We went to JCPenney to see why sales are sinking — and it revealed why giant mall-based department stores are dying

• JCPenney announced first-quarter earnings on Tuesday. Same-store sales were down by 5.5%, following a 6% drop in the previous quarter.
• JCPenney’s CEO Jill Soltau recently said that the company is failing to deliver on some fundamentals of “good retail.”
• We visited two mall-based JCPenney stores in Richmond, Virginia, and found empty shelves, messy displays, and abandoned cash registers.
• Then we visited a third JCPenney in a strip mall, and we were blown away by the flawless design, layout, and presentation.

JCPenney’s new CEO wants to bring its stores back to life.

Jill Soltau, who took over the position in October, said in a recent earnings call that the department-store chain is failing to adequately deliver on some fundamentals of “good retail.”

On Tuesday, JCPenney reported first-quarter earnings for 2019; same-store sales during the quarter dropped by 5.5%, following a 6% drop in the previous quarter.

“I am pleased with the strides we’ve made in setting key objectives, building our senior leadership team, executing significant changes in our assortment, such as eliminating major appliances, and mobilizing the entire organization around our priorities,” Soltau said in a press release on Tuesday.

She continued: "JCPenney is an American retail icon that is very important to all of our stakeholders, and I am encouraged by the early signs I am seeing in our business as we work to realize the potential that lies ahead."

We visited two JCPenney stores in Richmond, Virginia in March, and saw empty shelves, messy displays, and abandoned cash registers. The stores, which both anchored enclosed shopping malls, felt outdated and far too large.

Then we visited a third JCPenney store in a strip mall, and we were blown away by the flawless design, layout, and presentation:

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First, let's tour the shopping-mall-based stores.

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We spotted clearance signs throughout these stores, signaling the company's ongoing efforts to clear out inventory.

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These efforts seemed to be working a little too effectively in the shoe department of one store.

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Many shelves in this department were entirely empty.

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Others were sparsely decorated with boxes and shoes.

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We also found dozens of "sale" signs offering steep discounts throughout the stores.

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Soltau recently called the company's pricing strategy "confusing" and said "you might not know exactly when you can get the best value at JCPenney, which, in fact, every day you should be able to get a great value at JCPenney."

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We found several unattended checkout registers that appeared to be permanently closed.

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Signs covering these closed registers encouraged shoppers to visit the company's website.

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Several fitting rooms throughout the stores were closed as well.

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Moving on to the handbag department, we found more signs offering steep discounts ...

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... and a messy display of bags.

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Some tables were overflowing with bags ...

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... while other areas featured near-empty shelves.

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JCPenney said accessories and handbags were among its worst-performing categories during the holiday quarter.

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A few steps away, we were met with this crumpled sign at the jewelry department.

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The jewelry department also featured a piece furniture that was packed inside its shipping box.

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This appeared to be a theme throughout the stores.

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Displaying boxed furniture could be an attempt to fill empty floor space or reduce employees' trips to the back room.

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The Sephora concept was a major bright spot in both stores. It was well-lit, well-stocked, clean, and creatively merchandised.

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Soltau said she recently met with Sephora's new CEO, Jean-André Rougeot, and "had a very exciting conversation." "We see great things for Sephora inside JCPenney as we move forward," she said.

Analysts say that JCPenney leans on its partnership with Sephora to drive foot traffic to its stores and boost sales. But that favor is not necessarily reciprocated as its mall-based locations weigh on Sephora's sales.

Read more: Analysts say that JCPenney's Sephora partnership is weighing on the beauty retailer's sales and sending shoppers into the arms of its biggest rival

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JCPenney said apparel was among the strongest performing categories during the past two quarters.

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But we were underwhelmed by the apparel displays in the shopping-mall-based stores.

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Some racks were stuffed with mismatched items, such as athletic shorts and sleepwear.

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Other racks were nearly empty.

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We saw stained carpets, too.

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In many parts of the stores, it seemed like employees had tried to spread out inventory to cover up what would otherwise be empty wall and floor space.

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This may soon improve as it accounts for the removal of appliances from stores.

Read more: JCPenney is quitting the appliance business as it weathers an identity crisis

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As appliances are removed, JCPenney is exploring new layout options, including the reduction of store space, the company said.

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"While configurations will vary by store, we are finalizing new layout options, including the possible reduction of store space previously dedicated to appliance and furniture showrooms," Trent Kruse, JCPenney's senior vice president of finance, said in a recent earnings call.

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He said these measures aimed to "maximize efficiencies, reduce inventory and create an enhanced experience that inspires repeat shopping trips and customer loyalty."

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It seems like reducing store space could solve a lot of the problems we spotted during our first two store visits.

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But the company also has to find a way to draw in more customers. We didn't see many shoppers during our visits to the mall-based stores.

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"Our customer wants us to be restored to greatness," Soltau said on a previous earnings call, adding that customers have "great memories" associated with the "storied" JCPenney brand.

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"We just have to be better and improve how we are showing up for her shopping experience and what we are selling," she added.

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Our first two store visits left us feeling skeptical about the company's future and its ability to win back customers.

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Then we visited a JCPenney store in a strip mall. We were blown away by this store from the moment we walked in the door.

The demographics of the areas around all three stores were similar, and they were all within a 15-minute drive from each other.

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It appeared to be less than half the size of the previous two stores we visited.

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And it looked nothing like them.

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The store was bright, updated, and immaculate.

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The floors throughout the store glistened, and there was a steady flow of customers in most departments.

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Each branded store-in-store concept, such as this Levi's display, featured unique lighting fixtures.

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There were no empty racks or obvious holes in the displays.

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Backlit shelving lined the walls of the handbag department and made this section of the store feel high-end.

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All the handbags on display were meticulously arranged. Nothing seemed out of place.

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We were stunned to find this level of tidiness carried over to the accessories department.

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Small accessories are difficult to keep tidy in retail stores, even for the best-merchandised stores in the business.

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We were also impressed by the shoe department.

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This department was clean, organized, and had few empty shelves.

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We didn't find any cardboard boxes clogging aisles in this store, unlike the others we visited.

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JCPenney appears to thrive in a smaller store layout, like this one, that isn't tied to a shopping mall. It doesn't just look better; it's also more convenient to shop because of the smaller size.

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The stark differences between the first two JCPenney stores and this store highlight the struggles that department stores have faced to remain relevant and well-merchandised in giant, outdated, shopping-mall-based locations.

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These store visits also show that under the right conditions, JCPenney is capable of delivering flawlessly on the fundamentals of great retail. The fate of the company now depends on its ability to execute this shopping experience across its entire fleet.