J.C. PENNEY GETS TOUGH WITH SHOPS TO LURE SHOPPERS: RETAILER REVIEWS COMPENSATION IN MISSION TO MAKE BRAND FASHIONABLE

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J.C. Penney Co., determined to become more fashionable, is putting pressure on its advertising agencies to achieve that desired result.

Stephen Farley, a veteran marketer and agency executive who became Penney's first chief marketing officer in June, said he wants more bang for Penney's advertising bucks -- some $372 million last year, according to Competitive Media Reporting. That spending is expected to remain level, he said.

"My first priority is to re-establish J.C. Penney as a place for fashion merchandise," said Mr. Farley in an interview with Advertising Age.

"Our agencies have a formidable task," he said, "and we're asking more of them. We'll see what happens."

LOOKING AT AGENCIES

Although he stopped short of saying he would seek an agency review, Mr. Farley noted that Penney's is taking a harder look at agency contracts and compensation.

Temerlin McClain, Dallas, has been Penney's agency since 1991. Last summer, Penney's reviewed the $20 million ad account for its private label Arizona jeans and apparel line. DDB Worldwide, Dallas, won the account.

Mr. Farley said he has "challenged" all his shops to consider ways to provide Penney's with "more impact for everything we do."

While describing himself as a "firm believer of true partnerships" with agencies, Mr. Farley also noted he believes the way of compensating agencies -- commissions based on media billings -- is "antiquated."

"We have challenged our agencies to be more of a partner with us," he said. He expects incentive compensation talks, which he declined to detail, to be concluded by the end of the year.

SHORING UP SALES

Penney's, with $30 billion in 1998 sales, is the nation's fourth largest retailer, but needs to shore up sales and profits, which have been on the slide for the last five years.

Like other traditional department stores in the category, such as Sears, Roebuck & Co., Penney's is pressured on many fronts. Discounters Wal-Mart Stores and Kohl's Corp. have won over customers on price. Target Stores and Kmart have tapped upmarket consumers looking for value and fashion; The Gap, Abercrombie & Fitch and Pottery Barn are stealing customers lured by taste and attitude.

YOUTH APPEAL

"Their customers have been lost to Kohl's, Target and Wal-Mart," said Walter Loeb, president of consultancy Loeb Associates. "Their advertising program needs to be revised."

In particular, Mr. Loeb believes Penney's needs to lure back young customers, as well as older customers who want to look young. No older American, particularly a baby boomer, is interested in looking like a "well-dressed old person," he said.

Still, Mr. Farley notes the chain has a number of strengths, among them brand recognition and equity, good mall locations and a well-established catalog operation slugging it out on the e-commerce front.

Mr. Farley, who worked closely with creative advertising luminaries in agencies early in his career, believes Penney's strengths can be enhanced by creativity. "Don't underestimate the value of creative thought," he said.

Mr. Farley began his marketing career at N.W. Ayer & Partners, New York, in account management on its Avon and Gillette Co. business. He's also a veteran of the cola wars, the fast-food wars and the retail wars.

'A P&G DISCIPLE'

"I was first born as a P&G disciple," he said. At what was then Dancer-Fitzgerald-Sample (now Saatchi & Saatchi), he worked with Cliff Freeman. Later, at Earle Palmer Brown, he got to know Bill Westbrook, who is now president-international of Fallon McElligott, Minneapolis. Moving to the client side, Mr. Farley worked at PepsiCo's Pizza Hut, rolling out the Lovers' line of pizzas and a delivery campaign.

At Payless Shoesource for the past eight years as senior VP-marketing, Mr. Farley said he worked with its agency, FCB Worldwide, Chicago, to "contemporize the brand" and, importantly, to take Payless out of the discount shoe store battle. Creative was tagged "Doesn't it feel good to pay less."

Now he is one of less than a handful of unusual hires by Penney's, a company known for promoting from within and eschewing outside talent. Another key outside hire is Vanessa Castagna, a merchandising star who was formerly in charge of Wal-Mart's women's apparel. This summer, she took over as Penney's exec VP-chief operating officer.

When he arrived on the job this summer, Mr. Farley, who turns 45 next month, was presented with a number of previously developed campaigns from Temerlin, he said. He selected the one tagged "The Look. Look Who." The effort consists of a series of 15- and 30-second spots, each featuring a specific item done in a different cinematic style.

'THE MODERN SPENDER'

The prime target is a consumer group Penney's is calling the "modern spender," a woman aged between 35 and her early 50s, from a dual-earner household and generally with children 6 to 17.

A secondary target is younger women, ages 20 to 35, who are single or married with babies or small children and who shop at Penney's for their offspring or their homes, but not for themselves.

Under Mr. Farley, Penney's has shifted media buys into new TV dayparts, with more of a focus on prime time, and into magazines. Penney's also recently shifted some of its media weight toward its private label brands.

Mr. Farley indicated he has less support for building the Arizona jeans and related apparel brand and the St. John's Bay casual clothing brand.

"The in-house brands are important," said Mr. Farley, adding, however, "the priority has to be the overall brand, J.C. Penney." He also is moving to be certain Penney's has a single marketing voice.

That includes seamless integration between its catalog, online and on-land stores.

'We're re-evaluating everything," he said, from newspaper and radio spending and placement to the message. Penney's also is looking at better use of the company's extensive database. Under consideration, among other things, is extending Penney's sizable furniture business into areas such as custom decorating.

"We're starting over from scratch," said Mr. Farley. "The potential here is incredible."

He expects to have a new plan in place by spring or fall 2000. And he notes the new Penney's won't focus on special-event sales.

'NOT MUCH TIME LEFT'

Analysts believe it is too early to tell whether Penney's can make the changes necessary to turn its fortunes around. Kurt Barnard, president, Barnard's Retail Trend Report, said he wonders whether Penney's management will allow Mr. Farley and other newcomers to do their jobs unfettered. But most retail consultants agree something needs to be done soon.

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