Much is being written about the successful turnaround at JC Penney at the hands of its CEO, Marvin Ellison, who arrived at the ailing retailer in 2014 after a 12-year stint at Home Depot. The kudos are certainly justified, as revenues and earnings are up, comp sales have increased eight quarters running, finishing up 4.5 percent in Q4 of 2016, and the stock has been on a tear (up 68 percent year to date as of this writing). This has led to much press with headlines like “Back from the Brink” and “Turnaround Right on Schedule.” And to show solidarity with investors, Mr. Ellison just purchased 50,000 shares — in a market that some say is oversold.

While there is no argument that what Mr. Ellison has done is quite impressive, we may be looking at what could best be described as low hanging fruit in a recovery story that presents many challenging chapters ahead. Some of the story’s flip side includes lack of growth in net income, sky-high debt, and poor profit margins.

Looking contextually at the overall marketplace, one can see even bigger, more complex challenges on the horizon, many being shared by a struggling department store category being challenged in unprecedented ways by underperforming mall locations, E-commerce and omnichannel evolution, cross-channel fulfillment, customer experience focus and changing demographics. Let’s look more closely.

Anchors Aweigh at Suffering Malls

Today, JC Penney has about 1,000 stores of various sizes, many of which are mall anchors. It’s fair to say that about one-third of its stores are in troubled or struggling C and D malls, centers whose futures are in serious doubt. We all know about the underlying economics behind these centers, where anchors were the original magnets for the specialty stores that paid the freight. Unfortunately, many of these malls have already lost anchors, and in many cases are left with “anti-magnets” like Sears (“Where America Used to Shop”). This accounts in part for the paltry $150 dollar per square foot in sales that Penney’s is generating.  By comparison, Kohl’s produced sales of about $225 per square foot during the same period (2014). Generally, Kohl’s stores are smaller, more efficient, newer, and in locations not tethered to moribund malls.

Customer Experience Wanting

Many of Penney’s stores have long been in need of an upgrade or complete renovation to bring them closer to parity with Kohl’s, Macy’s and Target, but this does not appear to be in the cards. My local Penney’s, in the upscale Ridgedale Center in Minnetonka, MN, shares the superregional mall with a completely renovated Macy’s, a brand new Nordstrom and a very sad Sears. Penney’s Corporate decided that the location warranted one of the very first of the Sephora “store-within-stores” that JCP is counting on to lure a younger, style-conscious demographic. Unfortunately, the crisp and clean concept shop only serves to draw attention to the tiredness of the rest of the store. With Penney’s now strapped with $5.4 billion in long-term debt requiring a $400 million annual interest expense, and a relatively meager $300 million capital expenditures budget, far below that of Target, Macy’s and Kohl’s, it is not likely that my neighborhood Penney’s store will get its needed renovation anytime soon.

E-Commerce and Omnichannel

JCP has been criticized for a “broken online presence” which it claims to be addressing. In fact, when looking at the most recent American Customer Satisfaction Index of online retailers (Q4-’15), JCP scores an impressive 74, behind Target’s 75 and 77 for Kohl’s. However, in just comparing the appearance and user-friendliness of the three, Target’s and Kohl’s appear to be in a different category altogether. JCP claims to be making great strides with its E-commerce sales which have grown to 10 percent of total sales in 2013 and 11 percent in 2014. It no longer publicizes those breakouts.

On the omnichannel tech front they have much catching up to do. While Kohl’s and Target have the “buy online, pick-up in store” (BOPIS) learning curve behind them, JPC is only getting started this year. Recent history has already taught us that BOPIS realities are putting tremendous stress on order capture and fulfillment systems, not to mention retailer margins. It’s widely reported that retailers spend about 18 percent of sales to satisfy buy anywhere, pick up anywhere customer demands. Additionally, the double edge to this fulfillment sword is the lack of inventory transparency that has reared its ugly head for retailers that use stocking stores to fulfill online orders. This caused many headaches for both customers and retailers once the initiative got widespread application over a year and a half ago. Add to that Ellison’s assessment that the Penney smartphone app, essential to grow and support an omnichannel experience, is “currently subpar.”

Changing Demographics

According to Kantar Retail, the average J.C Penney shopper is nearly 49 years old—up from 46.6 in 2011, and older than both Target’s and Macy’s customer. It’s no secret that the future for the department store category (if there is one) is with the millennial consumer who is fundamentally about omnichannel connectivity. Interestingly enough, while it has been long thought that Generation Ys were urban dwellers, that might be starting to change. According to the National Association of Realtors, millennials make up the largest share of suburban homebuyers in the nation. And as we also know, millennials are not simply interested in shopping in stores, but also in going to so-called \”third places\” that provide warm and welcoming environments. JCP has its work cut out for it to meet the aspirations of this demanding and highly sought-after customer.

Overall, even with the talented Mr. Ellison guiding the troops, JCP has some heavy lifting ahead just to maintain share, let alone take a bigger piece of the pie. The tech catch-up is an expensive endeavor with a steep learning curve. And while they are rebuilding their customer base, they are fighting out-of-favor mall locations that they have little control over. Meanwhile, their completion continues to get better and tougher online and off. One can only imagine what Amazon\’s new venture into private label fashion could do to further shake up the retail world and become one more disruption to Penney\’s already fragile recovery plan.