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JCPenney's Questrom stresses fundamentals

Moving dramatically beyond any of its year-earlier hires, in September troubled J. C. Penney Co. put retailing industry veteran Allen Questrom at the helm as chairman and ceo.

Questrom had risen quickly through the ranks at Federated. He was a veteran of the Federated Department Stores' Chapter 11 scenario, the acquisition of both R. H. Macy & Co. and later the Broadway, and most recently Barney's, the high-end specialty retailer, thus giving him decades of experience in turnarounds as well as day-in, day-out merchandising and operational savvy, which he brings to Penney, the troubled retailing giant.

Questrom quickly positioned the giant retailer as a department store catering to the mainstream customer. But more importantly, he identified a number of ills that needed to be corrected, and announced a timetable of up to five years for these problems to be fully corrected.

Earlier in 2000, Vanessa Castagna, recruited in 1999 from Wal-Mart by the previous Penney ceo James Oesterreicher as executive vp, coo of JCPenney stores, merchandising and catalog, spearheaded a dramatic operational change — moving the full buying responsibility back to the home office and out of the field.

In addition, Castagna identified key priorities designed to bring the Penney stores back into competitive parity. High on the list were streamlining the clutter created by indecisive assortments and presentation as well as simplifying the entire process of identifying merchandise buys and moving them into the system and into customers' hands faster.

From the start, Questrom emphasized fundamentals as the critical issues: selling fashion at value prices, focusing on the middle of the customer population base, and increasing a corporate focus on competitors in each market. Each of these elements essentially involved a rebuilding of the Penney organization of the past several decades.

At the same time, Questrom identified five key points that would be the focus for 2001: competitive, fashionable merchandise assortments; appealing and compelling marketing; vibrant and energized store environments; competitive expense structures; and an experienced and professional work force.

Questrom also quickly restructured the executive suite, naming Robert Cavanaugh as executive vp, cfo, moving from his position as senior vp, cfo of the company's Eckerd drug store division. Long-time Penney executive Stephen Raish, most recently president of the Accelerating Change Together initiative, the company's centralized merchandising process in its department stores and catalog, was named executive vp, cio. Raish in 1998 was named president, home and leisure. Wayne Harris joined the company as chairman and ceo of Eckerd. Gary Davis and Charles Lotter continued in their posts as executive vp/chief human resources and administration officer, and executive vp, secretary and general counsel, respectively.

At the start of the new fiscal year in February 2001, four senior vp's were recruited to join the company, including Charles Chinni as gmm for home and fine jewelry and John Budd for marketing. The four retailing veterans assumed the senior vp mantle rather than the previously used Penney title of president of their respective responsibilities, Questrom's acknowledgement of the competitive rankings in other department stores.

In catalog and on the Internet, Questrom has identified each of these segments as "a business with needs and a dynamic of its own" as opposed to being "an extension of our stores," as they had been. Catalog sales for 2000 were down 2.7 percent, while Internet sales reached almost $294 million, up from $15 million in 1998 and $102 million in 1999, still shy of the target goal of $300 million for the year.

Penney's department store, comp-store and catalog sales all suffered more severe sales erosion in 2000 than in 1999. Department store sales were down 2.9 percent, compared with a drop of 1.3 percent in 1999; comp-store sales were down 2.4 percent in 2000, compared with a 1.1 percent drop in 1999, and catalogs slumped from a 1.9 percent gain in 1999 to a 2.7 percent drop in 2000.

Operating profits for the department stores and catalog also sagged, dropping to $346 million in 2000 vs. $690 million in 1999.

A significant part of Questrom's game plan was the closing of underperforming stores: in the case of Penney stores, 92 units with sales of about $950 million were approved for closing, with a total charge of $206 million. At the same time, a $92 million charge was taken for department store incremental markdowns from the discontinued merchandise.

Even in international operations where the company increased sales to $547 million in 2000, compared with $432 million in 1999, the increase was attributable primarily to 14 new Renner stores in Brazil.

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