JC Penney pulls plug on Telaction - home shopping service

Discount Store News, April 24, 1989 by Arthur Markowitz

JCPenney Pulls Plug on Telaction

SCHAUMBURG, Ill. -- JCPenney has disconnected Telaction, its interactive teleshopping service, dealing a setback to the concept which is now being pursued by just one company, GTE, through its Main Street project.

Telaction was closed down April 7 when JCPenney couldn't interest any other company to invest in the further development and proposed national rollout of the cable shopping service. The retailer spent about $106 million to develop Telaction during the past six years.

The mixed reading on Telaction's closing was summed up by Gary H. Arlen, editor-publisher of Electronic Shopping News, a monthly newsletter that tracks electronic retailing developments. He said JCPenney's move "casts a pall" on interactive teleshopping, but "lots of other companies in the next few years will try to find a way to bring interactive shopping to fruition as this type of retailing seems to serve some need for both retailers and consumers."

Telaction executives feel they have achieved a major accomplishment despite JCPenney's terminating the service and the prevailing impression among security analysts and the media that the venture was a failure.

"We did something never done before--proved that consumers would shop interactively via cable TV without the need for special equipment in the home," said Mary Dale Walters, Telaction's manager of public relations.

She pointed to the high rate of shopping--13 percent of the homes with access to Telaction made purchases--the $60 average sale and the growing trend for viewers to shop several times a month as examples of consumer's acceptance of the teleshoping concept.

Telaction, at its demise, was available to 30,000 homes on two cable systems in seven Chicago suburbs, up from 4,000 households when it was launched early last year in one Chicago suburb. But its reach was far short of what JCPenney had projected when Telaction was first publicly detailed in February 1987 by its president Stuart MacIntire, who said the service would be available to 125,000 Chicago households by the 1987 holiday season.

Walters reported that 77 percent of the 30,000 households had looked at Telaction, 40 percent of the viewers had signed up to access the service, and the 13 percent buying merchandise was a higher ratio than the purchase rate for mail order catalogs.

About 60 percent of the purchases were for groceries supplied by food wholesaler Nash-Finch and 40 percent for general merchandise, the ratio Telaction had projected. But the non-food portion was much higher during the recent holiday season, she added.

Trade observers contend that Telaction's closing raises questions about the viability of interactive cable shopping and even of the entire interactive shopping concept. They pointed to Main Street still being in a test stage in 100 homes in the Boston suburb of Newton, at least a year behind a development schedule that called for it to be in 500 homes in three test markets by now. Main Street is due to be tested in Cerritos, Calif., some time this year when the Apollo Cable Vision system starts operations, but has dropped plans for a test in the Philadelphia market.

They also cite the past failure of interactive computer ventures like Viewtron and the limited number of people that are subscribers to the three major current computer services. These are PRODIGY, which is basically a shopping application now in national rollout with about 50,000 subscribers, and two information services that also provide some shopping options: CompuServe, with 500,000 members, and GEnie with about 50,000 subscribers.

GTE "didn't feel it was appropriate to comment" on Telaction's closing, a spokeswoman said. "We are very pleased with Main Street's results so far," she added, but declined to elaborate.

A Prodigy Service Co. spokesman said, "we're disappointed to hear about Telaction. We feel the more companies that are involved in this (interactive selling), the more people will know about it."

JCPenney pulled the plug on Telaction when Kidder, Peabody and Co., "after an extensive search for partners" didn't find any company willing to provide additional equity capital for Telaction.

JCPenney vice chairman Robert B. Gill said, "our original intent was to provide start-up capital" to develop Telaction, but that "continued operation and expansion would be too costly for JCPenney to undertake on its own." The retailer needed about $50 million to launch Telaction in other markets, Electronic Shopping News reported.

The retailer sought a partner, rather than a buyer, for Telaction as it wanted to retain an interest in what it viewed as a potentially profitable venture. JCPenney didn't want to look foolish in case it sold Telaction and then another owner made it a success, one source said.

Gill said Telaction's closing "doesn't reflect a disenchantment with home shopping via cable. The JCPenney catalog division now features selected merchandise through Shop TV under a restructured agreement." That teleshopper has been relaunched as the JCPenney Television Shopping Channel