NEW YORK — J.C. Penney & Co. Inc. Thursday disclosed the first steps in its previously stated intention to cut costs by more than $200 million annually, affecting about 475 employees.
The expense reductions, which will accrue to the company’s department stores, catalogue and Internet businesses, are associated with four primary operational categories, including the catalogue telemarketing centers, the store support center, corporate organization and marketing.
“Over the past three years, the company has focused its efforts on [implementing] centralization initiatives and the related improvement in merchandise, marketing and store environment,” said chief executive officer Allen Questrom in a statement. “With centralization well under way and technology now in place, we are able to concentrate our efforts on creating a more competitive cost structure.”
In the catalogue segment, Penney said it will close its Austin, Tex.-based telemarketing center in the second quarter of this year and reallocate the call volume to its remaining telemarketing centers. The Austin center is home to the 475 employees affected by the measures.
In the store support center network, Penney said it will realize savings from transferring management of the six support centers back in-house. Currently, the centers are run by outsourced third-party managers.
At the corporate level, Penney said it will undergo restructuring in its department store operations, catalogue and related corporate support functions, including the “centralization of certain functions and elimination of resources devoted to certain activities.”
Lastly, Penney said it will refine its investment in marketing by eliminating what it called less productive expenditures and reducing overall production costs. Some of the savings will be reinvested in media that supports sales growth, the firm said.
Taken together, the steps, which are currently being implemented and are expected to produce $50 million in savings in fiscal 2004, will result in a fourth-quarter charge of approximately $20 million, or 4 cents a share, for fiscal 2003, the results of which will be released next week. Penney said charges relate principally to contract cancellations and severance and outplacement. However, the company said it continues to expect fourth-quarter earnings of approximately 80 cents a share, including the effects of those one-time charges.