Pinching Penney's

Allen Questrom, chairman and ceo of J.C. Penney (Plano, Texas), told securities analysts he plans on creating a new, stronger and centralized management team. Questrom declared decentralization to be at the heart of Penney's problems, in his presentation earlier this month, because the “central people” had no idea what was going on in the stores.

Questrom has said that decisive actions, such as the recently announced closing of 44 unproductive department stores and three catalog outlet stores, will put a renewed focus on expense control. The stores should be closed in the first half of 2001.

The ceo said the goal over the next two to five years is to see sales growth in the 2 percent range by targeting the older, more-fashionable customers, who usually are left out of the marketing focus. Penney's already targets families with household incomes of $30,000 to $80,000, as well as those people in higher income brackets who shop for basic commodities. The new focus to target this group will be on the apparel-textile side, curtains and draperies, and children's areas. Penney's will also increase promotion of its private labels, since it had never allowed itself to get too caught up in vendor shop merchandising.

Questrom also said he expects Internet sales to increase by about 50 percent this year. Last week, it announced a newly designed web site featuring what it insisted were “streamlined navigation, time-saving solutions, a lifestyle focus and easier-to-find merchandise.” On the other hand, Questrom noted, the catalog division is likely to be unsuccessful again this year and will need some “restyling” to become a productive business in the future.

Plans to develop a new prototype for Penney's stores are still up in the air. Questrom, a veteran of retail turnarounds, said that more than just new carpeting and lighting is required to upgrade the stores and create a new dynamic “energy.”

He disagreed with shareholders'suggestions that the company sell Eckerd, Penney's drugstore chain. He feels the aging population and increased drug advertising will increase Eckerd's value over time.

Penney's, about to celebrate its centennial in 2002, is the eighth-largest retail organization in the U.S., with more than $32 billion in sales, 1100 department stores and 2600 drug stores. But it has been struggling, and has been insisting that store closings and streamlining the organization are among the steps needed to turn things around. Earlier this month, Goldman Sachs downgraded the retailer to “market performer” from “market outperformer.” Goldman said it prefers department store names such as Federated Department Stores (Cincinnati) and Sears (Hoffman Estates, Ill.), both “recommended list” stocks, and May Department Stores (St. Louis), which it rated at “market outperformer.”