Penney Will Fold Cable Shopping Experiment

J. C. Penney said Thursday that it has decided to pull the plug on Telaction, its much ballyhooed interactive home shopping service that was being tested in the Chicago area.

The decision deals another blow to the home shopping industry, which has fallen far short of early expectations that it would account for as much as $8 billion in retail sales by 1990. Recently, observers’ projections have been sharply reduced, with Paul Kagan Associates, a media research firm in Carmel, forecasting that the shop-at-home industry will account for only about $2 billion in sales in 1990.

Penney Vice Chairman Robert B. Gill said in a statement that the planned closing of Telaction on April 7 does not “reflect a disenchantment” with home shopping by cable.

Earlier this month, Penney took over a money-losing, shop-at-home channel operated by Shop Television Network of Los Angeles. Next month, the channel will be renamed the J. C. Penney Television Shopping Channel, a Penney spokesman said.

Penney said it will take a $20-million charge for the first quarter ending April 29 as a result of Telaction’s shutdown. That is on top of a $106-million investment that the big Dallas-based retailer has made over the last few years.

Since a delayed start-up in 1988, Telaction has provided cable television viewers with an electronic shopping mall. Using a touch-tone telephone, viewers can choose a category of merchandise, browse the offerings from a particular store and make selections.

An array of prestigious merchants have participated in the service, including Neiman Marcus Group, Marshall Field’s, Sears, catalogue house Spiegel Inc., Dayton Hudson, several shoe retailers and two foreign merchants, Galeries Lafayette of France and La Rinascente of Italy.

Telaction also offered groceries and programs such as Holiday Condominiums, showing viewers time-share condos around the world, and Express Music, featuring excerpts from compact discs, tapes and records.

The service, carried free over cable, differs from those offered over cable television by industry pioneer Home Shopping Network of St. Petersburg, Fla., and its two much smaller rivals, QVC and Cable Value Network. Those programs display items one after the other that at-home shoppers are invited to purchase. With Telaction, viewers can choose what they want to see.

Although Penney said 13% of the 30,000 subscribers to Telaction have made purchases--what it called a “remarkably high percentage for a direct response business”--industry analysts speculated that not enough of those customers came back for more.

“The key statistic is the number of repeat buyers,” said Randy Gebhardt, vice president of Retail Planning Associates, a consulting firm in Columbus, Ohio. Penney would not disclose Telaction’s sales or the percentage of repeat customers.

Larry Gerbrandt, an analyst with Paul Kagan Associates, described the Telaction technology as innovative but cumbersome. The system required installation of expensive “black boxes” on telephone poles that stored the images to be relayed to viewers’ television monitors.

In addition, Gerbrandt noted, the system was set up so that 25 subscribers shared a “party line.” As a result, only one subscriber could use the system at a time. Meanwhile, if one neighbor were shopping, the others would see his selections--from lingerie to lockets--on their screens.

The subscriber level for Telaction has remained well short of Penney’s early projections. At one time, Penney projected 125,000 cable subscribers in the Chicago area by mid-1987, before delays put Telaction’s introduction more than a year behind schedule. Penney also had predicted that by 1990 the “TV mall” would be available in 20 big cities.

Nancy Whitley, a resident of Deerfield, Ill., who has had the service on cable for several months, said she has never made a purchase through Telaction and, in fact, “went browsing” only one time.

“It just seems to me that it would be more useful for someone who doesn’t get out,” said Whitley, who works as a bookkeeper for an elementary school district.

Penney said the decision to fold Telaction was made after investment banker Kidder, Peabody & Co. spent weeks attempting unsuccessfully to find an investor willing to shoulder part of the expense of running the service. Penney said Kidder conducted a worldwide search, contacting companies in retailing, technology, media and communications.

As a result of the closing, Penney said it will lay off 164 writers, producers, salespeople and technicians in Schaumburg, Ill., where Telaction is based.

Two interactive systems will remain after Telaction closes. Prodigy, a joint venture of Sears and IBM that subscribers activate on personal computers, started up last October and now has “tens of thousands of members” in California, Connecticut, Georgia and elsewhere, according to Geoffrey E. Moore, director of marketing programs. Penney is a participating merchant.

GTE is also doing limited testing in Boston of an interactive service called Main Street. Users access the service through a television cable using a remote control. Unlike Telaction, Main Street does not require a touch-tone phone and does not make subscribers share a party line.