Should Amazon nab JC Penney? In a word: Yes

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Should Amazon nab JC Penney? In a word: Yes

By Brittain Ladd - 06/22/2020

Rumors continue to swirl that Amazon is interested in acquiring JC Penney. I believe the rumors are true. In this July 15, 2018, article Killing JC Penney: Can The Iconic Retailer Be Saved? I made the argument that Amazon could acquire JC Penney to gain access to additional stores and JC Penney’s ecosystem of own brands.

I am on the record as stating that Amazon should assess acquiring Target, Kohl’s, Costco or Menards in addition to JC Penney.

As a former executive at Amazon, I bring a unique perspective to the discussion of Amazon acquiring JC Penney. I wrote strategies for Amazon to become a third-party logistics company, and I wrote strategies arguing that Amazon should acquire a grocery retailer. I first recommended to Amazon to acquire Whole Foods in a 2013 research paper.

As the largest online retailer in the world, Amazon has slowly gained an appreciation for the value of owning physical stores. I used the phrase “stores matter” inside Amazon quite frequently. Amazon can lease, build or buy more stores.

Not everyone believes the acquisition of JC Penney will happen or that it’s a good idea.

According to an article in the Dallas Morning News, Retail analyst Robin Lewis wrote in The Robin Report that Jeff Bezos would be making a “huge strategic mistake” if he purchased Penney, calling it “a rather dumb idea.”

Lewis is in the camp that thinks buying Kohl’s “would be a smart idea.” His reasons include that Kohl’s is bigger than Penney both in sales, market share and store count, and that most of Penney’s stores are in malls “where traffic has been tanking for years even before the virus.”

A word of advice — ignore everything written by Robin Lewis. Lewis recently made the argument that Amazon acquiring Whole Foods was also a “mistake” and a “dumb idea.”

I believe Amazon should acquire JC Penney because it gives Amazon an opportunity to have a presence in some of the largest malls in the country. Yes, it’s true some Class B and C malls are struggling. However, several Class A malls are thriving. (Mall Class is determined by sales per square foot. To be classified as a Class A Mall, in-line stores inside the mall and less than 10,000 square feet in size must generate $500 in sales per square foot).

What is frequently misunderstood about Amazon is that it doesn’t want to be a grocery, apparel, specialty or e-commerce retailer. What Amazon wants to do is re-imagine the retail experience. Big difference.

Also, Amazon doesn’t believe in competing against other companies as if business was a sporting event with clearly defined rules for scoring points or an agreed upon time of play. Instead, Amazon plays an infinite game where the goal isn’t to win, the goal is to outlast all competitors.

Acquiring JC Penney will provide Amazon with access to a large amount of physical retail space. Space that Amazon can use to create an experience for shoppers. A mistake made by JC Penney (and other retailers) is that they became irrelevant to consumers when they failed to provide an experience to lure customers to their stores. Amazon understands this point better than any other company.

In addition to its physical stores and mall locations, what is often overlooked when discussing Amazon acquiring JC Penney is that the company is a powerhouse of private label brands like Arizona, St. John’s Bay, a.n.a., Liz Claiborne, Stafford and Xersion.

I heard JC Penney get used as an example of a company with “terrific” private label brands multiple times at Amazon.

JC Penney also recently launched a new line of sheets and quilts called Linden Street.

Amazon views apparel, and especially private label brands, as being a key to their growth. The challenge Amazon has encountered is creating its own private label brands that are sticky. (I heard JC Penney get used as an example of a company with “terrific” private label brands multiple times at Amazon).

Amazon will leverage space inside JC Penney’s stores to display and sell its own private label furniture, appliances and other products.

Amazon can grow JC Penney’s private label brands and increase sales by billions of dollars due to Amazon’s massive online presence. Re-imagining the retail experience will significantly increase sales inside each JC Penney store.

Should Amazon acquire JC Penney? Yes.

 

Brittain Ladd is a retail consultant and writer, focusing on business, strategy, innovation and leadership.

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