PLANO, Tex. — J.C. Penney Co. isn’t interested in purchasing Mervyn’s stores or the Dockers brand, Allen Questrom, the department store retailer’s chairman and chief executive officer, said at the annual shareholders’ meeting at its headquarters here Friday.
The $17.7 billion retail chain could easily make a move on either Mervyn’s or Dockers, considering it’s soon to be flush with an extra $3.5 billion from the disposal of its limping Eckerd Drugstore chain, the net amount it expects to pocket after taxes, fees and expenses on the $4.53 billion sale to the Jean Coutu Group and CVS Corp.
Instead of an acquisition, though, the 1,020-unit Penney’s plans to take a more introspective approach and focus on strengthening its store, catalogue and Internet divisions with trendier and more compelling merchandise and expand its reach by opening up to 100 stores over the next few years, including at least seven of its smaller but highly lucrative off-the-mall stores by year-end, said Questrom. Questrom has said these stores have been registering sales per square foot significantly higher than Penney’s mall-based units.
As for the Eckerd proceeds, they’ll be used for common stock repurchases and debt retirements, he added.
Penney’s finished 2003 with a comp-store sales gain of about 1 percent and is planning to finish 2004 with increases of 2 to 3 percent, the third straight year of comp-store sales gains. Operating profits grew 13 percent in 2003 as a result of gross margin improvements from better execution in a centralized environment. Centralization is one of the cornerstones of Penney’s five-year turnaround plan.
Currently, women’s apparel, especially career, junior and contemporary; accessories; men’s wear; fine jewelry, and home are among the best-selling categories. The chain launched the Chris Madden home collection two weeks ago and it’s off to an auspicious start with sales above plan and lots of positive consumer buzz, according to Vanessa Castagna, chairman and ceo of J.C. Penney stores, catalogue and Internet and executive vice president of J.C. Penney Co. Inc.
The chain will launch a new wedding registry in September in a partnership with Colin Cowie, a prominent wedding planner with a celebrity following, said Questrom.
Penney’s revitalized catalogue and Internet divisions continue to surge with a 3 to 4 percent rise in sales forecast by year-end. Internet sales hit almost $600 million in 2003 and are on track to hit $1 billion by 2006, said Questrom.
“Merchandise assortments — which are a blend of J.C. Penney private brands and destination national brands — are more fashionable and trend right,” said Questrom. “We are promoting J.C. Penney as America’s year-round gift headquarters and now feature prominent gift-giving merchandise statements throughout the store, throughout the year, and have strengthened our already dominant position in merchandise basics such as towels, jeans and underwear through improvements in distribution, expanded sizes and depth of stock on key sizes.”
“Have You Seen What’s Inside at J.C. Penney?” is the chain’s new advertising and marketing tag line, an evolution of its long-running “It’s All Inside.” Penney’s advertising budget increased more than 10 percent last year as it makes a concerted push to score with its target demographic: 80 percent of its shoppers are women between the ages of 30 and 60.
Questrom’s bullish outlook was buoyed by first-quarter results that saw a 9.5 percent comp-store increase and a 6.5 percent gain in combined catalogue and Internet sales, though the Internet division singularly surged 45 percent.
“After three years, we have successfully overcome many of the initial hurdles associated with our shift to a centralized business model,” concluded Questrom. “We have not reached the top of the mountain, and the climbing is still difficult, but we are further from the base camp and making good progress toward the summit. We are progressing toward the completion of a major turnaround that many thought impossible.”