Profits Halved, JCPenney Aims at 'Better' Zone

Plano, Texas — An array of new brands, most leaning to the "better" side of the price point table, is marching into JCPenney during June and July to help the 1,074-unit mid-tier department store chain recruit a wealthier and younger customer into its stores, the retailer said during its first-quarter earnings call last week.

JCP net income in the quarter ended May 3 fell 49.6% to $120 million from $238 million in the same period one year ago. Sales of $4.1 billion were off 5.1% from $4.4 billion; comps fell 7.4%.

Home, which with fine jewelry was one of the two poorest-performing categories during the quarter, is to be jolted with the addition of the modern, non-traditional lifestyle brand Linden Street, as well as Dorm Life for the critical back-to-school selling season.

The idea behind these and other emerging JCP brands — new ones coming to juniors and other departments throughout the store — is to "attract a younger, more affluent customer while satisfying existing customer demands," explained Ken Hicks, president and chief merchandising officer. "These brands fill specific white pace in our assortments and help to broaden the appeal of our merchandise offerings."

That same effort drives JCP's recent debut of the American Living collection — also pointed toward the more upscale, younger customer — as a decisive and potentially "billion-dollar-plus concept" expected to grow to become more than 5% of JCP sales as the brand matures.

Mike Ullman, chairman and ceo, said that currently, "The two strongest segments of our business are in our opening- and best-price-point brands that offer newness and innovations."

It's no surprise, then, that JCP is now "bringing in good- and better-priced merchandise" with the new brands like Linden Street," Hicks explained. "The weighted average of the new introductions is better price points."

To make room for the latest labels, JCP is in the process of eliminating and in some cases consolidating "some of our secondary and tertiary brands," Hicks said, noting, "The brands that fall off you won't even know or notice."

"I would add that we are seeing a shift out of our conservative lifestyle category, more toward modern," Ullman added. "Not just brands but also the lifestyle orientation that we are seeing. I think that's a positive in terms of taking care of existing customers who are looking for modern lifestyle merchandise, as well as attracting 18-to-35-year-olds looking for Sephora and American Living."

In contrast to its lackluster comp-store performance, online sales increased 9% during the quarter, as www.jcpenney.com continues as the company's fastest-growing sales channel. "Growth in our online business is particularly important to JCPenney as we have the largest general merchandise site on the internet," Hicks said.