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Penney catalog yielding dollars

Reversing a trend that extends back into the '90s, JCPenney's catalog operation is showing sales increases and producing profits for the first time in years.

Also during the recent fiscal year, Penney's Internet business crossed the halfway mark to the retailer's goal of $1 billion in annual revenue, by posting a sales increase of more than 50 percent, bringing revenue to more than $600 million.

"We're at pace, or slightly earlier than plan, in our Internet business growth," said John Irvin, president of JCPenney Direct.

The catalog, which has been struggling with a dramatic drop in revenues over much of the last decade, has turned around, and in 2003 had a sales increase bringing its revenues to more than $2 billion "and we're now very profitable," Irvin said.

"We stabilized the big books and added monthly and bi-monthly specialty catalogs."

The home store is the "biggest piece of the catalog business (43 percent)," said Allen Questrom, JCPenney chairman and CEO. "And it's doing a fabulous job."

Irvin, who previously headed Spiegel's catalog operation, noted, "Three years ago, when I joined the company, the page size had been trimmed, the quality was taken out of the paper and photography was moved from location shots to the studio for cost reasons. The merchandise was all a handoff from the retail assortment and priced as the retail program with lots of promotions."

When merchandised together, the aggressive retail promotional activity had created unprofitable sales in the catalog division as well. In addition, there were unprofitable categories that have since been eliminated, as well as logistical and operational changes, he said.

Moving to stem the losses in revenues and reinvent the catalog, Irvin improved the paper and photography "with a more aspirational environment across the board and developed a more current seasonal color statement. We also moved to show product as it would be used in a home."

Pricing now is "no longer the high/low game. We find value with products in the market and have them on sale," he said.

Circulation also was reduced and the big books now are slightly more than 1,000 pages.

To enhance the importance of the home business, Penney this year has launched Home Editions, a 600-plus page break-out of the big book with its own cover and special intro pages. It carries the same merchandise mix as the big book but with a new cover and intro pages that detail the product.

The spring and fall catalogs feature about 90 percent of the retail assortment, but overall the ratio of store-available skus to catalog exclusives is about 50/50, Irvin said. A key point "is that we are in stock 24/7." And for the non-retail merchandise, "We have separate open-to-buys and packaging."

While much of JCPenney Direct's home presentation follows the mood of the retail assortment, "Furniture is a little lower in price point," said Irvin, in part to take into consideration costs for assembling and shipping.

Despite the move to separate assortments, there is a synergy between many of the store product lines and the catalog, he said. Window coverings are a key example where the catalog can offer and deliver the sizes and colors in such Penney offerings as Jewel Tex and Supreme. And the catalog offers the complete 42-color selection in the JCPenney towel, while stores stock only a small percentage of the complete towel palette.

But then the base assortment expands, explained Donna Gering, divisional vice president and director of soft home for catalog/Internet. "A lot of our customers have second homes, and to that we direct more casual looks like berber rugs, window hardware, hard window coverings and more casual furniture."

Pointing out other differences between retail and the catalog, Gering said, "In juvenile and tween bedding, in the biggest stores there are 16 beds; (the catalogs) have much more. We've extended the assortment of rugs, especially better rugs, and have a 14-day shipping program."

Bedspreads also are a growing category, she said.

The specialty catalog "offers us real growth in customer contact," Irvin added. Cooks, he pointed out, "is a good success and, in juvenile bedding, Rooms Kids Love also is important. Cooks offers the retail assortment plus incremental gadgets and broader color ranges."

Aside from the JCPenney towel, "We carry 200 colors in towels, and we segment bedding into style segments unlike the stores," Gering added.

While the catalog has turned around, Irvin noted, "productivity per page has dropped. It's become a place to shop, but it now also acts as a reference for the Internet." In part, he explained, this has come about because there are more references in the catalogs to jcpenney.com, highlighting such Internet features as "color solutions" and "rug solutions."

In the future, Questrom predicts the balance of power between the catalog and Internet channels will inevitably swing in one direction over the other. "As time goes on, young people will be shopping even more, and the older customers are learning from it and are buying more and more. As a result, the Internet will be more important over time versus the catalog," he said.

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