By  on January 14, 2005

NEW YORK — Myron Ullman, J.C. Penney’s new chairman and chief executive officer, has been on the job for only 44 days, but he knows exactly what he needs to do: generate more buzz about the brand, expand Penney’s off the mall and maybe return to the beauty business in a major way.

Those were among the opportunities Ullman suggested for the 1,000-unit chain during his first meeting with investors, at a breakfast presentation Thursday at Citigroup Smith Barney, since he joined Penney’s.

Though the chain is deep into its five-year turnaround and on course to hit its earnings targets for 2004, Ullman — who is considered among retailing’s most polished, strategic and systems-oriented executives and not a merchant — did talk merchandising and marketing during his presentation. 

He was most detailed discussing himself and his successful career, having held top posts at Macy’s, LVMH Moët Hennessy Louis Vuitton, Wharf Holdings and Duty Free Shoppers, rather than specific Penney’s strategies. He said an April 18 analysts meeting will be “the appropriate time to talk about what our views are for next five years.”

Still, he hinted at what’s ahead, stating it would be “foolish not to assert ourselves” at a time when Sears and Kmart are merging and taking time to think about what they want to do.

He said Penney’s “major opportunity” is growing the top line, rather than cost-cutting, and “to make our stores more productive as we do a better job in merchandising.”

That’s particularly true in beauty.  “The traditional department store has really owned prestige beauty brands,” said Ullman, who dealt with those products at his stints at both LVMH and DFS. “We have to take a look. We have one of the biggest salon businesses in the country and we might want to think of some aspects of beauty that we don’t have in the salon.”

At Penney’s stores, “clearly, center core is not as productive. We took beauty out. There may be an opportunity.”

Penney’s has reportedly been meeting with mass cosmetics manufacturers to build the category. The company virtually bailed out of it in early 2003 when it cleared out cosmetics offerings to beef up accessories, dropped Avon’s BeComing retail brand that was in 90 stores as well as Revlon’s Ultima II, which was carried in 435 doors. Iman cosmetics and other lines also were dropped, though a small amount of fragrance, bath products and gift sets have been retained. The salons sell skin and hair care products as well as aromatherapy.While a beauty strategy would have to be formulated, a plan for off-mall expansion is already proceeding. According to Ullman, at least several hundred off-mall locations in the next few years are projected. Ten are operating and 12 are planned for this year. They’re generally 100,000-square-foot boxes merchandised similarly to Penney’s mall stores and represent a head-on assault on Kohl’s. However, as Ullman said: “we have 1,000 stores in major malls. That’s the core business. We are not going to move the needle dramatically in the near term.”

Among other strategies and objectives cited by Ullman:

  • Spending $250 million on new point-of-sale systems to make shopping easier. The POS has real-time access to the Internet and Penney’s Web site for greater ease of shopping, and a broader scope of goods.

  • Elevating EBIT performance to the top quartile of department stores. “Our performance, while very good, is still not in the top quartile. A realistic objective is to say we want to be in the top quartile.” The 6 to 8 percent range is the immediate target, while the top quartile, for the future, requires 8 to 10.5 percent, he explained.
After he took the Penney’s job, Ullman said he set some priorities. “The first was to stabilize the team. People had not anticipated Allen [Questrom, Ullman’s predecessor] leaving a year early and Vanessa [Castagna, chairman and ceo of J.C. Penney stores, catalogue and Internet] not being selected. We got through that process successfully.

“The second was to appoint the top team as soon as possible.” Last week, Ullman named Ken Hicks as president and chief merchandising officer, and Joanne Bober became chief counsel. A chief operating officer is being sought. Hicks also is in charge of planning and allocation. Ullman made other realignments, including moving loss prevention from general counsel over to stores.

The third priority was “not to screw up Christmas….Essentially, we made the plan we had — a 3.1 percent comp gain for the combined November-December period — without doing hysterical things. We stayed on our promotional plan.”

Next was to meet the employees. Rather than get too hands-on with tweaking the business during the critical holiday season, Ullman met with the top 40 executives in the corporate office in Plano, Tex., as well as mall developers, key vendors, investors and sales associates. He held town meetings with associates, recently in Phoenix and Orlando. “They were very cranked up about what worked and what didn’t work,” Ullman said. “Usually, people closest to customers have the truth. The [closer] you get to the corporate office, the more the truth is manufactured. I try to meet people where they are, bring them resources and bring them support. The idea that I will come in and pick the sweaters is not what I am about.”Ullman said Penney’s has four private brands each doing more than $1 billion in sales: Stafford men’s wear, Arizona denim and related products, Worthington careerwear and the J.C. Penney Home Collection. Penney’s also has the nation’s largest window-treatment business, estimated at more than $400 million.

Penney’s has the country’s largest juniors’ and boot businesses, and women’s career is first or second largest. Kids, men’s suits and furnishings are also core strengths. Less developed are women’s casual, men’s sportswear and certain home areas. But, he added, “it’s way too early to pontificate upon merchandising opportunities.

“It’s about having style. It’s not about fashion. Value is another word I don’t like very much….I prefer to say customers want to be smart about what they pay. They’ll spend $800 on a cashmere sweater at Louis Vuitton and feel pretty smart. That same customer would drive 25 miles out of their way to save 10 cents on paper towels at Costco….I do believe it’s about style at a smart price. We have the biggest junior business in the country. We have fashion in the store. But how do we get credit for it? How do we get the customer to explain to their neighbor what they got at Penney’s?

“The quality of our private brands is excellent, but that’s largely unknown by nonfrequent shoppers. The quality is good and with the quota situation changing, we can make the quality even better.”

Target, he said, does a terrific job at getting its message out, but doesn’t deliver on the promise. Penney’s is just the opposite.

Ullman said he envisions greater cooperation between Penney’s three selling channels — stores, catalogue and Internet — including the ability to integrate catalogue fulfillment to stores, and develop more targeted catalogues. He also said it can capitalize on its new technology providing state-of-the-art planning and allocation capability. Penney’s is in the early phase of utilizing these systems, but “we will make great strides there,” with planning and allocation aligned under Ken Hicks.

Asked by an analyst why he was attracted to joining the company, Ullman said that “leaving an imprint on such a very big company is persuasive.” But there was an even greater reason. One day he asked his wife what time she was going to get up and she replied that if he wanted to run something, he should get a job. “I realized I wasn’t the ceo; I was in accounts payable,” Ullman joked.

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