JC Penney Launches 'Shops' Concept With Levi's, Arizona and Buffalo

Will Be the First of Many Store-Within-Store Executions

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The Levis Shop in JC Penney
The Levis Shop in JC Penney

JC Penney unveiled its store-within-store revamp at the Manhattan Mall in New York City on Monday, opening the first phase of the shops in time for back to school.

Denim is the focus of the first rollout, which will debut in 683 stores across the country by Aug. 1, with Levi's, Arizona and Buffalo brands getting their own carve-outs within the department store.

This is part of CEO Ron Johnson's plan to turn JC Penney stores into collections of branded shops and become an experiential hub for shoppers similar to Apple, where he served as the retailing chief.

The concept was initially spearheaded by Michael Francis, whom Mr. Johnson handpicked from Target to head up JC Penney's marketing and merchandising operations. Mr. Francis abruptly departed from the company in June after just eight months in the role. Mr. Johnson has since taken over his duties, which include marketing the company's controversial pricing plan as well as overseeing merchandising and product development for the new shops.

Mr. Johnson brought in Ben Fay, another Apple alum, to head up the store design and development.

One way JC Penney is adopting Apple's strategy for brick-and-mortar stores is with mobile checkout, which is a highlight of the Levi's shop and will be in all stores by the end of the year.

IPads flank the sides of Levi's men's denim bar, which Mr. Fay said will "reinvent the way guys shop for jeans." The denim bar includes 11 cuts and 88 washes of jeans and is staffed with Levi's fit specialists who are trained by JC Penney and the denim maker.

Aside from mobile checkout, the iPads will also be available as a source for additional Levi's information, an expanded merchandise selection and videos of products. Those shopping from home can also access the virtual denim bar online.

The women's Levi shop is retooled with Curve ID, which allows customers to select their perfect pair of jeans based on body shape, not size.

JC Penney's new stores will include three formats: boutiques, which are under 750 square feet; shops, which are between 750 and 1,400 square feet; and stores; which will be over 1,400 square feet.

The shop for Arizona, JC Penney's proprietary brand, was inspired by the idea of a group of teenagers getting their hands on a Volkswagen bus and taking a trip across the country, stopping in Arizona, Mr. Fay said. Aside from new signage and decor, Mr. Fay said they also worked on the quality and fit of the merchandise.

I Jeans by Buffalo, an exclusive line for JC Penney, is housed in the smaller boutique format, with the collection changing every month.

The boutiques and shops will remain open (not blocked off with doors), allowing customers to engage with the entire store and easily navigate into other shops, Mr. Fay said.

By Sept. 1, JC Penney will also open an Izod shop, a Liz Claiborne store and a shop for its own JCP men's and women's brand. It's also slowly revamping other parts of the its stores that have not received a makeover, editing out assortments and focusing on brands that have shown promise, turning merchandise out to face the customer and adding mannequins to show shoppers how to complete an outfit.

Going forward, JC Penney is also considering grouping merchandise into shops not only based on brand but also by lifestyle, such as action sports.

JC Penney said it is rolling out extensive marketing for the shops, including direct mailings, pre-print and TV spots. It's also offering a promotion for free haircuts for children in August to get shoppers into the store for back-to-school shopping and to check out the new shops.

The first iteration of the shops comes as the department store hits a speed bump with its partnership with Martha Stewart and struggles with criticism for its pricing strategy.

Earlier in the month, rival Macy's was granted a preliminary injunction blocking Martha Stewart Living from taking any steps under the agreement with JC Penney on making, marketing, distribution of selling Martha Stewart-branded products including bedding, bath, kitchen textiles, dinnerware and cookware. Macy's argued in court that it has exclusive right to sell Martha Stewart products in these categories.

In January, JC Penney acquired a 17% stake in Martha Stewart Living for $38.5 million and announced plans to open Martha Stewart-branded stores. The Martha Stewart-branded shop was meant to anchor JC Penney's 20,000-square-foot area dedicated to home items.

JC Penney wouldn't divulge plans for Martha Stewart-branded shops during the presentation, but said the home reinvention is expected to come in Spring 2013.

Mr. Johnson's pricing strategy, which has focused on "month-long value," whittling promotions down from nearly 600 to 12 and doing away with coupons, has received criticism from consumers who have been confused by the strategy.

The retailer lost $163 million in the first quarter. Sales skidded 20%, traffic slowed 10%, and conversion and average customer spending both fell 5%.

Mr. Johnson defended the strategy last week at Fortune Brainstorm Tech conference in Aspen, Colo., saying, as he has from the get go, that a full transformation shouldn't be expected until 2015.

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