J.C. Penney is back 'on the money'

By BARBARA WOLLER
THE JOURNAL NEWS

J.C. Penney Co. Inc. and its forerunners have been part of America's retail landscape for 103 years.

Its story began in 1902 when James Cash Penney opened his first Golden Rule Store — a dry goods and clothing shop — in Kemmerer, Wyo. The J.C. Penney chain has traveled far from its frontier days.

The Plano, Texas-based company is now in the midst of a sweeping and so-far successful turnaround to recapture the glory and financial strength it had known for decades.

The retailer sells family apparel, jewelry, shoes, accessories and home furnishings through three channels: its 1,050 department stores in the United States and Puerto Rico, 94 catalog titles aimed at specific consumer groups and its Web site.

The three-level Penney store at the Palisades Center in West Nyack, NY is its only presence in the northern New York suburbs.

The chain also has stores at the Danbury Fair Mall in Danbury, Conn., and the Garden State Plaza in Paramus, N.J.

Howard Davidowitz, chairman of Howard Davidowitz & Associates, a retail consulting and investment banking firm in Manhattan, said the chain has made enormous improvements in recent years.

"They're on a tremendous roll," Davidowitz said. "The benefits are being realized. They have a more focused presentation on their merchandise. They offer customers much more value and they're taking markdowns faster. They're more aggressive on their promotions."

Penney targets so-called "middle-America" shoppers in the fiercely competitive retail industry. Typical customers have annual household incomes ranging from $30,000 to $80,000.

Penney is "in lock-step with its moderate-income shopper," Robert F. Buchanan, a retail analyst with A.G. Edwards & Sons Inc., wrote in a July report.

Siobhain Tucek of New City, a mother of three and a loyal Penney customer, was shopping at the West Nyack store recently for back-to-school clothes.

She had two large plastic Penney bags over one arm and a pile of children's clothes on the other. But that didn't stop her from checking out a large cream-colored serving plate in the home goods section.

"Penneys is one-stop shopping," Tucek said. "It's convenient and it's easy parking. You get in and out." She also said the prices are reasonable and the salespeople are friendly.

Tucek said she recently made a lot of improvements in her kitchen. Friends told her to go elsewhere but she headed straight for Penney.

"I got everything I needed here," she said. "They have nice selections."

Linda Delerme of the Bronx, shopping with her son, Javier, 20, is also a Penney fan.

"Wherever I go I generally go into a J.C. Penney store," Linda Delerme said. "I always felt satisfied with the merchandise."

Judith Green and James Kurtz, a married couple from Teaneck, N.J., were shopping with their granddaughters.

"We're looking for T-shirts, sneakers, pajamas and any other thing that attracts our attention," Green said.

"I like the clothes here in the junior section," said granddaughter Haley Beidel, 12, from Edgewater, N.J. "I like the pillows, too," pointing to a display of throw pillows.

Penney had long been a formidable competitor and has had enormous success. For example, in 1993 the giant retailer's net income rose 21 percent to $940 million and in 1994 it exceeded $1 billion for the first time.

Also that year Women's Wear Daily, the bible of the fashion industry, dubbed Penney the "best store" for women's apparel.

But dynamics in the retail industry started to change toward the end of the decade, and the rapid growth of the powerful big discounters cut into Penney's customer base. The retailer's downdraft was worsened by its poor merchandising mix and inefficient management policies. For example, most major retailers had centralized their buying but Penney continued to let its store managers make many of the decisions.

An article about J.C. Penney in the June 2003 issue of Fortune magazine said that in 2000 the company was on the verge of bankruptcy. Sales at its stores open at least a year — a key benchmark of a company's inner strength — were falling.

"The stock had nose-dived almost 80 percent to a low of $8.75," the article said. "The slump was so bad that its market share among department stores fell from 3.5 percent in 1990 to 2.4 percent in 1999 even though it had more stores than any other chain."

In 2000 the company suffered a loss of $701 million with its per-share losses at $2.81.

Hoover's reported that from 1998 to 2002 the retailing chain sold off more than 170 underperforming stores. Among them was the Penney store that had been an anchor at The Galleria in White Plains. The store closed in 2001 and Sears relocated there two years later.

In 2001, Penney began a five-year plan to make a 180-degree turn with strategies to improve its operations and boost revenues.

Allen Questrom was brought in to be Penney's chairman and CEO. Questrom previously held those titles with Barney's New York, Neiman Marcus and Federated Department Stores. Vanessa Castagna, an executive with Wal-Mart, became Penney's chief operating officer.

Penney's operations became centralized and inventory management became more important. The company also introduced proprietary brands, such as Nicole by Nicole Miller and nick(it), a line of apparel for "empowered men."Last year, the company also sold off the Eckerd Drugstore business, which brought in after-tax benefits of $3.5 billion. Penney used some of that money to retire $1.7 billion of its debt.

In 2004 J.C. Penney introduced the Chris Madden for J.C. Penney Home Collection, a home furnishings line of bedding, towels, furniture and rugs.

Further, in 2004 the company increased its presence for the first time in several years when it opened seven mall-based department stores and seven off-mall stores.

And 2004 was the year that Penney saw a 5 percent gain in its stores open at least a year, topping the performance of its main mall-based department store competitors for the fourth straight year.

Even though Penney is on a positive course, it still faces risks.

Buchanan wrote in a July report that those risks could include a continued downturn in consumer spending and "the interruption of products flows out of the Far East and other key sources of supply."

But Deborah Weinswig, an analyst with Citigroup Smith Barney, said she has "confidence in the company's ability to generate consistent long-term increases in shareholder value."

In Dec. 1, 2004, Myron "Mike" E. Ullman III became Penney's new chairman and CEO.

In his first letter to stockholders in the company's 2004 annual report he wrote that Penney's long-term objective is to be "the preferred shopping choice for Middle America serving the middle-market shopper." He also said Penney must create an "emotional connection with its customers via its merchandise, marketing and advertising messages."

Penney has built a strong foundation in recent years, Ullman wrote, "but there is still more to be done and lot more opportunity ahead of us."