'One-trick pony' no more: Penney's markets way to turnaround

By Published on .

Most Popular
[Cedar Hill, Texas] Allen Questrom happily stood between the bedding and tableware departments in a store in a Dallas suburb last week, acting as the genial host to a gaggle of analysts and portfolio managers invited to see the future of JCPenney department stores.

That future was on display at the Dallas store, one of three prototype free-standing locations-unlike Penney's traditional mall-based stores-which opened late last year and where the retailer has experimented with new ways to market its way out of a slump. It's all part of the five-year turnaround plan instituted after Mr. Questrom arrived in 2000 as chairman-CEO of J.C. Penney Co.


After teetering on the edge then, with its bonds reduced to junk status and outdated stores cluttered full of unappealing merchandise, Penney's appears to be on the way back. Marketing is a key part of the turnaround story, and how JCPenney's has been able to attract new customers and bring back those who bailed out during the slump.

"We found a lot of our problems were self-inflicted," said Michael Boylson, a Penney's veteran who was named chief marketing officer last year. "We were more of a one-trick pony," he said, noting almost all the marketing done in 2001 and 2002 was promotional and sale-based, not branding.

Marketing, however, had to wait until the merchandise in stores had caught up to the image Penney's wanted to project, Mr. Boylson said. As part of the turnaround plan, Penney's changed to a centralized merchandising operation, which improved in-stock items across all stores.

Now that the merchandise is up to snuff, marketing and merchandising are "joined at the hip," Mr. Boylson said.

Financial experts agree the company has made good progress improving the merchandising and marketing. "Their stores are not a place you're afraid to go into anymore," said Scott Summers, relationship manager at Mellon Capital, Los Angeles.

In the fourth year of a five-year turnaround plan, sales and profits are improving and the company's crushing debt has been cut by half, but investors are still anxious to see sales take off.

The first quarter was off to a strong start-with 12.1% same-store sale hike in February followed by 11.4% in March-but the company is still forecasting single-digit percentage growth this year, to the analysts' annoyance. At $143 in annual sales per square foot, Penney's is behind its competitors, such as Kohl's Corp., but the figure is still an improvement over $127 per square foot in 2000.

"We've really not gotten yet to where we want to be," said Mr. Questrom, who previously guided Federated Stores out of bankruptcy. "We can see the peak. But we think we can make it."

Wall Street was relieved when J.C. Penney Co. reached an agreement earlier this month to sell its Eckerd drugstore chain for $4.5 billion. The company was distracted by the struggle to do something with the troubled unit, said Chad Woodson, portfolio manager at Clover Partners, Dallas. The company plans to use the Eckerd cash to buy back debt and stock and continue shoring up the balance sheet, Mr. Questrom said.

The next marketing step in Penney's plan is to win the "driveway decision," to be the first choice when consumers set out to shop for affordable apparel and home items, said Vanessa Castagna, chairman-CEO of JCPenney Stores.

To persuade consumers to move Penney's to the top of their shopping lists, the company has improved its private labels, adding brands such as Bisou Bisou by designer Michele Bohbot and Parallel, which is made by the same team as the pricier BCBG specialty label. Additionally, it will launch a home collection in May with home maven Chris Madden and another line in fall from celebrity wedding planner Colin Cowie.

The Chris Madden line-a collection of furniture, window treatments and soft goods for bed and bath-will launch with a preprint created in-house which will appear in May 9 newspapers, followed by TV and magazine ads from Penney's agency, Omnicom Group's DDB Worldwide, New York, including a four-page insert in June issues of shelter and lifestyle magazines. The Colin Cowie launch will follow in September, with an effort focused more closely on the bridal market, including more targeted TV and bridal magazine buys.

"Colin is so well-connected, he picks up the phone and calls Oprah," said Mr. Boylson. "It really puts JCPenney on a world stage."

Which begs the question-will Penney's leverage those high-profile spokespeople into the Madison + Vine space?

"The answer is clearly yes, but we're not ready quite yet," Mr. Boylson said. Getting the traditional media mix right is a more immediate priority, he said. With the upfront market looming, Penney's and its media buyer, Omnicom's OMD, are trying to squeeze out efficiencies in the traditional media buy.

While Chief Financial Officer Robert Cavanaugh noted marketing expense increased 11% in 2003, Mr. Boylson said his department wants to reduce ad spending by better measuring its performance and cutting weaker efforts. Penney's spent $368 million in media in 2003, according to TNS Media Intelligence/CMR.

"It's not the traditional mentality of `I've got to have more, more, more for advertising'... Because you don't know what is working and what is not," he said.

catering to hispanics

Penney's will step up its advertising to the growing Hispanic population, a natural audience for a retailer specializing in moderate-priced home fashion and apparel for the whole family. Earlier this month, it hired Omnicom's Dieste Harmel & Partners, Dallas, to handle its $15 million Hispanic account. Mr. Boylson said the agency's strategic abilities should help Penney's navigate a market that is complicated by issues of acculturation and varied nationalities.

"It's an extremely complex issue. It's not just slapping a Hispanic personality on a line of clothing," Mr. Boylson said, in a thinly disguised swipe at both Kmart Corp.'s Thalia Sodi line, and Kohl's Corp., which just launched Daisy Fuentes apparel.

Any Hispanic ad effort will have to be coordinated with merchandise, store signage, events and promotions, Mr. Boylson said. By next year, there will be "significant changes" on that front, he said.

Penney's will also tinker with its "It's all Inside" campaign, which has been part of the turnaround efforts. The campaign wrapped many of Penney's house brands, such as Arizona Jean Co. and Stafford menswear, into a storewide branding campaign.

The campaign is still being refined, Mr. Boylson said, who admitted he wasn't entirely happy with the integration of private labels and the Penney brand in a campaign that broke in February's Academy Awards broadcast. He's challenged DDB to do better on coming efforts, which include a back-to-school campaign around the Arizona Jeans brand coming this summer.

In this article: