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Ullman: JCPenney to Rally on Execution

Retailer Will Focus on Private and National Brands to Revitalize

With so much of its business tied to home — a softening sector throughout retail — JCPenney president and ceo Myron (Mike) Ullman III believes his continually evolving online business model coupled with strong execution and the JCP private and national brands will drive the mid-tier chain through these challenging times.

"A lot of it comes down to the execution," he told HTT following the annual Financo ceo panel he participated in during the recent National Retail Federation conference here. "We have our new general merchandise manager, [evp] Jeff Allison, who's been there for the last year, and he's focusing on bringing newness and excitement. Not all of home is down. And we believe American Living will be important. We'll be launching that national advertising shortly."

Ullman sat on the Financo panel with four others, among them James Gold, ceo of Bergdorf-Goodman. Seated in the audience of about 200 ceos and investors, about 10 feet directly in front of Ullman: billionaire financier Carl Icahn, who owns WestPoint Home. The discussion preceded Financo's annual power elite dinner bringing retailers and dealmakers together, and at which Icahn advocated retail as the new value investment.

Ullman likes to say he's "invested" in home.

Ullman noted that eight of JCP's "power brands" — which include JCPenney Home — bring in more than $1 billion a year each.

"Our challenge over the last five years has been to re-engineer the entire experience: instead of offering the catalog online, to find ways to be responsive to the ways people actually shop online," he explained. "We're using that infrastructure to run the rest of our business. The infrastructure is becoming the business model.

"It's a major reengineering of how we run our business," Ullman continued, "from writing purchase orders, to how we enter the supply chain, to the way we message. We're more nimble and lighter on our feet and we continue to over-invest in this area."

Ullman said customers are becoming less patient with the company's big book — a factor that suggests greater emphasis on Penney's 75 specialty catalogs and online business. That resonates further because of escalating costs surrounding the production and distribution of the big book, he said.

Penney, which operates 1,080 stores, also pulled in $1.5 billion from its online business. Ullman said the company does business with about half the families in the United States, at an average price point of $16.

"So we're certainly not a luxury retailer, and we have to work very hard to make money," he offered. But JCP is at an inflection point, he said: "The challenge will be to continue to grow." He identified three principal drivers: high penetration of private label and branded goods; a strong multichannel business; and a continued push off-mall.

"We've always had an off-mall presence since our inception and that emphasis will continue in new store openings," he said. The company, with 2006 total revenues of $19.9 billion, is now opening new stores at the rate of 52 each year.

Ullman said it was only a few years ago that JCP came perilously close to failing and disappearing. The company had $300 million in cash and more than $2 billion in debt coming due. Since centralizing the company's operations and its turnaround under Allen Questrom, JCP has focused on renewed growth.

For three years following Ullman's arrival, he said, "The challenge was to focus on growth and get the team motivated and not so much on turnaround anymore. We wanted to grow the footprint of the company when it really hadn't opened a new store in 15 years."

In his introduction, Financo president Bill Sussman said his company is forecasting a positive year for retail, against all other indicators.

"As we head into an election year, we expect to see financial stimulus being provided to the market and any recession being shorter and softer" than predicted. "While commercial banks are cautious to finance deals, capital remains plentiful."

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