J.C. Penney Opts for Toned Down Renovation Plan

As Retailer Burns Cash, New CEO Refreshes Home Area, Pulls Back On Other Updates

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J.C. Penney's new home department is like Technicolor Oz plunked down in black-and-white Kansas.

Dreamed up by Ron Johnson before the former Apple retail wizard was ousted as CEO in April, the housewares emporium, which opens this week, features vibrant colors, wood fixtures and other modern flourishes. The rest of the century-old department-store chain? Not so much.

J.C. Penney's 'Happy Chic by Jonathan Adler' shop
J.C. Penney's 'Happy Chic by Jonathan Adler' shop Credit: Chris Rupert

The dichotomy presents a challenge for CEO Myron Ullman. Mr. Johnson's vision is too far along to abandon, yet J.C. Penney is consuming cash faster than any other U.S. brick-and-mortar retailer. So Mr. Ullman has opted for what might be described as Johnson Lite as he sets about renovating the two-thirds of store space left untouched during Mr. Johnson's 17-month tenure.

Rather than a mini-mall of 100 branded shops, Mr. Ullman is testing scaled-down versions of the concept, including one selling Haggar and Dockers khakis that looks nothing like Mr. Johnson's proposed Khaki Bar. If it works, Mr. Ullman will do the same with additional national and house brands.

As he renovates the stores, Mr. Ullman must appeal to the younger shoppers Mr. Johnson was chasing and the chain's older, more conservative customers, said Paul Swinand, an analyst for Morningstar. The contrast between old and new may be "jarring" for some of them, he said. "It's an issue they have to address."

Mr. Ullman, who ran the chain from 2004 to 2011, initially focused on shoring up J.C. Penney's finances after returning. He borrowed $850 million from the company's credit line and secured a loan of $2.25 billion from Goldman Sachs Group.

Now Mr. Ullman is trying to win back customers who decamped in droves after Mr. Johnson axed most discounts for an everyday low pricing model. Reversing the chain's fortunes -- J.C. Penney's net loss widened in the first quarter to $348 million and sales sank 16% -- means getting the stores and assortment right.

Mr. Johnson originally planned to install 100 of his shops by the end of 2015 in what he called a specialty department store. Only a handful of those shops were completed in about 700 of the largest locations before he left. Even if he had stayed, the company lacks the funds to continue beyond the housewares department.

Once that's done, less than 10% of this year's budget for capital expenditures will remain, the company has said. Meanwhile, J.C. Penney's operations consumed $752 million in cash in the quarter ended May 4, more than any other U.S. brick-and-mortar retailer, according to data compiled by Bloomberg.

With money tight, Mr. Ullman is also ditching Mr. Johnson's plans for coffee bars and food stands dotted throughout the stores. Ditto for the "street" that was to lead shoppers to a town "square," home to such activities as yoga and pilates.

Mr. Johnson's original Khaki Bar featured long wooden tables equipped with iPads loaded with sizing and style apps. The scaled-down version is right out of the department store 101 manual: neatly folded clothes on wooden shelves and tables, track lighting, posters of hunky-looking guys, more mannequins and bolder signs for the Haggar and Dockers brands. While Haggar and Dockers had shops designed and prototypes built, they were never implemented.

But even if shoppers respond favorably to the renovations and new products, there's no hiding the fact that the rest of the store will look dated by comparison. "You just can't neglect the old parts of the store," Mr. Swinand says. One of the themes Ullman has been focusing on since he came back is that the company "can't flush the rest of the store down the toilet."

--Bloomberg News

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