JCPenney goes its own way

Carole Sloan, April 26, 2004

JCPenney is focusing on differentiating itself from the competition with off-mall strategies, multi-channel marketing and private brands.

This was the message delivered by Allen Questrom, chairman and CEO of JCPenney Co. Inc., at a two-day financial analyst meeting here last week. Questrom and key Penney executives outlined the company's strategy on topics ranging from specific merchandise areas to logistics and marketing.

The success of the off-mall strategy "if it continues, will offer us an opportunity to participate in new, emerging markets — areas we've never before been able to capitalize on," Questrom said. "They also will enable us to go back to the growth cities and fill in."

At the same time, Questrom emphasized, "We will continue to focus on upgrading our existing stores."

To that end, the company has invested more than $300 million in new fixturing, lighting, and paint over the last three-and-a-half years, said Ken Hicks, president and chief operating officer. On tap are renewals for 50 of 84 high potential stores in key markets including southern California, Dallas, New Jersey, and Minneapolis — at a cost of $2 to $3 million each.

Overall, said Hicks, there are 32 markets the company considers underpenetrated or underserved. Today, he noted, 20 percent of the company's sales come from these markets, and they offer a significant growth opportunity.

Part of the store upgrade emphasis, Hicks explained, is a program to improve in-stock positions. In stock positions in basics have increased to 95 percent in the fourth quarter of 2003, up from 90 percent in 2000. Advertised item in-stocks now are 96 percent vs. 95 percent in 2002. The goal for this year is 98 percent for each.

Questrom emphasized that the company is the only major retailer with three multi-channel prongs, and the infrastructure to make it work. "We can expand out stores' assortments via the catalog and Internet in areas like window coverings. And our referral program by sales people to the catalog and Internet has been strengthened."

As for the Internet itself, "We are looking at $1 billion in 2006, not 2007 as originally projected."

The catalog, which has been streamlined in circulation and overhauled in approach, "now is making money. It had lost $2 billion," he said.

Discussing private brands, Questrom noted that they contribute 40 percent of the total revenues. The JCPenney Home Collection is the largest with sales of $1.5 billion in 2003.

"Private brands grew at twice the rate of the national brands," he said.

The catalog and Internet also are thriving businesses for Penney, Questrom related.

In a presentation, John Irvin, president of catalog and Internet, reported changes in the company's "big books" as a percent to sales. In 2000, the "big books" represented 47 percent of catalog business, with special sale/specialty catalogs pulling 42 percent and the Internet 11 percent. In 2003, the big books dropped to 36 percent, sale and specialty catalogs were 40 percent and the Internet was 24 percent, he said.

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