K household income

married, with kids

seeks stylish, but not too trendy casual clothes

wants high-quality, form-fitting clothes that aren’t too tight

To serve the Missing Middle market, Penney’s is working with well-known designer Nicole Miller on an exclusive line of moderately priced and more than moderately stylish casual woman’s clothes. Penney’s has also added exclusive home furnishings from Chris Madden and Colin Cowie.

With private label goods comprising 4% of company sales, Penney’s is introducing a new private label band, “W – Work to Weekend” to better serve the Missing Middle audience.

These efforts to fine-tune its retailing strategy reflect the latest phase in a four year revitalization plan. Results so far have been positive for JC Penney as third-quarter earnings grew 86% and January year-over-year sales rose 3.3%.

SOURCE: Wall Street Journal | New Penney: Chain Goes for ‘Missing Middle’ (sub. req’d) | Feb. 14, 2005

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FLASH ANALYSIS:
If you followed our recent coverage on Robert Spector’s book, Category Killers, then you’ll know the dinosaur department store is facing extinction due to specialized retailing concepts like Best Buy, Home Depot, Staples, etc.

I applaud JC Penney’s attempt to remain relevant and stave off extinction. On paper, the Missing Middle strategy seems sound; however, I have my doubts.

To better understand the dire straits department stores are in, consider these figures from Category Killers:

Over the past twenty years, department stores’ share of the apparel business has fallen from 70% to 40% (Ouch.)

In 2001, 90% of American consumers visited either Wal*Mart, Target, or Kmart while only 28% of American consumers visited a department store. (Double Ouch.)

In 2003, consumers said they sent 16% of their money at department stores. That percentage represents a sharp decline from nine years ago (1994) when consumers said they spent 41.4% of their money at department stores. (Triple Ouch.)

Given those numbers, should JC Penney be on the endangered retailer list? Well, I expect by the end of this decade all department stores targeting the middle ground customer will be on the endangered retailer list.

As for JC Penney’s Missing Middle strategy … I’d rather see the retailer focus its marketing efforts on delivering a better shopping experience through improving customer service and making the store more exciting and more shopable. I’m not convinced focusing on apparel for the Missing Middle customer is a unique enough strategy to stave off retail extinction.

Comments

[AbercrombieChick]

Interesting commercial. Missing Middle is an intersting concept. We'll see if it will work!

[Michael Chaffin]

Great thoughts and review on their new strategy.

The audience might be the middle, but I think the are finally figuring out that they need to be "better" than everyone else in their class to be successful. For so long, they have been perceived as average and quite boring.

I've expanded on this somewhat here....

http://michaelchaffin.typepad.com/star_in_the_margin/2005/03/the_best.html

[miles]

Another wasted marketing research effort. Who did JC Penney hire, someone's brother-in-laws consulting firm? I agree with this webmaster's opinion that JC Penney should be providing a more holistic shopping experience. Do not invent an extinct market. The middle class is missing because they are dead. There are only have's and people who charge & think that they have. JC Penney should challenge competitors (either on the high or low end, pick your poison) head on. Both Nordstrom and Target offer creative products, service and marketing strategy in their respective price points. Unless JC Penney can come up with a truly original niche market (and take a much bigger risk), they must attempt to be best in class!

[Thomas]

I agree with Miles (above) for the most part, there is no "missing middle". I would carry it one step further to say that the vast majority of people today spend the most they can on good housing and transportation, and beyond that it's cut and dry: Go for the absolute lowest price on ALL commodities, and for everything else (there isn't much that's not a commodity these days), make careful value choices on "want" items that define personality, style, individual interests, be it a latte coffee, or the hip latest mp3 player. Retailers have to choose one of the two, lowest prices, or some kind of value equation, be it service, environment, expertise, etc. And even then, selection, location and price still matters a ton. Pennys has none of the above, and may well be the Oldsmobile of generalist retailers. The name, the feel, just reek of bygone days and mediocrity by all criteria. There may be no saving it, and spending money to reach a demographic that does not exist may only accelerate death. I think their best hope may be to try and buy or invest in a newer retail concept with a future, and gradually phase out or sell the JC Pennys brand. It stands for nothing, except "Sears, only worse".

[johnmoore (from brandautopsy)]

Yeah ... these days it seems as though most consumers will either trade up (Starbucks, Whole Foods, HBO, Apple) or trade down(7-11 coffee, Sam's Club, broadcast TV, Dell). Trying to find the sweet spot in the middle is elusive.

Thomas, calling Penney's the Oldsmobile of the department stores might be a tad harsh. Penney's has some equity with their exclusive lines and private label brands.

The department store that is better suited with the "Oldsmobile" tag may be Dillards. Ain't nuthin' remarkable about Dillards.

[Thomas]

John, I'll buy that, Dillards is even worse. OK, Pennys is the Pontiac, then. There will be no saving that one either!

[Andrew Cardworth]

How long do we have to wait?

The "missing middle" strategy is yet another trick pony that is being trotted out for industry analysts and investors by the mis-directed merchants at J.C. Penney. "You can't make a silk purse out of a sows ear" is the phrase that best applies here.

The ringing promise from the executive committee at Penney's for the past 5 years is that they are addressing the "new customer". Based on industry analysis and consumer shopping studies, that promise is an empty one. Customer shopping behavior statistics show that the out-of-step retailer is not appealing to the "new" customer. They continue to lag behind other department store chains such as Kohl's and Macy's in appealing to that "missing middle" they so clearly describe but summarily miss.

Bottom line, Penney's services and attracts a customer that is older, retired, and price driven. Not exactly a substantial base from which to draw for future growth. As shareholders...how long do we have to wait?

Understand this. Recent gains in profitability over the past 2 years are a direct result of a long awaited correction of the generations of mis-management of the Penney organization. Centralization of the merchandising effort, a concentrated investment to upgrade stores and an aggressive promotional marketing calendar have only brought it up to speed with it's competitors. The growth you see at Penney's is because of a correction of the gross inefficiencies of the past...not brilliant strategy.

At the end of the day, until Penneys is able to figure out how to become relevant in their offering to a younger, more vibrant audience, their future is suspect. Further, running commercials during the Academy Awards promising updated fashion, lifestyle and attitude, should be viewed as bait and switch.

I've seen this trick pony too many times. At some point, so will the marketplace.

[Dave]

Yeah the JC Penney commercials are good and the concept is interesting.

-Anne
jc penney coupons

[Nancy Sliwinski]

I think JC Penney has the right idea. I am in the middle. And because the middle has been neglected, I haven't bought clothes in the past 10 years or very few. First, styles are horrible. I lived through the 70's, I don't want to have to relive them. These styles look terrible, and even more so on an up and comming youthful, but overweight generation. They have no choices. Americans look "sloppy" these days. Second, quality had taken a drastic downturn whether you buy high or low end. I am interested in quality at a reasonable price. I don't want to buy paper thin shirts, I want something that will last through more than one washing. I am waiting for the "middle" to be addressed again. Many forget that the consumer is looking at the apparrel as well as a clean an neat store, we don't need all the gimmicks that seem to be top priority for some stores.