PENNEY'S OESTERREICHER TELLS SUPPLIERS MARGINS WILL SHRINK
Byline: Mark Tosh
NEW YORK--Envisioning difficult times ahead for retailers, James Oesterreicher, the next chief executive officer of J.C. Penney Co., told suppliers Thursday that consumers would become more value-oriented and margins would decline, and urged companies to find product distinction. "Even when consumer spending isn't rapidly expanding, consumers are still spending, and somebody's going to make the sale," Oesterreicher said. "That places a premium on all businesses--both retail and manufacturing--to increase their flexibility, manage their costs and focus on their core competencies." He spoke at the American Apparel Manufacturers Association annual economic outlook seminar here, with the theme, "The Year 2000: Dare to Dream." It was attended by about 250 executives. Oesterreicher is president of Penney's stores and catalog until his promotion takes effect Jan. 1. He succeeds W.R. Howell, who will continue as chairman. Among Oesterreicher's other concerns: Household incomes are unlikely to increase dramatically and living expenses, such as education and health care, are likely to rise. This will create a customer who may "be even more value-oriented than today," Oesterreicher said. Consequently, consumers will expect more from retailers and manufacturers for "the same or less money," he added, noting, "We must come to grips with the fact that margins are likely to decrease in the future." "In the future, businesses must offer a quality product that establishes a point of difference, while managing and extracting cost from the process," he said. Whether it's the convenience of shopping the store, ordering via catalog or a Quick Response program between supplier and retailer, Oesterreicher said, "The shorter we can make the merchandise cycle, the better off we will be." Penney's plan for the future, the ceo said, is to focus on customers' expectations for fashion, quality, value, selection and an "exciting, efficient shopping experience." Among Penney's priorities: keeping stock in the right sizes and colors and seeking new ways to eliminate time and costs from the merchandising cycle. Daniel J. Sweeney, vice chairman of retail industry services for the Management Horizons unit of Price Waterhouse, told the AAMA audience that department stores were as strong or "maybe even stronger" than ever. He said a sampling of monthly comparable-store sales found consistently positive results for department stores and consistently negative results for specialty stores. The gap between the two was 12 to 13 points, he said. The strengths of department stores: position in the marketplace, an accumulation of talent and resources, and an "extraordinary ability to change," he said. As examples of innovative department stores, Sweeney cited Burdines Department Stores for its Home Gallery format and Sears, Roebuck & Co.'s Home Life furniture stores. He cited Nordstrom Inc. and Parisian for personal service and Target Greatland units for offering superior "impersonal service"--wider aisles and easier layouts to shop, excellent signs and the right inventory levels. Saks Fifth Avenue, Sweeney said, features a unique frequent-shopper program. He cited Dillard Department Stores for a sound operating strategy that turns "mediocre real estate" into strong profits. The specialty retailers have no where to grow, Sweeney said, and consumers are increasingly looking for one-stop shopping. "Specialty retailers have never been tested strategically," he said. "It's time to change, and they don't have a tradition of change." Richard Aspinwall, senior vice president and chief economist for Chase Manhattan Bank, said 1995 would bring "somewhat slower growth" than that of 1994 and an inflation rate of between 4 and 4.5 percent. Factories are operating at 85 percent capacity and showing improved productivity. This is due to cost-cutting efforts and cautions about raising prices.
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