Increasing private-brand merchandise is a lynchpin of J.C. Penney Co. Inc.’s goal to generate profits of $1.2 billion next year and add $1.6 billion in annual sales by 2019.
“First and foremost, our customer has said loud and clear she wants value,” declared chairman and chief executive officer Marvin Ellison, speaking Wednesday at Penney’s analyst meeting at the Four Seasons Resort and Club in Irving, Texas. “We will deliver this value in part by accelerating our private-brand penetration.”
Storewide, private label will rise from 55 percent of sales this year to 65 to 70 percent by 2019, explained chief merchant John Tighe, one of the nine executives who outlined Penney’s ongoing turnaround strategy at the four-hour meeting. Women’s apparel, which is currently 80 percent private label, will see an increase as the company whittles out brands with little recognition in favor of its own higher-margin brands, Ellison said.
The strategy calls for expanding existing labels into new categories, including shoes in Worthington and ANA this fall. J. Ferrar young men’s contemporary clothing line will morph into a full lifestyle collection with shoes, accessories and basics, he noted.
“We can leverage niche brands into tomorrow’s power brands,” Tighe said.
Tighe told reporters after the meeting that women’s apparel is not out of the woods yet. It was “slightly down” in the second quarter, though men’s and kids were up.
“Apparel has been soft, but there are trends within apparel that have been good,” Tighe continued. “We just have to maximize them fast. Active is great. There’s lots of talk about a big denim trend coming on, and if that takes place, J.C. Penney really wins because we are a great denim house with great brands, particularly Arizona and Levi’s.”
The chain is working to cut six weeks out of its product-development cycle and the goal is to increase gross margin by 75 to 100 basis points by 2019, producing earnings per share of $1.40 to $1.55, noted Ed Record, chief financial officer.
Executives plan to differentiate Penney’s from competitors with “a beauty solution” driven by its continuing rollout of Sephora shops, which currently number 574, and efforts to court add-on sales by customers at its 800-plus beauty salons.
“Getting your hair done is very emotional, and if you can get that right it becomes a customer for life,” Tighe asserted.
Plus-size fashions for women are another focal point.
“We see continued growth in plus-sized apparel,” Ellison noted. “It’s a very important category and it’s underserved. The customers are very passionate and loyal, and we’re going to make it a priority.”
Penney’s new Boutique+ brand for women is doing well and will be extended to intimate apparel. The company is also eager for the launch of Ashley Nell Tipton’s debut collection this fall.
The company also expects growth in plus-size fashions for men, teens and children, and its rebounding home-furnishings business.
To reduce checkout times, the company installed 7,000 faster point-of-sale registers and 7,000 new mobile devices with expanded capabilities throughout its 1,000 stores.
Ellison expects the company will reach profitability this year — a feat Penney’s has achieved in only one quarter since July 2011. In the three months ended July 30, comparable sales rose 2.2 percent and net losses were $56 million, an improvement of 52 percent.
The company has spent considerable effort identifying its core customers, who are 72 percent female, Ellison pointed out. Women averaging 60 years old generate 55 percent of sales. A younger, multiethnic “modern American mom” demographic represents 45 percent of sales and that number is growing, Ellison noted.
“The key is we have to understand our customers much better,” he said. “As simple as who is the core customer; we really struggle because when you are in the middle of a turnaround you take every customer you can get, but that’s not a strategy, that’s survival. If you do that, you lose sight of who the core J.C. Penney customer is.”