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JCPenney Raising Expectations

Brand Exclusives, New Stores on Tap

JCPenney is on an aggressive growth course, having exceeded its five-year plan from 2005 in two years, and expects to be No. 1 in retail performance in the next five years.

Myron (Mike) Ullman III, chairman and ceo of Penney, cited these statistics at the company's annual analysts meeting here last week: The company exceeded its 2007 sales plan in 2006 — and reached its 2008 income and 2009 profit goals also in 2006.

But the growth plan, Ullman emphasized, is not strictly numerical. In addition to "delivering the industry's leading financial performance," the company goals are to intensify customer relationships and "increase associates' engagement and retention" — the latter a key means to expanding the business.

During the two-day event, JCPenney executives stressed a number of vital directions; the most significant was the emphasis on what the company is referring to as its 10 "power brands." Of those, the two top-of-mind brands, said Ken Hicks, president and chief merchandising officer, are Sephora, the boutique fragrance and cosmetic program; and American Living, a full-store merchandise launch in conjunction with Polo Ralph Lauren, set for next year.

American Living, Hicks said, "not only will be the largest launch in the company's history," but it will focus on aspirational price points and make an impactful market statement. Penney is "sharing ideas regarding supply chain issues and our planning and allocation with the Polo Ralph Lauren group, for each of which have dedicated people on board by product. When it launches you won't be able to tell who did what," Hicks said.

American Living, he emphasized, "will be a very important anchor in home."

Among the other eight power brands, he noted, are Chris Madden for JCPenney Home, and Cooks, the company's relatively new housewares brand.

As important as the merchandising and system discussions were, the aggressive real estate plan for the next five years was compelling. From 2007 to 2011, the company will open 250 new stores, 150 of which will be new locations and 75 relocations in a market — amounting to an 18% square footage growth, said Michael Dastugue, senior vp, property development. At the end of that time, the company will operate 1,200 stores.

A newsmaker for the company was the announcement that it would open a store in midtown Manhattan, in the Manhattan Mall, just south of Macy's Herald Square flagship. Ullman said the company's Queens and Bronx stores are among the top performing units nationally. The popup store on Times Square last year proved there was strong consumer awareness in the JCPenney brand throughout metro New York.

Equally important is the renovation program, with 300 planed for the five-year period. Currently, 45% of the stores are new or renovated and the goal is for 80% by 2011, which will represent 90% of the sales and operating profit of the company.

The stores renovated from 2003 to 2005 exceeded profit plan by 21% in 2006.

In terms of market penetration, Penney is focusing new store growth especially in the Chicago and Houston markets, Dastugue said. Houston will have two new stores this year and three more by 2011. Chicago "will have an aggressive opening of six this year, three next year and more in '09 and beyond," Dastugue reported.

This year, Penney will open 50 new stores and renovate 65, with most of the new stores in the off-the-mall format. New off-the-mall stores are larger by some 8,000 square feet. "Off-the-mall stores are significantly more productive than mall stores," Ullman commented, with sales per square foot in the $250 range.

In these off-the-mall units, the company has put a lot of emphasis on opening the sight lines, new fixturing, and merchandise adjacencies in the apparel areas. Said Hicks, "We are looking at home vis a vis fixtures and space. The fixtures are high and bulky and even though we have fewer beds than in the mall stores, it contrasts with the openness and merchandise flow of the other areas."

A major key to the Penney growth and success plan is its sourcing and design capabilities across product lines, Peter McGrath, executive vp, product development, design and sourcing related. "We now can react to fashion changes in season, and we have improved turns, markdowns, and gross profits."

A major effort to reduce cycle time has produced a 40-week calendar for all private brands, a 60% reduction in color development time, and a 50% to 60% reduction in fabric planning and sampling. Mill suppliers have been reduced from 800 to 150 and "we preposition greige goods," McGrath explained.

As for current business, Ullman pointed to window coverings and furniture as the soft spots in home, mainly due to macro economic influences. Florida, California, and Massachusetts are the toughest markets; New York is pretty strong; Texas and the sunbelt are steady.

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