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 After two years of declining sales, the department store chain is
eliminating or trimming some high-profile brands introduced by
former Chief Executive Officer Ron Johnson, including its own jcp
menswear, Joe Fresh clothes and some Martha Stewart-designed home
furnishings.
"What we now need is to edit things out that didn't resonate
sufficiently," CEO Mike Ullman told Reuters in an exclusive
interview at Penney headquarters in Plano, Texas.
Penney plans to use the freed-up prime floor space for its
more-profitable exclusive private-label brands. The retailer has
already brought back its billion-dollar St. John's Bay apparel line
as well as JCP Home and Cooks, and it plans to reintroduce its
Ambrielle lingerie in February.
The changes are the latest efforts by Ullman, 67, to rebuild the
retailer, whose sales tumbled 25 percent after Johnson tried to make
the stores more upscale and eliminated popular coupons and brands.
"He's trying to somehow rebuild a store that has an appeal to the
core J.C. Penney customer," said veteran retail analyst Walter Loeb
of Loeb Associates.
Ullman had led Penney between 2004 and 2011. When he returned in
April, he immediately reinstated the discounts and brought back St.
John's Bay to get longtime customers back in stores.
"The customer never gave up on the goods," he said. "We gave up on
the customer, and we paid a price for it."
During Ullman's first stint as CEO, Penney's sales and gross profit
margins reached all-time highs, and the company introduced the
wildly successful Sephora cosmetics "shop-within-a-shop" that was
the blueprint for Johnson's transformation plan.
But Penney's cost structure and sales per square foot lagged those
of rivals, and the chain was seen by many as stagnant. In 2010, that
attracted activist investor William Ackman, who pushed to replace
Ullman with Apple Inc <AAPL.O> retail star Johnson the following
year to transform Penney.
Johnson's strategy, which included dumping many Penney brands, cost
the chain $4 billion in sales in 2012 and hurt gross profit margins.
The lingering effects sent the stock to a 31-year low of $6.24 in
October. Penney's stock closed up 0.8 percent to $8.55.
Last quarter, gross profit was 29.5 percent of sales, about eight
percentage points below historical averages. This measure of
merchandise profitability is about five percentage points higher for
private brands because stores do not have to share profits with
vendors and can control when items go on sale.
The renewed focus on private label merchandise is seen as crucial to
reversing the sales slide before Penney can think of winning new
customers, said Bernard Sosnick, an analyst with Gilford Securities.
"A retailer in need depends on shoppers who know it well to begin a
recovery. Other shoppers won't come for quite a while," Sosnick
said.
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PRIVATE-LABEL PUSH
Increasing sales levels is the top priority, so Penney is also
trying to get more out of its existing private brands by expanding
them. For instance, it is looking into adding sportswear to its J.
Ferrar line of men's suits.
It will launch a line of home goods, including towels and bedding,
under its Liz Claiborne brand to replace the Martha Stewart-designed
"jcp Everyday" items that were supposed to bear her name. That
collection is at the heart of ongoing litigation brought in 2012 by
Macy's Inc <M.N>, which claimed exclusive rights to certain Martha
Stewart home goods.
Penney continues to sell Martha Stewart products in categories like
dry foods, party items and window treatments.
Starting in January, Penney will downsize the Joe Fresh shops in its
stores, reduce the assortment and move the clothing brand owned by
Loblaw Cos Ltd <L.TO> away from the front door to give a more
prominent spot to its own a.n.a and jcp women's wear. It is
eliminating jcp menswear.
The company is also reducing the assortment in top designer Michael
Graves' home goods collection, whose sales Ullman said were good for
some items but did not warrant all the store space it was getting.
Penney still sees potential in some of the brands Johnson brought
in. It is testing ways to make the Jonathan Adler and Terance Conran
home goods lines more successful, said Chief Merchant Liz Sweney.
That includes selling Adler bedding with like brands, for example,
since Penney shoppers prefer to browse by product category.
Still, the company is moving fast to shed merchandise that is not
carrying its weight, given the urgency of getting sales back up to
previous levels.
"We don't have six or seven years to get our business back," Ullman
said. "Half of our business has to be brands that we can produce
profitably."
(Reporting by Phil Wahba in New York;
editing by Jilian Mincer, Lisa Von Ahn and Kenneth Barry)
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