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Penney’s Facing Challenges

J.C. Penney presented its plans for store and merchandise upgrades to analysts this week, but the Texas show left the feeling uninspired.

PLANO, Tex. — J.C. Penney wants to be the top moderate department store chain in the nation, but it won’t be easy getting there.

The $32.3 billion retailer, which saw comp-store sales inch up 2.6 percent in 2002, outlined to equity analysts here at Penney’s headquarters Monday and Tuesday its strategies for dominating the midtier market — among them, maximizing synergies among Penney’s store, catalog and Internet operations; fine-tuning centralization; playing up trends more forcibly, and making stores more vibrant and compelling.

However, investors apparently were not enamored by what they heard and traded down Penney shares 98 cents, or 5.6 percent, to close at $16.68 on the New York Stock Exchange Tuesday.

J.P. Morgan Chase & Co. analyst Shari Schwartzman Eberts, in a morning research note, described Monday, the first day of the meeting, as “unsettling, with full-year guidance in flux, a lack of clarity on Eckerd and a laundry list of excuses for weak first-quarter performance.”

Eberts noted that while the company is standing by its full-year profit estimate of $1.50 to $1.70 a share for now, the outlook will be reevaluated at the end of the month, and projections are likely to be lowered.

For the near-term, changes in operations and store improvements are likely to be offset by the impact of the war with Iraq, the weather and consumer hesitance to spend money. Penney’s expects comp-store sales this year to inch up just 1 percent, though it didn’t rule out the chance of slightly higher increases should the U.S. economy improve.

To make the stores more compelling, Penney’s has a chain-wide rollout of bold, colorful graphics to underscoring fashion hues, key departments and key items. They’ll be changed five times a year in all stores. Penney’s is also rolling out fashion jewelry departments to all stores by July 1, and focusing more on fine jewelry. The changes are evident at Penney’s store in the Stonebriar mall, in Frisco, Tex., which analysts toured. However, only 5 to 8 percent of Penney’s stores are similarly rigged, noted Allen Questrom, chairman and chief executive officer of J.C. Penney Co. Thirty high-volume urban stores will undergo a similar transformation this year, with new lighting, double the number of display tables and centralized cash desks with more registers to speed transactions. It has not been determined when more stores will be made over.

This story first appeared in the April 16, 2003 issue of WWD.  Subscribe Today.

Women’s, juniors and girls’, along with fine jewelry, accessories, outerwear, soft home furnishings and men’s tailored clothing, are among the strongest categories at Penney’s. Within the last few months, Penney’s has launched the exclusive Bisou-Bisou junior and contemporary brand and its exclusive, the True Beauty by Emme, special sizes brand. Penney’s private brands, such as Arizona, are bestsellers and are expected to grow with aggressive marketing and ad campaigns soon. Private label accounts for 45 percent of Penney’s merchandise. Special sizes are also considered a growth niche.

“We have made considerable progress in all areas,” said Vanessa Castagna, chairman and chief executive officer of J.C. Penney Stores, Catalog and Internet. “We will continue to focus on five key drivers: fashionable, trend-right merchandise assortments at value prices for the moderate customer, compelling marketing, vibrant store environment, competitive expense structure and having a qualified, professional work force.’’