PENNEY’S TO ANALYSTS: CHANGES TAKING SHAPE

Byline: Rusty Williamson / With contributions from Laura Klepacki

PLANO, Tex. — There are big changes at J.C. Penney Co. stores, but they won’t translate into big overall gains right away.
That message came from Penney’s management Tuesday, which gave Wall Street analysts a guided tour of a prototype store near its headquarters here and reassured them about the viability of Penney’s department stores. The clutter is gone, there’s item intensification, and consumers are taking to the changes, particularly in women’s and juniors apparel, Penney’s said, though the 2002 comp gains will be modest, at about 2 percent, and there’s still years to go before the company fully turns around.
Penney’s chairman and chief executive Allen Questrom and other top executives outlined the 1,100-unit chain’s near- and long-term plans at the analysts’ conference here Tuesday at company headquarters. During the day, analysts toured Penney’s prototype store at the Vista Ridge Mall in Lewisville, Tex., a Dallas suburb. Internally, the store program is called “box one” and elements of it will touch all of Penney’s 1,100 stores to varying degrees to create a more uniform look through the chain.
Later, the analysts heard presentations from Vanessa Castagna, president and chief operating officer of Penney’s stores, catalog and Internet, and Liz Sweney, senior vice president and general merchandise manager for women’s apparel, among other executives.
Despite Penney’s enthusiasm, the presentation drew little reaction from the Street. Penney’s stock was down 17 cents, or 0.8 percent, to close at $21.49 on the New York Stock Exchange Tuesday.
“We’ve made a tremendous amount of progress and demonstrated last year that we could bring consumers back in the stores, but there’s still lots to be done. This is a very complicated process that will take the full five years to be accomplished,” said Questrom. He added it will take at least until 2005 to fully implement the wide range of changes taking shape at Penney’s.
Penney’s centralized buying process is starting to yield results, said Castagna, noting that comp-store sales rose 6.8 percent in March, 12.5 percent in February and are up around 5 percent for the quarter. Home and women’s apparel are top-selling categories.
“Our stores are now easier for customers to shop with less clutter, better layout and lighting and trend-right merchandise that gets to the stores quicker than ever,” she added, citing the prototype’s racetrack layout, wider aisles and clean-yet-compelling signage and displays.
During the tour, Penney’s showed off its new trend-based fashion merchandising tactics, including “hot spot” areas that sell items in depth and have large, vibrant signs highlighting trends such as capris or halters. One sign reads: “tee party.” The hot spots are clearly delineated, but without walls, and are stocked with the specific fashion item from a national brand or private label.
“We’re making bigger dominant statements within each classification while more tightly focusing on our assortments. This approach makes it easier for customers to shop,” said Castagna. “The number of styles we offered last year was down 50 percent over the prior year. The merchandise is trend-right with clearly marked competitive prices. Our new centralized checkout stations are easy to find and will be rolled out by the end of October to all Penney’s stores.”
Castagna added that capris are the hottest item in both women’s and juniors.
Sweney guided visitors through the women’s and juniors departments and noted that Penney’s sold over 500,000 pair of capri pants in 2001, equating to $120 million in sales. The year before that business was about $20 million. And Penney’s is selling about 15,000 fashion T-shirts daily from the “tee party” shops.
“A couple of years ago we were not even in the parking lot of the ballgame. But now all that has changed,” said Sweney. “We’ve added a trend office that looks for the latest emerging trends, and we go after them. And our centralization process is taking time out of the buying process. We’re merchandising by item. There are no pre-determined levels of whether our merchandise is national or private label — we’re just going after the hottest trends.”
Sweney said women’s apparel is currently registering high, single-digit gains, while juniors, casuals, petites and plus-sizes are ahead by double-digits. She said juniors is going after a Hot Topic look and wants to convey to teens that Penney’s “isn’t just Grandma’s store anymore.”
“Juniors is now 65 percent brands and 35 percent private label. We’re focusing on the leading six to eight key items in the fashion marketplace. We’re getting the word out with weekly ads to let teens know what we’re all about.” Key brands at Vista Ridge include LEI, Zana-Di, Mudd, Adidas and Nike.
Bill Cappiello, vice president and general merchandise manager for men’s, said Penney’s reduced its stockkeeping units by 30 percent compared to year ago, resulting in a leaner and cleaner assortment. “We’ve dramatically edited the men’s and boy’s departments. We’re expanding the color palettes and patterns that we’re offering and improving how fast we get key items to the sales floor. Men’s is ahead of plan and ahead of last year. We saw comp-store increases in 2001 for the first time in several years, and we’re seeing single-digit comp-store increases now.”
With Penney’s core customer typically female, 35 to 49 years old, beauty gets plenty of play at the Vista Ridge prototype, with wide aisles, open-sell areas, and the Avon BeComing boutiques, launched last fall. There were reports Tuesday that BeComing has become a disappointment for Penney’s, however after the meeting, a Penney’s spokeswoman said, “We have Avon BeComing boutiques in 92 stores, but we have some stores that have been open less than six months. We’re still learning and making changes as we go to satisfy our customers. We’ve recently seen positive growth in our Avon BeComing business on a week to week basis. It’s still too early in the process to totally evaluate the performance. We definitely feel that BeComing is a good strategic fit with our core customer and supports our overall company strategy.”
Steve Bock, president of Avon’s retail division, said that BeComing has “quite substantially” exceeded the retail sales plan set by Penney’s for the spring season. “We have overachieved every week so far this spring, beginning Feb. 1,” said Bock, who declined to cite sales figures. “More exciting, from our standpoint, is we are seeing more retail sales as each month goes by. April is bigger than March, February is bigger than January. We see that as an exciting progression in our business.”
Penney’s has raised its advertising budget by nearly $100 million to let consumers know about the myriad of changes shaping up at the chain. It sends out 50 million preprint circulars per week to targeted homes.
Penney’s newly configured home departments are making a run at Bed, Bath and Beyond and Linens and Things, said Tony Graziosi, division merchandise manager, noting that the home category was ahead by high-single to low-double digits with a similar forecast for the rest of the year. He said the square footage devoted to home has doubled to over 4,000 square feet in the new prototype. Home also emphasizes items. “We plan to roll out the new home prototype to 500 Penney’s stores by mid-year.”

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