Can a struggling J.C. Penney regain some ground in the coming weeks?
This story first appeared in the July 11, 2012 issue of WWD. Subscribe Today.
It’s been a tough reinvention so far for the Plano, Tex.-based department store chain, which on Tuesday cut another 350 workers from its headquarters, but will revise its pricing program and begin to open new in-store shops next month. These moves reflect the first part of an ambitious plan through 2014 to convert Penney’s wide-open selling floors to a format featuring 100 shops-in-shop, more or less. They’re also an attempt to get a lift on back-to-school business and stem the negative sales trends.
Penney’s put a positive spin on Tuesday’s cutback, saying it marks the end of this year’s streamlining, so workers who remain on the team can focus on their jobs rather than keep looking over their shoulders to see if they still have jobs.
“We have simplified processes, removed unnecessary work and reduced layers to help us make better and faster decisions,” Ron Johnson, J.C. Penney Co. Inc.’s chairman and chief executive officer, said Tuesday during an interview. “While difficult, these decisions are in the long-term interests of J.C. Penney and our stakeholders.”
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The company, he noted, is making good on its commitment to lower its expense rate by $900 million, which was helped by this week’s cuts. The goal is now expected to be reached by the end of this year, which would be a year ahead of the initial schedule.
Johnson also told WWD that while there’s been downsizing in Plano, there’s a buildup occurring at Penney’s new offices at 200 Lafayette Street in the SoHo section of Manhattan. The site houses design talent and staff involved in, among other areas, the Martha Stewart partnership.
On Aug. 1, Penney’s officially unveils the first round of new concept shops, which will be for Levi’s, Arizona and iJeans by Buffalo. On Sept. 1, in-store shops for Liz Claiborne, Izod and JCP, a new in-house brand for higher-quality basics for men’s, women and children, will also be unveiled. These shops will all open at 700 of Penney’s largest stores, and could open in additional sites later on.
Other new offerings for fall include accessories from Betseyville by Betsey Johnson, Lulu Guinness and Vivienne Tam, girls fashions from Dream Pop by Cynthia Rowley, and Royal Velvet furniture, window treatments and tabletop.
By the time fall goods hit in August, the department store chain will have switched out 47 percent of its prior assortment.
Based on all those merchandise changes, the company has forecast better sales in the second half, after being down 18.9 percent on a comparable-store sales basis in the first quarter, though officials don’t say how much better they envision sales to be.
Next year, styles from Marchesa’s Georgina Chapman as well as William Rast will be added, along with Watchgear by Tourneau and the Martha Stewart shop, which will anchor the home department.
Other additions coming up: Happy Chic by Jonathan Adler; a collection of products by Michael Graves, who previously had a collection at Target; a Design by Conran line of furniture, decorative home and lighting by British designer Terence Conran, and a line from Bodum, the Danish kitchen goods producer.
For Johnson, a top priority is to fine-tune the chain’s three-tiered pricing strategy, which has confused many shoppers. Tweaking will be apparent in August, but so far Penney’s has been mum on what will transpire.
Johnson told WWD that the goal is “to communicate the benefits of our new pricing structure to our customers.” He said the pricing message needs to be simplified. Penney’s pricing scheme involves everyday low prices, monthly values and clearances every other Friday that could run for a few days. Formerly, Penney’s notoriously played the “high-low” pricing game and was highly promotional.
But Penney’s pricing became even more confusing this month, when the company introduced new marked-down items every Friday, instead of the first and third Fridays, as it had been doing all year. Penney’s always has clearance items in the store and only this year introduced Fridays as the starting point for fresh clearance items. Officials also noted that July is a clearance month throughout the industry, suggesting that the pickup on markdowns was warranted.
During the interview, Johnson stressed that the company has not been reversing its pricing or business strategy, and insisted that recent media reports that Penney’s was adding sales or reverting back to coupons have been inaccurate. “We will not be bringing coupons back and not bringing sales back,” Johnson said. “There will be no change in the business strategy. We believe the transformation is on track.”
Johnson also assured that Tuesday’s cutbacks — hitting finance, information technology, product development and sourcing departments the hardest — marks “the final phase of our home-office reorganization. We are confident that we have completed our reorganization for the transformation of J.C. Penney.”
There will be 3,100 team members employed at the Plano home office after Tuesday’s cutbacks, down from 4,000 at the beginning of the year. The $16.5 billion Penney’s was long believed to have a home-office team that was outsized considering the size of the company and compared to some competitors. The head count has been as high as 5,900 in recent history, according to reports.
Penney’s first round of headquarters’ cuts occurred in April when about 600 associates primarily in merchandising, planning and allocation and marketing were dismissed. In May, cuts were made at stores, though Penney’s did not have a figure on how many store workers were let go. In addition, a call center in Pittsburgh shut down in the beginning of July, affecting another 300 employees.
Johnson said the downsized organization would align better with the company’s reinvention, make the company more competitive and further reduce costs. “It’s a smaller team for a simpler business model,” Johnson said.
“It’s been a very challenging and emotional period and very disconcerting for our workers,” Johnson said. “The good news is that people here can now put their heads down and go back to work. We’re done for this year. There will be no more structural changes this year.”
While cutbacks usually go over well on Wall Street, that wasn’t the case with Penney’s on Tuesday when the stock dropped 5.76 percent, or $1.27, to $20.76. Over the past 52 weeks, the stock has declined 31 percent.