Department Stores: A Penney's saved

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The department store as a retail genre may be threatened with extinction, but one chain founded by a minister's son a hundred years ago may have a prayer of surviving.

J.C. Penney Co. Chairman-CEO Allen Questrom is preparing next week to sell Wall Street on a plan to boost capital spending to under $1 billion to spiff up the chain's 1,075 stores, adding a cleaner, uncluttered look brightened with bold in-store graphics and racetrack-like selling floor popularized by discount/department store hybrid Kohl's. The makeover is part of Mr. Questrom's vision of fixing the ailing chain over the next several years by also taking a page from Target, which sells specialty and department store merchandise at discount store prices. Mr. Questrom, the 1980s era CEO of Neiman Marcus, has indicated his goal is to sell Neiman Marcus fashion at Penney prices.

So far, Mr. Questrom, one of six CEOs to take over at major retailers in 2000, has garnered some success. Penney, with department store sales of $14.8 billion for the fiscal year ended in January, reported solid sales increases at stores open for more than one year-starting with the difficult period after Sept. 11, and continuing through early 2002. For the four weeks ended Feb. 23, same-store sales climbed 12.5%. That compares to a 14.4% rise at Kohl's and a 10% jump at Target Stores, both for the four weeks ended March 3.

Mr. Questrom "has done the one thing Penney's really needed doing: He opened the door to the consumer," said Kurt Barnard, president, Barnard's Retail Trend Report. Not only is Mr. Questrom sprucing up stores, more importantly, Chief Operating Officer Vanessa Castagna, formerly a top Wal-Mart Stores merchandiser, has given its merchandise a fashion boost.

A spokeswoman for J.C. Penney said Mr. Questrom would not be available for comment in advance of next week's planned media blitz. John Budd, senior VP-chief marketing officer, does not speak with the media, according to the spokeswoman. Executives from Penney's advertising agency of two years, Omnicom Group's DDB Worldwide, Chicago, declined to comment.

carrying on

In September 2000, DDB launched a new campaign for Penney's tagged "It'sallinside," a positioning intended to make consumers aware not only of Penney's stores, but its catalog and e-commerce site. Mr. Questrom at first blasted the ad campaign he inherited, telling Wall Street the marketing effort wasn't helping the chain. Penney's, however, put $308.4 million behind "It'sallinside" last year, according to Taylor Nelson Sofres' CMR. Penney's continued with the theme in its Academy Awards push backing its 100th anniversary.

Preventing Penney's from moving into the bankruptcy path of Kmart Corp. or the liquidation of Montgomery Ward will be a long-term goal. A turnaround will take at least two to four additional years, the department store said. "He's not finished," noted Mr. Barnard of Mr. Questrom's turnaround.

Indeed, Irma Zandl, president, the Zandl Group, a youth marketing consulting company, said J.C. Penney's popularity among young consumers has dropped 44% in the past five years, with only 3% considering it a customary apparel shopping destination.

Echoing the sentiment of a number of analysts, Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment banking firm, said: "There's a 50% chance they'll be around another 10 years."

Fast Facts

Sales growth for J.C. Penney's department stores for stores open at least a year.

Year ended Jan. 2002: 3.3%

Four weeks ended Feb. 23: 12.5%

Four weeks ended Jan. 26: 5.9%

Source: Company reports

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