JCPenney targets consumer directly

PLANO, TX — In rebuilding its beleaguered catalog, JCPenney is developing a direct-to-consumer business for both the catalog and Internet.

This approach, according to John Irvin, senior vp and president of catalog and Internet, is in complete contrast to how the catalog and Internet were operated. "The company had a retail strategy for the catalog and Internet," he said. "Now we have a separate catalog/Internet strategy."

The catalog, once a $4 billion business, was suffering from declining margins, profits and customer files as well as a decline in product quality and lack of focus, he said.

In a presentation to analysts here earlier this month, Irvin detailed the performance of the catalog since 2000. Sales in 2000 dropped 3 percent; in 2001, they plummeted 20 percent; and this year, sales are pegged to drop 10 percent to 13 percent. For the same period, gross margins dropped in 2000 but improved last year and are continuing that pace this year, he noted.

Under the new approach, merchandise is featured in lifestyle or solution formats rather than classification presentation in the Big Books, the across-the-board spring/summer and fall/winter editions. The latter will be the first to feature catalog-exclusive merchandise, Irvin said.

Also, the catalog sku count has been reduced 20 percent and assortments were changed.

There will be an increased development of smaller, specialty catalogs to stimulate new sales. Among those already in circulation are Spring Home Sale, and Window Authority, designed to expand Penney's dominance in the window coverings business; the baby book, with furnishings and strollers; and the bridal/gift registry, which has a full range of home furnishings.

As for the Internet business, which has one million unique visitors, Irvin said the margin dollars have increased more than sales, but year-to-date sales are up 46 percent.

Beyond the merchandise changes, the company has significantly altered its operational procedures, putting more emphasis on home delivery vs. in-store delivery to reduce returns and eliminate the $5 million in merchandise held in store stockrooms 10 days and longer. Shipping and handling charges were increased, and the return policy was tightened.

The company's marketing approach also has changed dramatically, John Budd, senior vp, chief marketing officer, told the analysts. "We have eliminated the clutter of small promotions, focused on our key businesses and increased the marketing budget."

Budgets have been reallocated to midweek and weekend events with a multi-media synergy, Budd explained. The keys, he explained, are balance, clarity, simplicity and repetition. The campaign involves more than 50 million homes getting preprints, direct mail, TV and in-store graphics and signage.

Looking at the balance of the year, Budd pinpointed big events such as August Back-to- School, "when we will be more aggressive"; September's fall sale; and November/December, as the "gift headquarters center."

As the company upgrades the presentation in its stores, "we have reduced the prototypes to six groups from 13, and we have fixture packages for each group," said Chuck Fought, vp, director of store environment.

A key element in the redesign is the conversion to centralized checkouts. The prototypes use a racetrack format and promotional feature walls, and all elements will be seen across all stores by mid-year. "Hot spots" that feature impact or fashion items are used in all departments.

Discussing the catalog business with analysts, Allen Questrom, Penney's chairman and ceo, pegged the catalog potential "as something under $3 billion; but it also has to produce a 6 percent to 8 percent EBIT," the company's overall goal.

Questrom positioned Penney's store character "as a moderate price department store, with the first line of competition in the mall." As for merchandise, he emphasized the importance of being fashion and trend right.