J.C. Penney Company, Inc.

views updated May 21 2018

J.C. Penney Company, Inc.

6501 Legacy Drive
Piano, Texas 75024-3698
U.S.A.
Telephone: (972) 431-1000
Toll Free: (800) 953-9421
Fax: (972) 431-1362
Web sites:http://www.jcpenney.net ;http://www.jcpenney.com

Public Company
Incorporated: 1913
Employees: 267,000
Sales: $31.85 billion (2001)
Stock Exchanges: New York
Ticker Symbol: JCP
NAIC: 452110 Department Stores; 454110 Electronic Shopping and Mail-Order Houses; 446110 Pharmacies and Drug Stores

With about 1,100 stores in all 50 states as well as Puerto Rico and Mexico, J.C. Penney Company, Inc. (JCPenney) is the second largest department store retailer (trailing Sears, Roebuck and Co.) and the largest catalog merchant in the United States, with licensing agreements for its products throughout the world. The company also runs 49 Renner department stores in Brazil and owns Eckerd Drugstores, one of the largest drugstore chains in the United States, with about 2,600 units in the Southeast, the Northeast, and the Sunbelt. JCPenney boomed in its early days in Western mining towns because it offered all goods at “one fair price” and brought fashionable items from the East to remote towns. The company struggled through the 1970s, as upstart companies such as Wal-Mart Stores, Inc. began selling goods at discount prices and longtime rivals such as Sears gave JCPenney tough competition in the hardware and appliance departments. A major reorganization of the company from a mass marketer into a fashion-oriented national department store during the 1980s, along with the relocation of its corporate headquarters from New York to less expensive Texas, put JCPenney in a strong position to compete in the tough retailing climate of the 1990s and early 2000s.

The Golden Rule: 1900-19

James Cash Penney started his first retail store in 1902 in Kemmerer, Wyoming, a small mining town. He was 26 years old and had grown up on a farm near Hamilton, Missouri. Two years after graduating from high school, Penney went to work for a local retailer, J.M. Hale. Penney’s health suffered while he was in the Midwest, and his doctor advised him to move to the cooler climate of Colorado. After several ups and downs in Longmont, Colorado, Penney started working for the Golden Rule Mercantile Company, a dry goods retailer founded by T.M. Callahan. Callahan soon promoted young Penney to his Evanston, Wyoming, store to work with one of his partners, Guy Johnson.

Penney put in three years as a salesman, and Callahan and Johnson decided to make him a manager and partner. Penney chose to open his first Golden Rule store in Kemmerer because many of his Evanston customers lived there. The local banker cautioned Penney against opening a “cash only” store, as three others had failed in Kemmerer, but Penney did not want to accept mining company scrip or credit. Penney invested his whole savings—$500—and had to borrow $1,500 to be the third partner, with Callahan and Johnson, in the Kemmerer store. Penney’s instinct proved correct; the store had $28,898 in sales its first year.

In 1907 Callahan and Johnson dissolved their partnership and Penney bought them out, taking over three stores. He implemented the principles of his former partners and expanded the chain throughout the Rocky Mountains by allowing his store managers to buy a one-third partnership in new stores, provided they had a trained salesperson to take their place as manager at the old store. He established a central buying and accounting office in Salt Lake City, Utah, in 1909, and had 34 stores with more than $2 million in sales by 1912. In 1913, Penney incorporated the company as J.C. Penney Company, Inc. and moved the corporate headquarters to New York City to be closer to manufacturers and suppliers.

By 1915 the company had 83 stores and the next year ventured east of the Mississippi River for the first time with stores in Wausau and Watertown, Wisconsin. Penney became chairman of the board in 1917, when the company had 175 stores, and Earl Sams became president. The company continued to open stores at a fast clip. Private label brands were a major reason for the success of the company. Customers liked them because of controlled quality yet cheaper prices than brand names; Penney liked them because he could determine the price and make a higher profit margin. Belle Isle, Ramona, Honor Brand, and Nation Wide were private label names for piece goods, and Big Mac, Waverly, and Lady Lyke were labels on work shirts, men’s caps, and lingerie, respectively.

Rapid Growth and Expansion: 1920s-50s

During the next several years, the company’s growth was explosive. As Penney’s personal wealth increased, so did his charity. Though he had quietly been giving thousands of dollars to local churches and organizations, in 1923 he founded Penney Farms, a 120,000-acre experimental farming area in northern Florida for down-on-their-luck farmers. In 1925 when the company’s 674 stores Generaled sales of $91 million, Penney was again giving some of his good fortune back, this time by establishing the J.C. Penney Foundation to fund a myriad of family-related agencies. The next year, when the company opened an 18-story office and warehouse building in New York, Penney went back to Florida and built the Memorial Home Community, a 60-acre residential tract for retired ministers, church workers, and missionaries, adjacent to Penney Farms.

The 25th anniversary was celebrated in 1927, and founder James Cash Penney declared that the company had a good shot at achieving sales of $1 billion by its 50th anniversary in 1952. The company’s managers and executives, who had equity in individual stores they ran or oversaw, traded their ownership for a stake in the company as a whole. In 1929 the company was listed on the New York Stock Exchange. When the Great Depression hit, the company coped by cutting back its inventory and trying to purchase goods at lower prices so it could pass the savings on to customers. The company survived the hard times largely because it had become known for its high quality goods and service, and people turned to JCPenney for the basic items they needed. The company’s profits even increased during the Depression; by 1936 sales rose to $250 million, and the number of stores grew to 1,496.

During World War II, the company sold a record number of war bonds through its stores. Materials and merchandise were scarce, yet the company increased its sales to $500 million in 1945. In 1946 Earl Sams was promoted to chairman, with Penney as honorary chairman, and Albert Hughes, a former Utah store manager, was elevated to the presidency. The company—now with 1,602 stores—opened a store in Hampton Village, Missouri, in 1949 in a “drive-in shopping district,” a precursor to suburban malls. After only four years as chairman, Earl Sams died in 1950. In an unusual corporate move, J.C. Penney resumed the chairmanship instead of promoting Albert Hughes. A year before its 50th anniversary, the company reached its goal of $1 billion in sales.

In 1954 Penney created the James C. Penney Foundation (its predecessor, the J.C. Penney Foundation, went under during the Depression) to continue his philanthropy, and in 1957 he served as a charter member of the Distributive Education Clubs of America, helped create the Junior Achievement Clubs, and endowed a chair at Westminster College. At the same time, William Batten, a vice-president, conducted an internal study in 1957; the results indicated the company should adapt to changing consumer spending habits, especially by beginning to sell on credit instead of for cash only. The next year, Hughes became chairman and Batten became president. The company issued its first JCPenney card and instituted other changes as a result of the study, including the introduction of major appliances, home electronics, furniture, and sporting goods.

A New Era: 1960-75

In 1962 JCPenney got into the mail-order business for the first time by buying General Merchandise Company, a Wisconsin firm with a discount store operation as well. JCPenney was different from many of its competitors with its late entry into the catalog mail-order business. Other big retailers started in mail-order and then launched into retail stores. JCPenney created the Treasury discount stores from the General Merchandise discount operation. The next year, it mailed its first JCPenney catalog. In eight states, customers could order from the catalog from inside JCPenney stores; a Milwaukee distribution center supplied the goods. The company’s first full-line stores, with all the new merchandise lines instituted by President Batten, opened in 1963 in Audubon, New Jersey, and King of Prussia, Pennsylvania. They were prototypes for the JCPenney stores of the next two decades.

The company needed bigger headquarters because it had grown significantly in 38 years; it built a 45-story office in New York in 1964, where the company stayed until its later move to Dallas. At the same time, Batten became the company’s fourth chairman and beauty salons, portrait studios, food facilities, and auto service centers were added to full-line stores. Sales topped $3 billion in 1968; in 1969 the company added an Atlanta, Georgia, catalog distribution center and purchased Thrift Drug Company.

Company Perspectives:

Throughout our organization we’re making progress in ensuring a common understanding of who we are, the customers we target, and our place in today’s competitive landscape. We know that our business is about selling fashion at value prices. Our opportunity is to make sure that we have fashionable, high-quality merchandise at good prices. That’s our history, and it is our future.

Two years later, when James Cash Penney died at age 95, sales for the company he founded hit $5 billion and the catalog business made a profit for the first time. Able to take advantage of the fact that disposable income in the United States was rising faster than inflation, JCPenney reached its highest number of stores in 1973, with 2,053 stores, 300 of which were full-line establishments. Donald Seibert was elected fifth chairman of the board and CEO in 1974, the same year a third catalog distribution center was opened in Columbus, Ohio. The company offered, and sold, three million shares of common stock in 1975, and Sesame Street joined JCPenney’s fold by signing an exclusive licensing agreement for children’s wear.

While the company was riding high on these achievements, the recession that began in 1974 took its toll. JCPenney’s stock plunged from a high of $51 a share to $17. Earnings dropped from $185.8 million to $125.1 million. Investors believed low-margin items such as appliances were squeezing profits, and that discount and self-service home-center stores were doing a better job than JCPenney in the hardware business. The advent and strong growth of the specialty apparel store also meant tough competition for JCPenney. Like other businesses, JCPenney rebounded and had good growth in 1975, but its executives began to suspect the company needed to be restructured.

1976-85: Mass Merchandiser or Department Store?

Walter Neppl became president in 1976 (Seibert was still chairman), and the company launched its women’s fashion program in five markets, designed to help the company compete against specialty stores cropping up in malls. A fourth catalog distribution center, in Lenexa, Kansas, was added in 1978. By then, sales had grown to $10.8 billion, the women’s fashion program was introduced in new markets, and a home furnishings line was added. As a fifth distribution center was added in 1979, in Reno, Nevada, the catalog service went nationwide. Sales of the service surpassed $1 billion, making the company the second largest catalog merchandiser in the United States.

To continue expanding the credit policies of the company, JCPenney began accepting Visa in 1979; MasterCard was accepted the next year. The company closed the Treasury discount stores in 1980 because they were unprofitable and decided to focus resources on its JCPenney stores. In 1981, when the company’s sales totaled $11.9 billion, JCPenney was the first to sell zero-coupon bonds in domestic public markets. It also reorganized its executive structure around the office of the chairman. Seibert remained chairman, Neppl moved to the new vice-chairmanship, and William Howell was made an executive vice-president. With these officers in place, the company launched a massive reorganization to transform the company from a mass merchant into a national department store. It would take almost a decade to achieve the goals outlined in the JCPenney stores positioning statement, issued in 1982.

The company’s first order of business was to expand the fashion programs in men’s, women’s, and children’s departments, and the company divided its stores into two categories, metropolitan (based in regional shopping centers) and geographic (based in smaller communities). A sixth catalog distribution center was also opened in 1982, in Manchester, Connecticut. With the $14 million remodeling of its key store in Atlanta, JCPenney rolled out the prototype of its latest store design. Atlanta was only the beginning. In 1983 JCPenney announced a $1 billion program to give its stores facelifts and rearrange merchandise. Apparel, home furnishings, and leisure lines would be emphasized, and auto service, hard line appliances, paint, hardware, lawn and garden merchandise, and fabrics were phased out. Its big mass merchant competitors, Montgomery Ward and Sears, continued in these lines.

Retail analysts who followed JCPenney called the company’s decision difficult but necessary. These lines provided $1.5 billion in annual sales, but were keeping the company from positioning itself as a true department store. In addition, low-margin goods were preventing the company from making its profit potential. In 1983 Howell, who most recently held a vice-chairmanship (along with David R. Gill, who had started with the company back in 1953), was elected the sixth chairman of the board, and David Miller was named president. The company also introduced a communications system for broadcasting directly to its stores using satellite transmissions from headquarters. Merchandise buyers from the home office could show store managers, salespeople, and local buyers what merchandise was available, and the local employees could help select what goods would likely sell in their stores. This gave the company the cost-saving advantages of being centralized, but also allowed it to be sensitive to fashion and seasonal preferences in local markets.

Thrift Drug, long dormant since JCPenney purchased it, scored some big points in 1984, when several major industrial companies became mail-order pharmacy customers. Also in 1984, JCPenney purchased the First National Bank of Harrington, Delaware, and renamed it J.C. Penney National Bank, to assist in credit and financial services. The company began accepting American Express cards as well as Visa, MasterCard, and JCPenney credit cards, and the bank was issuing its own Visas and MasterCards. Thrift Drug celebrated its 50th anniversary in 1985; JCPenney’s total year-end sales hit $13.6 billion.

Key Dates:

1902:: James Cash Penney opens his first retail store, called the Golden Rule, in Kemmerer, Wyoming.
1913:: Penney incorporates his company, consisting of more than 34 stores, as J.C. Penney Company, Inc. and moves the headquarters to New York City.
1929:: Company goes public with listing on the New York Stock Exchange.
1958:: First JCPenney credit card is issued.
1962:: Company enters the mail-order business through the purchase of General Merchandise Company.
1969:: Company enters drugstore sector with the purchase of Thrift Drug Company.
1982:: Massive reorganization is launched to transform the company from a mass merchant into a national department store.
1988:: Headquarters are relocated to Texas.
1990:: The Original Arizona Jean Company private brand of clothing is launched.
1997:: Company acquires Eckerd Corporation and its 1,750 drugstores for $3.3 billion.
1998:: Full-scale launch of jcpenney.com is undertaken.
1999:: Credit card operations are sold to GE Capital for $4 billion.

A Dramatic Turnaround: 1986-95

In 1986 JCPenney acquired Units, a chain of stores selling contemporary knitwear and by the next year the company was well on its way to achieving the goals it set forth in 1982. Moving its corporate headquarters to just outside Dallas, Texas, JCPenney was able to cut $60 million from its annual budget although about 1,250 New Yorkers lost their jobs. JCPenney’s president, David Miller, added vice-chairman and COO to his titles, and the company began focusing on four major merchandising groups by dividing them into separate business divisions: women’s, men’s, children’s, and home and leisure. By the end of 1986, there were 1,482 JCPenney stores dotting the country, about to undergo a major change. In 1987 the company discontinued sales of home electronics, hard sporting goods, and photo equipment in its stores. The space that became available was then used for women’s apparel. Also in the late 1980s, JCPenney opened freestanding furniture stores, called Portfolio, on an experimental basis.

The company’s five regional operations were narrowed to four in 1988 to make communication between merchandising divisions and stores easier. The company also launched a massive leveraged employee stock ownership plan (LESOP) in 1988. With its new stance as a national department store focusing on apparel, the company had benefited from its prime regional shopping center space, the most such space of all U.S. retailers. Shoppers at regional malls were there to buy clothes and accessories, not washing machines and paint, and JCPenney was poised to take better advantage of these spending habits. Earnings rebounded as a result, rising from $4.11 per share in 1987 to $5.92 in 1988 from total sales of $14.8 billion.

In 1989 JCPenney was named the exclusive U.S. distributor for Olympic apparel, sold its JCPenney Casualty Insurance Company, and debuted the JCPenney Television Shopping Channel. The company was not, however, immune to the intense competition and promotional atmosphere of late 1989 and early 1990, and earnings slipped slightly to $5.86 per share on sales of $16.1 billion in 1989. In 1990 Miller retired and Vice-Chairman Gill took on the former’s responsibilities as COO of JCPenney stores and catalog service. The company also broke ground for its new corporate headquarters in Plano, Texas, just north of Dallas; winnowed its stores down to 1,328 by closing underperforming outlets; and moved away from some of its private labels, focusing instead on major brand names such as Haggar, Healthtex, Jockey, Levi Strauss & Company, Maiden-form, Ocean Pacific, Oshkosh, Reebok, Van Heusen, and Warner’s. Earnings for 1990 fell to $4.33 per share from overall revenue of nearly $17.4 billion, slowed by the uncertainty over the Persian Gulf and the coming recession.

The next year, the full brunt of the recession and the Gulf War hit consumers and JCPenney rather hard. Retail sales fell from 1990’s nearly $16.4 billion to $16.2 billion, but income and per share earnings nosedived (from $577 million to $80 million and from $4.33 to .39 respectively). While the company responded to a shaky economy and adjusted its retail businesses accordingly, its insurance division far outshined other operations with a pretax income surge of 44 percent from 1990’s $55 million to $79 million in 1991. To the relief of shareholders and management alike, JCPenney rebounded in 1992 while celebrating its 90th anniversary. After relocating to its new headquarters in Plano, the company was rewarded with replenished catalog sales; record performances from JCPenney Insurance and JCPenney National Bank; retail sales of $18 billion; and a net income hike of $777 million with an ROE leap of 18.6 percent over 1991. Further, James E. Oesterreicher was named president and Gill retired after 39 years with the company.

JCPenney’s continued concentration on women—who accounted for 80 percent of apparel sales and on whose behalf each store now allocated up to 41 percent of its space—was paying off. Coupled with a “contemporary and fashion-forward environment,” sales rose substantially in 1992 and 1993, due to a revitalized Worthington career collection and the debut and ongoing success of new bath and body products. Another proprietary brand, the Original Arizona Jean Company (begun in 1990), soared in earnings to $400 million from the previous year’s $90 million. A hip redesign of the Plain Pockets line, Arizona quickly eclipsed JCPenney’s expectations, prompting a slew of additional designs in different sizes and colors. On the heels of these triumphs came a two-for-one stock split in March 1993; a new advertising campaign reflecting the company’s invigorated stance (JCPenney—Doing It Right); year-end retail sales just shy of $19 billion (up 5.4 percent); and income of $940 million (up 21 percent) due in part to stronger catalog sales of $3.5 billion (an 11 percent increase).

The next year, 1994, JCPenney was still riding the crest of its Arizona wave and introduced Little Arizona denimwear for toddlers. The continued hoopla over the brand’s success had even prompted longtime rival Sears to jump into the proprietary denim fray with its own line, Canyon River Blues. Everyone by now, from consumers to analysts, took note of JCPenney’s extraordinary turnaround. Figures for 1994 further demonstrated the company’s achievement, with $20.4 billion in retail sales ($800 million from Arizona brandwear), a 6.8 percent comparative store sales increase, and net income topping $1 billion. This year also found Oesterreicher promoted to vice-chairman and CEO, W. Barger Tygart named president, and Howell in his 11th year as chairman.

Late 1990s and Beyond: Struggling, Restructuring, Diversifying

In 1995 JCPenney’s recovery lost its momentum, falling short of both its own and analysts’ expectations. Retail sales increased only 0.9 percent for the year ($20.6 billion vs. $20.4 billion), income fell from 1994’s outstanding $1 billion to $838 million, and comparative store sales experienced a 1.4 percent drop. Accentuating the positive, the company announced that its Gift Registry (introduced in 1994) had already signed up 125,000 registrants (100,000 brides and 25,000 newborns) and planned to hit 250,000 by the end of 1996, while another new venture in home furnishings opened four new stores in 1995 (a Las Vegas store attracted 10,000 patrons on its first day alone) with plans for another 20 locations on the drawing board.

Yet regardless of JCPenney’s retail store performance, its lesser known businesses, comprised of its drugstore chain, insurance, and banking services divisions, scored rather well for the year. Thrift Drug, the tenth largest drugstore chain in the nation with 645 stores in 12 states, had sales of nearly $1.9 billion in 1995 (a 20.2 percent increase) and plans for new outlets in North Carolina and New Jersey. The Insurance group, which began reciprocal businesses services in 1990 and moved into Canada in 1992, ran up revenues of $697 million, a 22.1 percent leap from 1994’s $571 million; while JCPenney National Bank’s revenues grew 21.7 percent from $131 million to $160 million with 470,000 active Visa and MasterCard accounts and receivables of $823 million.

In 1996 the company moved in several directions to regain the footing lost in 1995, including the allocation of $2.1 billion in capital expenditures to open 100 new domestic stores and refurbish 500 more over a three-year period, and the expansion of its international presence through varied licensing agreements. With the drugstore industry entering a period of consolidation, JCPenney faced a choice of selling out or expanding Thrift Drug through acquisitions. The company chose the latter, acquiring Kerr Drug, Fay’s, and 200 units from Rite Aid during 1995 and 1996. In February 1997 JCPenney acquired Eckerd Corporation and its 1,750 drugstores for $3.3 billion and began rebranding all of its drugstores under the Eckerd name. JCPenney now ran the fourth largest drugstore chain in the country, with about 2,800 units. For the fiscal year ending in January 1998, drugstore revenues totaled $9.66 billion, nearly one-third of overall company revenues. Other initiatives in 1997 included the sale of the assets of JCPenney National Bank and the reorganization of the company into four operating units: Department Stores and Catalog, Drugstores, Insurance, and International.

JCPenney’s department store operations continued to struggle in the late 1990s, burdened by high operating costs and caught in what had developed into a difficult middle market for clothes—a market segment buffeted by competition from discounters such as Wal-Mart and from high-end retailers such as Saks Fifth Avenue. Oesterreicher launched a series of cost-cutting initiatives, including the closure of 75 underperforming stores and the elimination of about 4,900 jobs in 1998. He also implemented a new buying strategy early that year designed to get brand-name fashions into JCPenney stores on a much faster basis. After experimenting with Internet sales as a logical extension of the company’s catalog operations, jcpenney.com was transformed into a full-scale sales channel in 1998. Online sales totaled only $15 million that first year but jumped to $102 million for the fiscal year ending in January 2000. The company, meantime, expanded overseas in January 1999 through the $139 million purchase of Renner, a 21-unit department store chain in Brazil. Eckerd was bolstered in March 1999 by the acquisition of the 141-unit New York-based Genovese drugstore chain. Following the rebranding of the acquired stores, there were nearly 2,900 Eckerd outlets.

With the Eckerd unit outperforming the department stores and the company’s stock sagging, JCPenney sought ways to unlock the value of its drugstore operations. Plans to issue a tracking stock for Eckerd were first announced in May 1999, but the partial IPO was subsequently canceled three separate times. Needing to reduce debt, JCPenney sold its credit card operations to GE Capital, the financial arm of General Electric Company, for $4 billion in December 1999. That year saw yet another retooling of the department stores aimed at revitalizing their lagging performance. “Stores-within-a-store” were setup to highlight eight of JCPenney’s top private-label apparel lines, including Original Arizona Jean, St. John’s Bay, and Worthington. The company identified two key customer segments, around which it would build its merchandising strategy and advertising campaigns: “modern spenders,” primarily consisting of dual-earner households, ages 35 to 54, with up to two children; and “starting outs,” consisting of consumers under the age of 35 who were single or just starting a family. It was clear, however, from the results for the fiscal year ending in January 2000 that more drastic measures were needed for a complete turnaround. Although overall net sales increased 6.7 percent to $31.74 billion, department store sales actually fell 8 percent; the sales increase was wholly attributed to Eckerd, which saw its sales increase 20 percent (and Eckerd sales now comprised nearly 40 percent of overall JCPenney sales). Furthermore, net income fell that year to $336 million, a 43 percent decrease over the previous year.

In March 2000 JCPenney launched a $488 million restructuring program aimed at generating annual cost savings of $120 million. By January 2001, the company had closed 48 underperforming department stores as well as nearly 300 Eckerd outlets. In the midst of this latest restructuring, Oesterreicher announced that he planned to retire early. JCPenney then quite unexpectedly went outside the company ranks for his replacement. In September 2000 Allen Questrom was named the eighth chairman and CEO of JCPenney, the first time that an outsider had been tapped for the top position. Questrom had a reputation as a retailing turnaround artist, having previously led both Federated Department Stores, Inc. and Barneys New York Inc. out of bankruptcy. The new leader would be working closely with Vanessa Castagna, who had been hired away from Wal-Mart in 1999 to become chief operating officer of the department store and catalog unit.

In early 2001 Questrom announced that an additional 44 department stores and three catalog outlet centers would be closed and about 5,500 jobs would be cut. With the various charges taken for fiscal 2001, the company reported a net loss of $705 million on sales of $31.85 billion. In February 2001 the company’s department stores were converted to centralized merchandising, a move aimed at enabling the company to introduce new fashions faster, present a uniform chainwide image, and cut costs. In June 2001, in another debt-reduction initiative, JCPenney sold its direct marketing services unit, which included the company’s insurance operations, to AEGON, N.V. for $1.3 billion. By this time, the company’s stock was on the rebound, with investors encouraged by the initial moves made by Questrom and Castagna. Given the depths of the problems at JCPenney and a hidebound corporate culture that was resistant to change, a complete turnaround was neither assured nor in the immediate offing. Questrom estimated that it would take two to five years to transform the company into a competitive force for the 21st century. Thus, as it neared its 100th anniversary in 2002, JCPenney was going through one of the most important periods in its history.

Principal Subsidiaries

Eckerd Corporation; J.C. Penney Funding Corporation; J.C. Penney Properties, Inc.; JCP Realty, Inc.; Thrift Drug, Inc.

Principal Operating Units

Department Stores and Catalog; Eckerd Drugstores.

Principal Competitors

Sears, Roebuck and Co.; Wal-Mart Stores, Inc.; Kmart Corporation; Target Corporation; Kohl’s Corporation; Spiegel, Inc.; Otto Versand Gmbh & Co.; Federated Department Stores, Inc.; The May Department Stores Company; Dillard’s, Inc.; Nordstrom, Inc.; Saks Incorporated.

J.C. Penney Company, Inc.

views updated May 11 2018

J.C. Penney Company, Inc.

14841 North Dallas Parkway
Dallas, Texas 75240
U.S.A.
(214) 591-1000
Fax: (214) 591-1455

Public Company
Incorporated: 1913
Employees: 190,000
Sales: $17.40 billion
Stock Exchanges: New York Brussels Antwerp

J.C. Penney is the fourth-largest retailer in the United States. The company boomed in its early days in western mining towns because it offered all goods at “one fair price” and brought fashionable goods from the East to remote towns. The company struggled through the 1970s, as upstart companies like Wal-Mart Inc. began selling goods at discount prices and long-time rivals like Sears, Roebuck and Co. gave Penney tough competition in the hardware and appliance departments. A massive reorganization of the company from a mass marketer into a fashion-oriented national department store during the 1980s, along with the relocation of its corporate headquarters from New York to less expensive Dallas, Texas, put Penney in a strong position to compete in the tough retailing climate of the 1990s.

James Cash Penney started his first retail store in 1902 in Kemmerer, Wyoming, a small mining town. He was 26 years old and had grown up on a farm near Hamilton, Missouri. Two years after graduating from high school, Penney went to work for a Hamilton retailer, J.M. Hale. Penney’s health suffered while he was in the Midwest, and his doctor advised him to move to the cooler climate of Colorado. After several ups and down in Longmont, Colorado, Penney started working for the Golden Rule Mercantile Company, a dry-goods retailer founded by T.M. Callahan. Callahan soon promoted young Penney to his Evanston, Wyoming, store to work with one of his partners, Guy Johnson. Penney put in three years as a salesman, and Callahan and Johnson decided to make him a manager and partner. Penney chose to open a store in Kemmerer because many of his Evanston customers lived in that mining town.

The local banker cautioned Penney against opening a “cash only” store, as three others had failed in Kemmerer, but Penney did not want to accept mining company scrip or credit. Penney invested his whole savings—$500—and had to borrow $1,500 to be the third partner, with Callahan and Johnson, in the Kemmerer store.

Penney’s instinct proved correct; the store had $28,898 in sales its first year. In 1907 Callahan and Johnson dissolved their partnership, and Penney bought them out, taking over three stores. He implemented the principles of his former partners, as he expanded the chain throughout the Rocky Mountains by allowing his store managers to buy a one-third partnership in new stores provided they had trained a salesperson to take their place as manager at the old store. He established a central buying and accounting office in Salt Lake City, Utah, in 1909, and had 34 stores with more than $2 million in sales by 1912. In 1913, he incorporated the company as J.C. Penney Company, Inc. and moved the corporate headquarters to New York City to be closer to manufacturers and suppliers. By 1915 the company had 83 stores, and the next year ventured east of the Mississippi River for the first time with stores in Wausau and Watertown, Wisconsin.

Penney became chairman of the board in 1917, when the company had 175 stores, and Earl Sams became president. The company continued to open stores at a fast clip. Private label brands were a major reason for the success of the company. Customers liked them because Penney could control quality and offer the goods at a cheaper price than brand names. They also were good for the company because Penney could control the price better and make a higher profit margin. Belle Isle, Ramona, Honor Brand, and Nation Wide were private label names for piece goods, and Big Mac, Waverly, and Lady Lyke were labels on work shirts, men’s caps, and lingerie, respectively.

During the next six years, the company’s growth was explosive. In 1925 there were 674 stores boasting sales of $91 million. By 1930 the company 1,452 stores with 25,000 employees. In 1926 the company opened an 18-story office and warehouse building in New York. The 25th anniversary was celebrated in 1927, and founder James Cash Penney declared that the company had a good shot at achieving sales of $1 billion by its 50th anniversary in 1952. The company’s managers and executives, who had equity in individual stores they ran or oversaw, traded their ownership for a stake in the company as a whole.

In 1929 the company was listed on the New York Stock Exchange. When the Great Depression hit, the company coped by cutting back its inventory and trying to purchase goods at lower prices so it could pass the price cuts on to customers. The company survived these hard times largely because it had become known for its high quality goods and service, and people turned to J.C. Penney for the basic items they needed. The company’s profits even increased during the Depression, and by 1936 sales rose to $250 million, and the number of stores grew to 1,496.

During World War II, the company sold a record number of war bonds through its stores. Materials and merchandise were scarce, yet the company increased its sales to $500 million in 1945. In 1946 Earl Sams was promoted to chairman, with Penney as honorary chairman, and Albert Hughes, a former Utah store manager, was elevated to the presidency. The company—now with 1,602 stores—opened a store in Hampton Village, Missouri, in 1949 in a “drive-in shopping district,” a precursor to suburban malls. After only four years as chairman, Earl Sams died in 1950. In an unusual corporate move, J.C. Penney resumed the chairmanship instead of promoting Albert Hughes. A year before its 50th anniversary, the company reached its goal of $1 billion in sales.

Vice President William Batten conducted a study in 1957; the results indicated the company should adapt to changing consumer spending habits, especially by beginning to sell on credit instead of for cash only. The next year, Hughes became chairman and Batten became president. The company instituted a credit policy and other changes as a result of the study, including the introduction of major appliances, home electronics, furniture, and sporting goods.

In 1962 J.C. Penney, Inc. got into the mail-order business for the first time by buying General Merchandise Company, a Wisconsin firm with a discount store operation as well. J.C. Penney was different from many of its competitors with its late entry into the catalog mail-order business. Other big retailers started in mail-order and then launched into retail stores. J.C. Penney created the Treasury discount stores from the General Merchandise discount operation. The next year, it mailed its first J.C. Penney catalog. In eight states, customers could order from the catalog from inside J.C. Penney stores. A Milwaukee distribution center supplied the catalog goods. The company’s first full-line stores, with all the new merchandise lines instituted by President Batten, opened in 1963 in Audubon, New Jersey, and King of Prussia, Pennsylvania. They were prototypes for the Penney stores of the 1960s and 1970s.

The company needed bigger headquarters because it had grown significantly in 38 years; it built a 45-story office in New York in 1964, where the company stayed until its later move to Dallas. Batten became chairman that year, and Ray Jordan became president. Beauty salons, portrait studios, food facilities, and auto service centers were added to full-line stores. Sales topped $3 billion in 1968, and Cecil Wright became president. The company added an Atlanta, Georgia, catalog distribution center in 1969 and purchased Thrift Drug Company.

James Cash Penney died in 1971 at age 95. The same year, the catalog business made a profit for the first time. Jack Jackson became president in 1972, and sales hit $5 billion. The company was able to profit from the fact that disposable income in the U.S. was rising faster than inflation.

The company reached its highest number of stores in 1973, with 2,053 stores, 300 of which were full-line establishments. Donald Seibert was elected chairman of the board and chief executive officer in 1974, and Jackson continued as president. A third catalog distribution center was opened, in Columbus, Ohio, that year. The company offered, and sold, three million shares of common stock in 1975, and Sesame Street joined the Penney’s fold by signing an exclusive licensing agreement for children’s wear. While the company was riding high on these achievements, the recession of 1974 took its toll. Penney’s stock plunged from a high of $51 a share to $17. Earnings dropped from $185.8 million to $125.1 million. Investors saw that low-margin items like appliances were squeezing profits, and that discount and self-service home-center stores were doing a better job than Penney in the hardware business. The advent and strong growth of the specialty apparel store also meant tough competition for Penney. Like other businesses, Penney rebounded and had good growth in 1975, but its executives began to suspect the company needed to be restructured.

Walter Neppl became president in 1976, and the company launched its women’s fashion program in five markets, designed to help the company compete against the specialty stores cropping up in all the malls. A fourth catalog distribution center, in Lenexa, Kansas, was added in 1978. By then, sales had grown to $10.8 billion, the women’s fashion program was introduced in new markets, and a home furnishings line was added.

As a fifth distribution center was added in 1979, in Reno, Nevada, the catalog service went nationwide. Sales of the service surpassed $1 billion, making the company the second-largest catalog merchandiser in the United States. To continue expanding the credit policies of the company, J.C. Penney began accepting Visa in stores in 1979. The next year, MasterCard was accepted. The company closed the Treasury discount stores in 1980 because they were unprofitable and because the company wanted to focus resources on its Penney stores.

In 1981 when the company’s sales totaled $11.9 billion, Penney was the first to sell zero-coupon bonds in domestic public markets. It also reorganized its executive structure around an office of the chairman. Seibert continued as chairman, and Neppl moved to the new vice chairmanship. Kenneth Axelson and William Howell were made executive vice presidents.

With these officers in place, the company launched a massive reorganization, which would transform the company into a national department store from a mass merchant. It would take almost a decade to achieve the goals outlined in the J.C. Penney stores positioning statement, issued in 1982. The company’s first order of business was to expand the fashion programs in men’s, women’s and children’s departments, and the company divided its stores into two categories, metropolitan—based in regional shopping centers—and geographic—in smaller communities. Seibert, the chairman, continued to oversee the beginning of the process, and Robert Gill and Howell were made vice chairmen. A sixth catalog distribution center was also opened in 1982, in Manchester, Connecticut. With the $14 million remodeling of its key store in Atlanta, Penney rolled out the prototype of its new store design.

Atlanta was only the beginning. In 1983 Penney announced a $1 billion program for giving its stores facelifts and for rearranging merchandise. Apparel, home furnishings, and leisure lines would be emphasized, and auto service, hard line appliances, paint, hardware, lawn and garden merchandise, and fabrics were all phased out in 1983. Its big mass merchant competitors, Montgomery Ward and Sears, Roebuck and Co., continued in these lines. Retail analysts who followed J.C. Penney called the company’s decision difficult but necessary. These lines provided $1.5 billion in annual sales, but were keeping the company from positioning itself as a true department store. In addition low-margin goods were preventing it from making its profit potential. Howell was elected the sixth chairman of the board, a position he held as the 1990s began. Gill stayed on as vice chairman, and David Miller became president of J.C. Penney stores and catalog. Ralph Henderson and Thomas Lyons were named executive vice presidents.

The company also introduced a communications system for broadcasting live and direct to its stores, using satellite transmission, from headquarters. Merchandise buyers from the home office could show store managers, salespeople, and local buyers what merchandise was available, and the local employees could help select what goods would likely sell in their stores. This gave the company the cost-saving advantages of being centralized, but also allowed it to be sensitive to fashion and seasonal preferences in local markets.

Thrift Drug, long dormant since Penney purchased it, scored some big points in 1984, when several major industrial companies became mail-order pharmacy customers. Also in 1984, Penney purchased the First National Bank of Harrington, Delaware and renamed it J. C Penney National Bank, to assist in credit and financial services. The company began accepting American Express cards as well as Visa, MasterCard, and J.C. Penney credit cards, and the bank was issuing Visa and MasterCards. In 1986, Penney acquired Units, a chain of stores selling contemporary knitwear.

In 1987 the company was well on its way to achieving the goals it set forth in 1982. The company decided to move its corporate headquarters to Dallas, Texas. It was able to cut $60 million from its annual budget because of the move, which cost about 1,250 New Yorkers their jobs. David Miller was elected vice chairman and chief operating officer, and the company began focusing on four major merchandising groups by dividing them into separate business divisions: women’s, men’s, children’s, and home and leisure. The company made itself leaner by discontinuing sales of home electronics, hard sporting goods, and photo equipment in 1987. The space that became available was then used for women’s apparel. Also in the late 1980s, Penney opened freestanding furniture stores, called Portfolio, on an experimental basis.

The company’s five regional operations were narrowed to four in 1988 to make communication between merchandising divisions and stores easier. The company also launched a leveraged employee stock ownership plan in 1988. With its new emphasis on being a national department store with leaner merchandise lines focusing on apparel, the company had benefited from its prime regional shopping center space, the most such space of all U.S. retailers. Shoppers at regional malls were there to buy clothes and accessories, not washing machines and paint, and Penney was poised to take better advantage of these spending habits. Earnings rebounded as a result, rising from $4.11 per share in 1987 to $5.92 in 1988. Penney was not immune to the intense competition and promotional atmosphere in retailing in late 1989 and early 1990, and earnings slipped slightly to $5.86 per share in 1989 and further to $4.33 in 1990. Lower earnings in the catalog business were dragging down the company’s profit margins as a whole during 1990 and 1991.

During the 1980s, the company winnowed the number of stores down to 693 metropolitan and 635 geographic stores. The company closed its unproductive stores or locations that did not perform well as department stores, but continued to open stores in new markets, albeit at a much slower pace than a few decades earlier. Major brand names had become the company’s focus, lessening the importance of private labels. Penney had been successful in winning over some big names, such as Levi Strauss & Company, Maidenform Inc., Van Heusen, and Henry Grethel. In the catagory of women’s dresses, the company eliminated all private labels. Retail experts called the company’s turnaround dramatic and cited Penney as one of a handful of retailers that would grow and prosper in the 1990s.

Principal Subsidiaries

Thrift Drug Stores; J.C. Penney Financial Services; J.C. Penney National Bank; J.C. Penney Realty Inc.; Units; Portfolio.

J.C. Penney Company, Inc.

views updated May 29 2018

J.C. Penney Company, Inc.

6501 Legacy Drive
Piano, Texas 75024-1000
U.S.A.
(972) 431-1000
Fax: (972) 431-1455
Web site: www.jcpenney.com

Public Company
Incorporated: 1913
Employees: 205,000 (1995)
Sales: $21.4 billion (1995)
Stock Exchanges: New York Antwerp Brussels
SICs: 5311 Department Stores; 5961 Mail Order Houses

With over 1,200 stores in all 50 states as well as Puerto Rico, Mexico, and Chile, J.C. Penney Company, Inc. (JCPenney) is the largest department-store retailer and catalog merchant in the United States, with licensing agreements for its products throughout the world. The company boomed in its early days in Western mining towns because it offered all goods at “one fair price” and brought fashionable goods from the East to remote towns. The company struggled through the 1970s, as upstart companies like Wal-Mart began selling goods at discount prices and long-time rivals like Sears gave JCPenney tough competition in the hardware and appliance departments. A major reorganization of the company from a mass marketer into a fashion-oriented national department store during the 1980s, along with the relocation of its corporate headquarters from New York to less expensive Texas, put JCPenney in a strong position to compete in the tough retailing climate of the 1990s.

The Golden Rule, 1900 to 1919

James Cash Penney started his first retail store in 1902 in Kemmerer, Wyoming, a small mining town. He was 26 years old and had grown up on a farm near Hamilton, Missouri. Two years after graduating from high school, Penney went to work for a local retailer, J.M. Hale. Penney’s health suffered while he was in the Midwest, and his doctor advised him to move to the cooler climate of Colorado. After several ups and downs in Longmont, Colorado, Penney started working for the Golden Rule Mercantile Company, a dry goods retailer founded by T. M. Callahan. Callahan soon promoted young Penney to his Evanston, Wyoming, store to work with one of his partners, Guy Johnson.

Penney put in three years as a salesman, and Callahan and Johnson decided to make him a manager and partner. Penney chose to open his first Golden Rule store in Kemmerer because many of his Evanston customers lived there. The local banker cautioned Penney against opening a “cash only” store, as three others had failed in Kemmerer, but Penney didn’t want to accept mining company scrip or credit. Penney invested his whole savings—$500—and had to borrow $1,500 to be the third partner, with Callahan and Johnson, in the Kemmerer store. Penney’s instinct proved correct; the store had $28,898 in sales its first year.

In 1907 Callahan and Johnson dissolved their partnership, and Penney bought them out, taking over three stores. He implemented the principles of his former partners and expanded the chain throughout the Rocky Mountains by allowing his store managers to buy a one-third partnership in new stores, provided they had a trained salesperson to take their place as manager at the old store. He established a central buying and accounting office in Salt Lake City, Utah, in 1909, and had 34 stores with more than $2 million in sales by 1912. In 1913, Penney incorporated the company as J.C. Penney Company, Inc. and moved the corporate headquarters to New York City to be closer to manufacturers and suppliers.

By 1915 the company had 83 stores and the next year ventured east of the Mississippi River for the first time with stores in Wausau and Watertown, Wisconsin. Penney became chairman of the board in 1917, when the company had 175 stores, and Earl Sams became president. The company continued to open stores at a fast clip. Private label brands were a major reason for the success of the company. Customers liked them because of controlled quality and cheaper prices than brand names; Penney liked them because he could control the price and make a higher profit margin. Belle Isle, Ramona, Honor Brand, and Nation Wide were private label names for piece goods, and Big Mac, Waverly, and Lady Lyke were labels on work shirts, men’s caps, and lingerie, respectively.

Rapid Growth and Expansion, 1920s–50s

During the next several years, the company’s growth was explosive. As Penney’s personal wealth increased, so did his charity. Though he had quietly been giving thousands of dollars to local churches and organizations, in 1923 he founded Penney Farms, a 120,000-acre experimental farming area in northern Florida for down-on-their-luck farmers. In 1925 when the company’s 674 stores generated sales of $91 million, Penney was again giving some of his good fortune back, this time in establishing the J.C. Penney Foundation to fund a myriad of family-related agencies. The next year, when the company opened an 18-story office and warehouse building in New York, Penney went back to Florida and built the Memorial Home Community, a 60-acre residential tract for retired ministers, church workers, and missionaries, adjacent to Penney Farms.

The 25th anniversary was celebrated in 1927, and founder James Cash Penney declared that the company had a good shot at achieving sales of $1 billion by its 50th anniversary in 1952. The company’s managers and executives, who had equity in individual stores they ran or oversaw, traded their ownership for a stake in the company as a whole. In 1929 the company was listed on the New York Stock Exchange. When the Great Depression hit, the company coped by cutting back its inventory and trying to purchase goods at lower prices so it could pass the price cuts on to customers. The company survived the hard times largely because it had become known for its high quality goods and service, and people turned to JCPenney for the basic items they needed. The company’s profits even increased during the Depression, and by 1936 sales rose to $250 million, and the number of stores grew to 1,496.

During World War II, the company sold a record number of war bonds through its stores. Materials and merchandise were scarce, yet the company increased its sales to $500 million in 1945. In 1946 Earl Sams was promoted to chairman, with Penney as honorary chairman, and Albert Hughes, a former Utah store manager, was elevated to the presidency. The company—now with 1,602 stores—opened a store in Hampton Village, Missouri, in 1949 in a “drive-in shopping district,” a precursor to suburban malls. After only four years as chairman, Earl Sams died in 1950. In an unusual corporate move, J. C. Penney resumed the chairmanship instead of promoting Albert Hughes. A year before its 50th anniversary, the company reached its goal of $1 billion in sales.

In 1954 Penney created the James C. Penney Foundation (its predecessor, the J.C. Penney Foundation, went under during the Depression) to continue his philanthropy, and in 1957 he served as a charter member of the Distributive Education Clubs of America, helped create the Junior Achievement Clubs, and endowed a chair at Westminster College. At the same time, William Batten, a vice-president, conducted a study in 1957; the results indicated the company should adapt to changing consumer spending habits, especially by beginning to sell on credit instead of for cash only. The next year, Hughes became chairman and Batten became president. The company issued its first JCPenney card and instituted other changes as a result of the study, including the introduction of major appliances, home electronics, furniture, and sporting goods.

A New Era, 1960–75

In 1962 JCPenney got into the mail-order business for the first time by buying General Merchandise Company, a Wisconsin firm with a discount store operation as well. JCPenney was different from many of its competitors with its late entry into the catalog mail-order business. Other big retailers started in mailorder and then launched into retail stores. JCPenney created the Treasury discount stores from the General Merchandise discount operation. The next year, it mailed its first JCPenney catalog. In eight states, customers could order from the catalog from inside JCPenney stores; a Milwaukee distribution center supplied the goods. The company’s first full-line stores, with all the new merchandise lines instituted by President Batten, opened in 1963 in Audubon, New Jersey, and King of Prussia, Pennsylvania. They were prototypes for the JCPenney stores of the next two decades.

The company needed bigger headquarters because it had grown significantly in 38 years; it built a 45-story office in New York in 1964, where the company stayed until its later move to Dallas. At the same time, Batten became the company’s fourth chairman and beauty salons, portrait studios, food facilities, and auto service centers were added to full-line stores. Sales topped $3 billion in 1968; in 1969 the company added an Atlanta, Georgia, catalog distribution center and purchased Thrift Drug Company.

Two years later, when James Cash Penney died at age 95, sales for the company he founded hit $5 billion and the catalog business made a profit for the first time. Able to take advantage of the fact that disposable income in the U.S. was rising faster than inflation, JCPenney reached its highest number of stores in 1973, with 2,053 stores, 300 of which were full-line establishments. Donald Seibert was elected fifth chairman of the board and CEO in 1974, the same year a third catalog distribution center was opened in Columbus, Ohio. The company offered, and sold, three million shares of common stock in 1975, and Sesame Street joined JCPenney’s fold by signing an exclusive licensing agreement for children’s wear.

Company Perspectives:

Our mission at JCPenney has changed little since Mr. Penney founded the Company in 1902: it was, and is, to sell merchandise and services to consumers at a profit, primarily but not exclusively in the United States, in a manner that is consistent with our Company ethics and responsibilities. This statement covers our current activities and potentially many others. It includes stores and catalog, as well as our financial services, drugstore, and specialty business operations.

While the company was riding high on these achievements, the recession that began in 1974 took its toll. JCPenney’s stock plunged from a high of $51 a share to $17. Earnings dropped from $185.8 million to $125.1 million. Investors believed low-margin items like appliances were squeezing profits, and that discount and self-service home-center stores were doing a better job than JCPenney in the hardware business. The advent and strong growth of the specialty apparel store also meant tough competition for JCPenney. Like other businesses, JCPenney rebounded and had good growth in 1975, but its executives began to suspect the company needed to be restructured.

1976–85: Mass Merchandiser or Department Store?

Walter Neppl became president in 1976 (Siebert was still chairman), and the company launched its women’s fashion program in five markets, designed to help the company compete against specialty stores cropping up in malls. A fourth catalog distribution center, in Lenexa, Kansas, was added in 1978. By then, sales had grown to $10.8 billion, the women’s fashion program was introduced in new markets, and a home furnishings line was added. As a fifth distribution center was added in 1979, in Reno, Nevada, the catalog service went nationwide. Sales of the service surpassed $1 billion, making the company the second-largest catalog merchandiser in the United States.

To continue expanding the credit policies of the company, JCPenney began accepting Visa in 1979; MasterCard was accepted the next year. The company closed the Treasury discount stores in 1980 because they were unprofitable and decided to focus resources on its JCPenney stores. In 1981 when the company’s sales totaled $11.9 billion, JCPenney was the first to sell zero-coupon bonds in domestic public markets. It also reorganized its executive structure around the office of the chairman. Seibert remained chairman, Neppl moved to the new vice chairmanship, and William Howell was made an executive vice president. With these officers in place, the company launched a massive reorganization to transform the company from a mass merchant into a national department store. It would take almost a decade to achieve the goals outlined in the JCPenney stores positioning statement, issued in 1982.

The company’s first order of business was to expand the fashion programs in men’s, women’s and children’s departments, and the company divided its stores into two categories, metropolitan (based in regional shopping centers) and geographic (based in smaller communities). A sixth catalog distribution center was also opened in 1982, in Manchester, Connecticut. With the $14 million remodeling of its key store in Atlanta, JCPenney rolled out the prototype of its latest store design. Atlanta was only the beginning. In 1983 JCPenney announced a $1 billion program to give its stores facelifts and rearrange merchandise. Apparel, home furnishings, and leisure lines would be emphasized, and auto service, hard line appliances, paint, hardware, lawn and garden merchandise, and fabrics were phased out. Its big mass merchant competitors, Montgomery Ward and Sears, continued in these lines.

Retail analysts who followed JCPenney called the company’s decision difficult but necessary. These lines provided $1.5 billion in annual sales, but were keeping the company from positioning itself as a true department store. In addition, low-margin goods were preventing the company from making its profit potential. In 1983 Howell, who most recently held a vice chairmanship (along with David R. Gill, who’d started with the company back in 1953), was elected the sixth chairman of the board, and David Miller was named president. The company also introduced a communications system for broadcasting directly to its stores using satellite transmissions from headquarters. Merchandise buyers from the home office could show store managers, salespeople, and local buyers what merchandise was available, and the local employees could help select what goods would likely sell in their stores. This gave the company the cost-saving advantages of being centralized, but also allowed it to be sensitive to fashion and seasonal preferences in local markets.

Thrift Drug, long dormant since JCPenney purchased it, scored some big points in 1984, when several major industrial companies became mail-order pharmacy customers. Also in 1984, JCPenney purchased the First National Bank of Harrington, Delaware, and renamed it J.C. Penney National Bank, to assist in credit and financial services. The company began accepting American Express cards as well as Visa, MasterCard, and JCPenney credit cards, and the bank was issuing its own Visas and MasterCards. Thrift Drug celebrated its 50th anniversary in 1985; JCPenney’s total year-end sales hit $13.6 billion.

A Dramatic Turnaround, 1986–95

In 1986 JCPenney acquired Units, a chain of stores selling contemporary knitwear and by the next year the company was well on its way to achieving the goals it set forth in 1982. Moving its corporate headquarters to just outside Dallas, Texas, JCPenney was able to cut $60 million from its annual budget although about 1,250 New Yorkers lost their jobs. JCPenney’s president, David Miller, added vice chairman and COO to his titles, and the company began focusing on four major merchandising groups by dividing them into separate business divisions: women’s, men’s, children’s, and home and leisure. By the end of 1986, there were 1,482 JCPenney stores dotting the country, about to undergo a major change. In 1987 the company discontinued sales of home electronics, hard sporting goods, and photo equipment in its stores. The space that became available was then used for women’s apparel. Also in the late 1980s, JCPenney opened freestanding furniture stores, called Portfolio, on an experimental basis.

The company’s five regional operations were narrowed to four in 1988 to make communication between merchandising divisions and stores easier. The company also launched a massive leveraged employee stock ownership plan (LESOP) in 1988. With its new stance as a national department store focusing on apparel, the company had benefitted from its prime regional shopping center space, the most such space of all U.S. retailers. Shoppers at regional malls were there to buy clothes and accessories, not washing machines and paint, and JCPenney was poised to take better advantage of these spending habits. Earnings rebounded as a result, rising from $4.11 per share in 1987 to $5.92 in 1988 from total sales of $14.8 billion.

In 1989 JCPenney was named the U.S.’s exclusive distributor for Olympic apparel, sold its JCPenney Casualty Insurance Company, and debuted the JCPenney Television Shopping Channel. The company was not, however, immune to the intense competition and promotional atmosphere of late 1989 and early 1990, and earnings slipped slightly to $5.86 per share on sales of $16.1 billion in 1989. In 1990 Miller retired and vice chairman Gill took on the former’s responsibilities as COO of JCPenney stores and catalog service. The company also broke ground for its new corporate headquarters in Piano, Texas, just north of Dallas; winnowed its stores down to 1,328 by closing underperforming outlets; and moved away from some of its private labels, focusing instead on major brand names like Haggar, Healthtex, Jockey, Levi Strauss & Company, Maidenform, Ocean Pacific, Oshkosh, Reebok, Van Heusen, and Warner’s. Earnings for 1990 fell to $4.33 per share from overall revenue of nearly $17.4 billion, slowed by the uncertainty over the Persian Gulf and the coming recession.

The next year, the full brunt of the recession and the Gulf War hit consumers and JCPenney rather hard. Retail sales fell from 1990’s nearly $16.4 billion to $16.2 billion, but income and per share earnings nosedived (from $577 million to $80 million and from $4.33 to .39 respectively). While the company responded to a shaky economy and adjusted its retail businesses accordingly, its insurance division far outshined other operations with a pre-tax income surge of 44 percent from 1990’s $55 million to $79 million in 1991. To the relief of shareholders and management alike, JCPenney rebounded in 1992 while celebrating its 90th anniversary. After relocating to its new headquarters in Piano, the company was rewarded with replenished catalog sales; record performances from JCPenney Insurance and JCPenney National Bank; retail sales of $18 billion, and a net income hike of $777 million with an ROE leap of 18.6 percent over 1991. Further, James E. Oesterreicher was named president and Gill retired after 39 years with the company.

JCPenney’s continued concentration on women—who accounted for 80 percent of apparel sales and on whose behalf each store now allocated up to 41 percent of its space—was paying off. Coupled with a “contemporary and fashion-forward environment,” sales rose substantially in 1992 and 1993, due to a revitalized Worthington career collection and the debut and ongoing success of new bath and body products. Another proprietary brand, the Original Arizona Jean Company (begun in 1990), soared in earnings to $400 million from the previous year’s $90 million. A hip redesign of the Plain Pockets line, Arizona quickly eclipsed JCPenney’s expectations, prompting a slew of additional designs in different sizes and colors. On the heels of these triumphs came a two-for-one stock split in March 1993; a new advertising campaign reflecting the company’s invigorated stance (JCPenney—Doing It Right); year-end retail sales just shy of $19 billion (up 5.4 percent); and income of $940 million (up 21 percent) due in part to stronger catalog sales of $3.5 billion (an 11 percent increase).

The next year, 1994, JCPenney was still riding the crest of its Arizona wave and introduced Little Arizona denimwear for toddlers. The continued hoopla over the brand’s success had even prompted longtime rival Sears to jump into the proprietary denim fray with its own line, Canyon River Blues. Everyone, by now, from consumers to analysts, took note of JCPenney’s extraordinary turnaround. Figures for 1994 further demonstrated the company’s achievement, with $20.4 billion in retail sales ($800 million from Arizona brandwear), a 6.8 percent comparative stpre sales increase, and net income topping $1 billion. This year also found Oesterreicher promoted to vice chairman and CEO, W. Barger Tygart named president, and Howell in his llth year as chairman.

Doing it Right, 1995 and Beyond

In 1995 JCPenney’s recovery lost its momentum, falling short of both its own and analysts’ expectations. Retail sales increased only 0.9 percent for the year ($20.6 billion vs. $20.4 billion), income fell from 1994’s outstanding $1 billion to $838 million, and comparative store sales experienced a 1.4 percent drop. Accentuating the positive, the company announced that its Gift Registry (introduced in 1994) had already signed up 125,000 registrants (100,000 brides and 25,000 newborns) and planned to hit 250,000 by the end of 1996, while another new venture in home furnishings opened four new stores in 1995 (a Las Vegas store attracted 10,000 patrons on its first day alone) with plans for another 20 locations on the drawing board.

Yet regardless of JCPenney’s retail store performance, its lesser known businesses, comprised of its drugstore chain, insurance, and banking services divisions, scored rather well for the year. Thrift Drug, the 10th largest drugstore chain in the nation with 645 stores in 12 states, had sales of nearly $1.9 billion in ‘95 (a 20.2 percent increase) and plans for new outlets in North Carolina and New Jersey. The Insurance group, which began reciprocal businesses services in 1990 and moved into Canada in 1992, ran up revenues of $697 million, a 22.1 percent leap from 1994’s $571 million; while JCPenney National Bank’s revenues grew 21.7 percent from $131 million to $160 million with 470,000 active Visa and MasterCard accounts and receivables of $823 million.

In 1996 the company moved in several directions to regain the footing lost in 1995: allocated $2.1 billion in capital expenditures over the next three years to open 100 new domestic stores and refurbish 500; expanded its international presence through varied licensing agreements; and announced plans to acquire the Eckerd drugstore chain for a combination of cash ($1.3 billion) and stock. To retain its claim as the U.S.’s largest department store, especially with old foe Sears pounding on the door, JCPenney’s executives turned up the heat with more private label brands and, oddly enough, coffee. The former included Zonz, an Arizona offshoot for teens, and new additions to its menswear collection; the latter concerned a joint venture with the Coffee Group of Costa Mesa to install “JC Java” coffee bars in 800 of its stores, beginning with a handful in Orange Country, California in the fall of 1997. Although Bloomingdale’s has had restaurants in their stores for decades and upstart Nordstrom had coffee bars, was the concept still new enough to attract more customers to JCPenney? Oesterreicher and his management team certainly hoped so, because after all—JCPenney was supposed to be “Doing it Right.”

Principal Subsidiaries

JCPenney Collections Stores; JCPenney Home Stores; JCPenney Life Insurance Co.; JCPenney National Bank; JCPenney Specialty Stores; Thrift Drug Inc.

Principal Operating Units

JCPenney Stores; JCPenney Catalog; Thrift Drug; JCPenney Insurance; JCPenney National Bank.

J.C. Penney Company, Inc.

views updated May 21 2018

J.C. Penney Company, Inc.

6501 Legacy Drive
Plano, Texas 75024
USA
Telephone: (972) 431-1000
Web site: www.jcpenney.net

IT'S ALL INSIDE CAMPAIGN

OVERVIEW

The J.C. Penney Company, Inc., had been a fixture in the retail world for nearly 100 years when sales started to drop in the late 1990s. The Plano, Texas, company realized that Americans had lost interest in J.C. Penney and developed a five-year strategy to bring it back from the brink of financial failure. In 2000 Chicago-based advertising giant DDB was engaged to replace Dallas-based Temerlin McClain, which had been J.C. Penney's agency since 1991. DDB had launched the "It's All Inside" campaign by the fall of 2000, setting the stage to rebrand the company inside and out.

The $200 million advertising effort reached all levels of media, from television to print, and also included using in-store signage and updating the look of the company's catalog, stores, and online shopping site. "Fresh and contemporary" was how Bob Scarpelli, DDB's chief creative officer, described the new J.C. Penney look in a September 2000 article of Adweek (southwest edition). Television spots debuted that same month and were carefully crafted to prompt core female consumers—who had either deserted the chain or ignored it altogether—to rethink their perceptions of the merchandise as well as of themselves. One commercial that typified this mission depicted an attractive every-woman whose clothing and personal style changed to reflect her moods as she went about her day. The song "Never the Same Girl Twice," by the band Supreme Beings of Leisure, underscored the sentiment of a J.C. Penney that had something for everyone.

J.C. Penney's debt had decreased by 50 percent at the end of 2004, keeping one of the nation's oldest retailers alive and kicking. The new logo, a red square with a crisply written "JCPenney," was the cornerstone of a new image for Penney's, and although ad slogans evolved, the tagline "It's all inside" remained integral to the logo (it was placed directly adjacent to the red square) throughout the five-year restructuring period. Under the new leadership of retail veteran Allen Questrom, J.C. Penney consolidated its product buying, redesigned stores, and began repositioning itself in the national mindset. Sales growth over the next five years met or exceeded the company's goal of 2 percent each year.

HISTORICAL CONTEXT

James Cash Penney opened his first store in Kemmerer, Wyoming, in 1902. He named it the Golden Rule to signify that he had set out to make value and fair dealing the hallmark of his retail business. At the time, many merchants operated under the motto "caveat emptor," meaning let the buyer beware. Penney's service-oriented philosophy was a welcome change for customers, and his business flourished. The company's first of many private brands, Big Mac, hit the shelves in 1922 (by which time the name Golden Rule had been replaced with "J.C. Penney Company"). Private brands became a mainstay of Penney's merchandise success. The J.C. Penney catalog debuted in 1963, and the company continued to grow. It struggled through the 1980s and even more so in the 1990s, but that did not stop it from opening a new 1.9 million square-foot headquarters in Plano, Texas, in 1992.

From its inception J.C. Penney had relied on word of mouth and traditional advertising for its local stores. In 1948 the company made its first foray into movie tie-in promotion when stores gave away patterns based on the popular Oscar-winning song "Buttons and Bows" from the Bob Hope film The Paleface. The year 1953 saw an even more unusual tie-in. J.C. Penney dressed more than 50 mannequins exposed to an atomic-bomb test at Yucca Flat, Nevada. The clothes were then displayed at stores across the country to prove that J.C. Penney clothes offered the best protection in an atomic blast. The first time that the company participated in national advertising was in 1956, when it ran a series of ads in the hugely popular Life magazine. In 1969 it hired its first advertising agency, LaRoche, McCaffrey, and McCall. Through the end of the century J.C. Penney continued to use notably conservative advertising to promote its brands and services. By 1991 sales of $16.2 billion reflected a drop in revenue for the company.

The 1990s were not kind to the national retailer. Its bonds were reduced to junk status, and the store's merchandise proved unappealing to the buying public. "We found [that] a lot of our problems were self-inflicted," said Michael Boylson, Penney's chief marketing officer, in an April 2004 issue of Advertising Age. The company's advertising during this period was created by Dallas agency Temerlin McClain. Consumers were moved neither by the company's slogan, "The look. Look who. J.C. Penney," nor by TV commercials that tried too hard to be hip. In early 2000 J.C. Penney severed ties with Temerlin McClain in favor of a more cohesive marketing program from global mega-agency DDB of Chicago. Retail-turnaround expert Allen Questrom, credited with the recent rebound of Federated Department Stores, Inc., came on board as chairman and CEO of J.C. Penney in September 2000. His mission—to centralize buying, redesign product, and get the message out to the consumer—affected the nearly 1,100 department stores that the company operated. By its 100-year anniversary in 2002 J.C. Penney's recovery was underway, thanks to the combination of advertising and product overhaul that typified the "It's All Inside" campaign.

TARGET MARKET

Through a century of doing business J.C. Penney remained focused on serving the needs of the consumer's whole family. In the June 2002 issue of Retail Merchandiser Questrom reaffirmed this description of the company's core market as "mainstream American families," a group earning somewhere between $30,000 and $80,000 a year and seeking value. Still, as a new millennium began, it became clear that the J.C. Penney consumer was overwhelmingly female; women accounted for 80 percent of sales, and they were buying for not only themselves but also for their families.

Prior to the "It's All Inside" campaign the Penney's marketing team worked to identify its target and settled on two categories of customer. The "Starting Outs" were young people between 18 and 35 who were beginning careers and families. "Modern Spenders" were consumers 35 to 54 with two incomes and more discretionary dollars at their disposal. Within these two groups women were still believed to be the primary buyers, and Penney's recognized that their attitudes were changing. Traditionally large department stores such as J.C. Penney had been in a position to set the trends for consumers who had scant retail choices. The explosion of retail variety in the late twentieth century gave women more freedom to reject J.C. Penney lines whose style had not kept up with the times. The "It's All Inside" tag was meant to draw women's attention to the fact that Penney's merchandise was catching up to the needs of a variety-oriented customer. Not only did Penney's change its logo, but also it revamped buying practices and reconfigured its distribution at the same time in order to allow quicker response to market demand.

COMPETITION

J.C. Penney's historical rival was Sears. Founded in 1886, Sears predated J.C. Penney in the catalog market by several decades and also had a formidable private-brand business. In the 1980s J.C. Penney faced even stiffer competition from young upstarts that took its philosophy of value-for-less and ran with it. Target came on the scene in 1962 as the discount-merchandising face of department-store giant the Dayton Company. Target's slick marketing and appealing, trendy merchandise out-hipped everyone in the field, and by year 2000 the company had 1,300 stores in 47 states and was doing billions of dollars in business. Kohl's was a much more blatant copy of the J.C. Penney model but managed to do better at providing an enjoyable value-shopping experience. The conservative-looking Kohl's stores were easy to navigate, and the company's fashion lines were quality approximations of the latest styles. By 1999 Kohl's had recorded its fourth consecutive year of growth exceeding 30 percent, while J.C. Penney struggled to stay afloat.

Customers were losing interest in Penney's formerly strong brands, such as St. John's Bay and Arizona Jean Company. Sales were suffering in the wake of Target's success in commissioning designers to create exclusive Target lines, such as Liz Lange maternity and Michael Graves housewares. J.C. Penney had tried a similar strategy in the 1980s with lines from Mary McFadden and Halston, but these particular designer labels, along with a less-attractive shopping space, did not hit the right note with consumers. Also stealing some of J.C. Penney's pie was the Wal-Mart chain of superstores. A frequent destination for low-cost home items but not necessarily apparel, Wal-Mart began offering more up-to-date fashion in the 1990s. That company's founder, Sam Walton, had been a Penney's employee in 1940 and had used many of the J.C. Penney principles in the founding of his own business.

MARKETING STRATEGY

A five-year recovery plan that began in 2000 was implemented with the goal of making J.C. Penney the "driveway decision" for consumers, meaning that it would be their first destination on shopping excursions for apparel and housewares. The company's new agency, DDB of Chicago, was allotted $200 million for TV spots and radio, print, direct mail, and in-store efforts. DDB came up with a winning slogan, "It's All Inside." The tagline was intended to communicate that there was a fresh change in the brands and decor at J.C. Penney stores while also addressing the consumers' state of mind. J.C. Penney and DDB wanted customers to reevaluate how they felt about the store and themselves.

J.C. PENNEY LOOKS TO HISPANICS FOR SALES BOOST

By the time that J.C. Penney approached the end of its five-year recovery plan, American working families—historically the bedrock of Penney's sales—had found the retailer again. In 2004 J.C. Penney turned a significant portion of its marketing attention to a new and growing segment of the population: Hispanics. A price-conscious and family-centered demographic, Hispanics were a natural focus for Penney's. That year the company dedicated $15 million in advertising dollars to wooing Hispanic consumers, a group that encompassed a wide variety of nationalities. Omnicom's Dieste Harmel & Partners in Dallas was hired to coordinate merchandise, store signage, promotions, and TV spots that would make the cultural connections necessary to win over what had become the country's largest minority group.

Three television spots specifically geared toward that huge buying group of women debuted during the Emmy Awards telecast in September 2000, with additional runs on popular sitcoms and the hit prime-time game show Who Wants to Be a Millionaire. One spot depicted a couple excitedly preparing for the arrival of an adopted daughter. Another commercial took a playful tone, showing a woman using a pile of shoes to play fetch with her dog. Finally, in the spot that best embodied Penney's new appreciation for its female customer, a woman was depicted whose outfits transformed throughout the day to match her change in mood. The music behind each spot was provided by stylish electronic-pop band Supreme Beings of Leisure. The commercials conveyed a feeling of being up-to-date without looking overly trendy. In a September 2000 Brandweek article, DDB's Scarpelli said that the agency's goal for J.C. Penney was "to make people think about [the company] in a new way." He continued, "Our whole strategic insight was self-expression."

In that same 2000 issue of Brandweek, Stephen Farley, then chief marketing officer for J.C. Penney, reflected on his expectations of the new agency: "In the past, we had to manage five or six different resources. Now, we're asking DDB to manage those resources for us in a full integration effort." Making the J.C. Penney brand more prominent as well as more universally appealing was key to DDB's mission. To this end the Penney's online shopping site was revamped at this time. The new logo, a bright red box surrounding "JCPenney" with the directly adjacent tagline "it's all inside," anchored the corner of every Web page. The color scheme of red, white, and gray may have taken a page from Target's red bull's-eye logo, but J.C. Penney managed successfully to present its own clean, contemporary Web destination reflecting the company's revitalized personality. DDB left no stone unturned, enlisting its sister agencies for specific tasks: Optimum for media planning, Omnicom's OMD for media buying, Rapp Collins for direct-marketing duties, and Spike DDB for ethnic and urban marketing. The new, more sophisticated look of J.C. Penney was consistent through all the company's public appearances, creating an approachable, inviting image, whether a potential customer was leafing through the mail-order catalog or looking at a newspaper insert.

OUTCOME

In its five-year turnaround plan the J.C. Penney Company had set the goal of achieving a 2 percent increase per year from 2000 to 2005. Retail Merchandiser reported that J.C. Penney had surpassed that goal, with a sales increase of 3.3 percent in 2001, a year that saw the company's store and catalog sales reach a desirable $18 billion. The sluggish economy throughout the period actually highlighted Penney's strengths. With household incomes remaining low, consumers were willing to give the revamped J.C. Penney another shot at their dollars. Although the "It's All Inside" campaign was not a favorite with ad-industry reviewers, it did resonate with the most important audience: consumers. By 2004 the company's daunting debt was cut in half, and the first quarter was a strong start, promising to keep J.C. Penney growing steadily into the fifth year of its comeback plan.

J.C. Penney Company, Inc.

J.C. Penney Company, Inc.

The Golden Rule: 1900-19

Rapid Growth and Expansion: 1920s-50s

A New Era: 1960-75

Company Perspectives:

1976-85: Mass Merchandiser or Department Store?

Key Dates:

A Dramatic Turnaround: 1986-95

Late 1990s and Beyond: Struggling, Restructuring, Diversifying

Principal Subsidiaries

Principal Operating Units

Principal Competitors

Further Reading

J.C. Penney Company, Inc.

J.C. Penney Company, Inc.

Principal Subsidiaries

Further Reading

J.C. Penney Company, Inc.

J.C. Penney Company, Inc.

The Golden Rule, 1900 to 1919

Rapid Growth and Expansion, 1920s–50s

A New Era, 1960–75

Company Perspectives:

1976–85: Mass Merchandiser or Department Store?

A Dramatic Turnaround, 1986–95

Doing it Right, 1995 and Beyond

Principal Subsidiaries

Principal Operating Units

Further Reading

J.C. Penney Company, Inc.

J.C. Penney Company, Inc.

IT'S ALL INSIDE CAMPAIGN

OVERVIEW

HISTORICAL CONTEXT

TARGET MARKET

COMPETITION

MARKETING STRATEGY

J.C. PENNEY LOOKS TO HISPANICS FOR SALES BOOST

OUTCOME

FURTHER READING

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J.C. Penney Company Inc

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