SIGNS OF CHANGE AT PENNEY’S

Byline: Holly Haber / Rusty Williamson

PLANO, Tex. — For J.C. Penney Co., the turnaround is far in the future. Yet after the holidays, there will be some real changes apparent, with some merchandise that’s more in sync with trends across women’s, men’s and home, plus a reengineered catalog with a slicker presentation in January.
In addition, Penney’s is standardizing the look of its stores over the next five years. Some are already there.
On Monday, Allen Questrom, chairman and chief executive officer, and Vanessa Castagna, executive vice president and president and chief operating officer for stores, catalog and Internet, gave an exclusive interview with WWD, updating progress at the $32 billion corporation, which includes the 1,080 Penney’s stores and the Eckerd drugstore chain.
They conceded that changes have been overdue for years, that Penney’s productivity was the lowest in the industry and, as Questrom said: “The first priority is obviously merchandise — getting the right assortments in the stores.”
As that’s being done, Penney’s is working to coordinate marketing with the new merchandising, cutting operating expenses and making pricing more competitive. That could mean intensifying the price promoting and markdowns, in keeping up with the rest of the industry.
Despite the recession, Penney’s remains modestly optimistic, seeking 2 percent compound annual growth over the next four years. While many retailers, particularly department stores, have suffered this year, Penney’s has made or exceeded its plan, albeit a conservative one, through November.
The company achieved small comparable-store gains in seven of the past 10 months. It racked up double-digit gains in women’s all year until warm weather hurt business this month. Still, there have been enough standouts in juniors, plus sizes, intimate apparel, handbags and belts to maintain the optimism.
“The best of all businesses is the junior business,” Questrom said. “The junior business was in the tank for quite a long time and people talked about how Penney’s didn’t attract young people and now they’re shopping here.”
Questrom is considering dropping some poorly performing private brands, but plans to maintain Penney’s 50-50 balance of private label and national brands. Despite its success in juniors, the company has no intention of introducing a private brand that caters to teens, due to that category’s fickle nature and fleeting trends.
A big part of the fashion effort entails overhauling proprietary brands. Historically, Penney’s paced the industry in product development, with labels such as Arizona and Hunt Club, both seen in several categories, as well as Stafford in men’s wear. But Penney’s officials acknowledged this year that the private label program needs energizing.
“We’re trying to step up a lot of our private brands that we already feel pretty proud about and take them to the next level,” said Castagna, noting that she plans to strengthen the Arizona denim brand, the Worthington career label and Delicates intimate apparel.
The company already has overhauled Hunt Club for men with better quality fabrics and more fashionable colors and plans to launch the new women’s version for fall, as reported last week in WWD. Hunt Club for children’s is a possibility, too.
“We brought Hunt Club back on the the table and Arizona is a billion dollar label, but we are really not happy with the way it has grown over the last few years,” Questrom noted. “We have to take it out of the Eighties and into the 21st century.”
The key for all the brands is to make sure they are fashionable and delivering value, Castagna pointed out. To that end, Penney’s hired trendspotters to scout the coasts and translate new trends for its middle-market customers.
“We want to build more quality into the brand and make sure we have it priced effectively,” Castagna said. “That’s what counts.”
“Brands that didn’t want to sell us in the past now want to sell us,” Questrom asserted, though he declined to name any.
Asked if Penney’s could benefit from a celebrity label, Questrom demurred. “You could have my name, and you might not like it but with the right marketing it can be the right name,” he asserted. “You have to have a marketing campaign that brings out the lifestyle and attitude.”
He asserted that Mossimo wasn’t a household name until Target launched it with a colorful advertising campaign and store collateral.
Questrom, who has spent the last year working to rejuvenate the laboring retail giant, has supervised a massive restructuring of Penney’s organization. The biggest challenge has been to centralize buying from the previous regime, in which each of the stores selected its own merchandise, a plodding process that resulted in dull assortments and blocked effective national marketing. Centralized buying has been in effect since February 2001, and information systems that support centralized buying won’t be fully installed until sometime next year, he noted.
“Now that we are centralized, our timing can improve, our offerings can improve, our message to our customers can improve,” Castagna asserted. “The value in the offerings is what it’s all about.”
The catalog, which has been ailing for years and suffering double-digit declines, will have a new look with an expanded focus on women’s merchandise and a lifestyle presentation. The overhaul includes higher-quality paper, fresher photography and a new layout. Penney’s previously relied on three major books a year, but plans to more frequently distribute smaller lifestyle books that promote complete looks.
“We think the catalog business will be smaller than it has been in the past — intentionally — but it will be more profitable and viable,” Questrom noted.
“We also think it is essential to have an Internet business. Although the Internet businesses have kind of gone off your radar screen as not the most fashionable, we think it is still a very important business that will get bigger and bigger in time.” Penney’s Web site will post slightly more than $300 million in sales this year.
“Last year, we lost about $40 million, but this year, we will make money and we think we will make money in time,” Questrom said. “We clearly believe it’s an option that people would like to shop. The generation of Internet users continues to grow.”
Back at the stores, Penney’s is putting up signage that is consistent across the country and standardizing store configuration and design. Over the next two years, the company will move to six standard formats, from the current 11. This is not a remodeling program, Penney’s points out. It’s about standardizing adjacencies, installing better lighting and graphics and making shopping easier.
“Penney’s is on its plan,” Questrom said. “The company has accomplished an awful lot….When you think of the enormity of the challenge, I think the organization has done a terrific job.”
In better times, Penney’s executives would wear suits bearing the firm’s private label. Questrom, however, known for his designer suits and meticulous style, for the interview was attired in a gray flannel designer suit with a tonal shirt and striped tie. While he doesn’t exactly have much in his wardrobe from the chain, he did say that he just bought a distressed leather jacket for himself at Penney’s and anticipates buying Hunt Club ties next year.
There’s a good reason why more people haven’t been won over by Penney’s. The Penney organization, said Questrom, “has always been very good on detail and execution, but it hasn’t had a great understanding of the whole creative side and merchandising side from the point of view of where the world has gone.
“One has to be much more responsive.”

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