J. C. Penney Company, Inc.

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J. C. Penney Company, Inc.

founded: 1902

Contact Information:

headquarters: 6501 legacy dr.
plano, tx 75024-3698 phone: (972)431-1000 fax: (972)431-1977 url: http://www.jcpenney.com

OVERVIEW

As the nation's fourth largest retailer, J. C. Penney Company, Inc. earns more than 50 percent of its revenue in department store offerings, which include apparel, accessories, and home furnishings. J. C. Penney also has the largest U.S. catalog operation, which accounts for 13 percent of the company's revenue. Additionally, the company owns the fourth largest U.S. drugstore chain, Eckerd Corporation, which generates roughly one third of J. C. Penney's revenues. Topping off this ensemble, J. C. Penney derives 3 percent of its revenue selling insurance, and the insurance division continues to post record profits.

Under its "new models for profitable growth" philosophy, J. C. Penney wants to capitalize on other proven money makers and cut back on under performers. After closing 75 stores in the United States, the company plans on expanding its international operations, which include stores in Puerto Rico, two stores in Mexico, and one in Chile. J. C. Penney has also upgraded its fashion line and added more private-label clothes to its mix. Like many other retailers, the company offered an early retirement program and thinned out its management ranks, which is expected to save $85 million annually.

COMPANY FINANCES

Total revenue for the J. C. Penney Company jumped from $23.5 billion in 1996 to $30.5 billion in 1997. Even after soft sales in the department store division during the second half of 1997, the company finished with a strong operating performance. The majority of the revenue increase came from the company's drugstore division. Throughout 1996 and 1997, J. C. Penney acquired a series of drugstores, including 1,724 Eckerd drugstores, 272 Fay drugstores, 200 Rite Aid drugstores, and 97 Kerr drugstores. With nearly 2,800 drugstores in total under the Eckerd banner, J. C. Penney formed the nation's fourth largest drugstore chain ranked by sales volume. As a result, total stockholder return for The J. C. Penney Company far outpaced the Standard & Poor's 500 retail index for department stores.

ANALYSTS' OPINIONS

According to the 1997 annual report for J. C. Penney, "Our company has increased size, focus, and strength. In the past two and a half years, we have sold some operations that did not fit with our strategic vision while expanding our drugstore business." One retail analyst at Smith Barney Inc. agreed with that assessment. Analyst Gary Giblen commented on J. C. Penney's acquisition of the Eckerd chain of drugstores for the Austin American-Statesman in a 1996 article: "The department store arena is pretty crowded. Sears is whipping Penney's butt and gaining customers in the juniors department store category. It's pretty smart for Penney to focus some effort on the drug piece."

HISTORY

The J. C. Penney Company is named for its founder, James Cash Penney. Penney and two former employers opened a dry-goods store, called the Golden Rule, in Wyoming in 1902. According to a Paul Harvey radio broadcast in 1998, Penney and his wife lived above the store and reveled in first-day sales of more than $400. Penney bought out his partners' interest in the store in 1907. The company incorporated in 1913 as The J. C. Penney Company.

A devout Baptist, Penney's moral convictions became the stores' basis for customer service. In fact, the forerunner to J. C. Penney was so named because Penney thought strong morals could form the foundation for solid business practices. In 1914, the store headquarters was moved to New York City from Salt Lake City to facilitate buying and operations. Six years later, the company had about 1,200 stores.

During the Depression, J. C. Penney stores thrived on their reputation for quality and value. The company went public in 1929. After World War II, the company had more than 1,600 stores and sales in excess of $1 billion.

The 1960s brought expansion and diversification. In 1962, the company bought a Milwaukee mail-order firm and started carrying hard goods in 1963. Those two moves meant that J. C. Penney was now able to compete with Sears and Montgomery Ward. J. C. Penney also purchased Treasure Island, a chain of discount stores, and formed an insurance subsidiary from various companies it purchased late in the decade. Thrift Drug was purchased by J. C. Penney in 1969.

The company continued to thrive and, in the 1980s, began fine-tuning its mix of goods. It sold the Treasure Island discount stores in 1981 and ceased selling an array of items in 1983—from paint to tires to fabric. That same year, the company began issuing MasterCard and Visa credit cards. J. C. Penney tried to become upscale with the introduction of the famed Halston label to its racks, but the line failed to attract a following. Taking a cue from other retailers, J. C. Penney started to develop its own private label brands, such as Hunt Club and Worthington. The company stopped selling consumer electronics, photography equipment, and sporting goods in 1987.

In 1988, J. C. Penney moved its headquarters out west again, settling in Texas. That same year the company started taking catalog phone orders and offering telemarketing services for other companies.

In the mid-1990s, the company earmarked about $2 billion for store modernization and relocation over a three-year period. J. C. Penney also realigned its regional operations, grouping its top 10 markets together into a "mega region". The company opened a store in Monterrey, Mexico in 1995. Also that year, free-standing J. C. Penney Home Stores debuted.

Throughout 1996, J. C. Penney embarked on a string of drugstore acquisitions, including 272 Fay drugstores, 200 Rite Aid drugstores, and 97 Kerr drugstores. In 1997, J. C. Penney finalized a $3.3 billion deal to buy 1,724 Eckerd drugstores, but later sold 161 of the stores over antitrust concerns. A sentimental note about the Eckerd acquisition appeared in the 1997 Annual Report for J. C. Penney: "When signs on the Thrift Drug stores in Erie, Pa. changed to Eckerd in 1997, a cornerstone of the American drugstore culture returned to its birthplace—nearly a century after J. Milton Eckerd opened its first pharmacy there in 1898."

Other changes occurred in 1997. William R. Howell, who had served the company as chairman and chief executive officer since 1983, retired from the company in January. Howell had been with the firm 38 years, having started cleaning up the Claremore, Oklahoma, store, managed by his father. Howell was also the last chair of the company to have worked with a known Penney. He was also the longest serving chairman of the board at the company. Additionally, J. C. Penney sold the assets of J. C. Penney National Bank for $740 million, which netted a gain for the company. Streamlining continued as well; the company closed 75 stores in 1997. In early 1998 the company announced plans to cut 5,000 jobs, including 1,700 managerial positions.

STRATEGY

According to an annual report for J. C. Penney, "Our strategy revolves around continuing to fulfill the customer's expectations for value, selection, and convenience: value in terms of the right combination of quality, fashion, and price; selection between recognized national brands and our own exceptional private brands; and the convenience of shopping the store or ordering through the catalog."

FAST FACTS: About J. C. Penney Company, Inc.

Ownership: J. C. Penney is a publicly held company traded on the New York Stock Exchange.

Ticker symbol: JCP

Officers: James E. Oesterreicher, Chmn. & CEO, 55, 1998 base salary $1,045,621; John T. Cody, Jr., Pres. & COO, J. C. Penney Stores, Merchandising, Marketing, & Catalog, 58, 1998 base salary $614,146; Thomas D. Hutchens, Pres. & COO, International, 57, 1998 base salary $597,786; Francis A. Newman, Pres. & CEO Eckerd Corporation, 48

Employees: 260,000

Principal Subsidiary Companies: J. C. Penney Company, Inc. has three main divisions, including two subsidiaries: J. C. Penney Stores and Catalog, made up of 1,203 domestic and international retail stores carrying family apparel, jewelry, shoes, accessories, and home furnishings; Eckerd Corporation, consisting of 2,778 drugstores selling pharmaceuticals and related products as well as general merchandise; and J. C. Penney Insurance Group, Inc., a direct-marketer of life, health, accident, and credit insurance, as well as non-insurance products.

Chief Competitors: J. C. Penney competes with numerous retail and catalog apparel sellers, as well as with drugstores. Some primary competitors are: American Stores; Avon; Dayton Hudson; Dillard's; Fingerhut; The Gap; Kmart; The Limited; Montgomery Ward; Price/Costco; Sears; Service Merchandise; Spiegel; Walgreen's; and Wal-Mart.

J. C. Penney believes its private brands—Jacqueline Ferrar, The Original Arizona Jean Company, The Hunt Club, Stafford, and Worthington—are the most outstanding values in the department store industry today; national brands are still important for their merchandising strategy since they account for about 50 percent of their apparel sales. J. C. Penney's strategy with private brands is to offer products comparable to those in the best known department stores, but at a better price. While insiders applaud retailers for trying the give the customer a better value, insiders also know that retailers realize a much better markup on private-label over nationally branded goods.

On the drugstore front, J. C. Penney has put together a formidable competitor in the industry. The company became the nation's fourth largest drugstore chain in 1997 with the acquisition of the Eckerd Corporation. Building on the strength of the Eckerd name, J. C. Penney decided to put all of its 2,800 drugstores under the Eckerd banner. Sales in the J. C. Penney drugstore division hit $9.7 billion in fiscal 1997, a 13 percent increase over results from the previous year, with comparable store sales rising 7 percent.

Eckerd drugstores pepper the Northeastern, Southeastern, and Sunbelt regions of the United States, home to millions of retirees and aging baby boomers. J. C. Penney already holds the first or second market share in 37 of its 42 major drugstore markets, and it stands ready to benefit from the growing market for pharmaceuticals and health-related products.

CURRENT TRENDS

Online sales at J. C. Penney experienced a six-fold increase in 1997 as more consumers discovered the ease and convenience of shopping via computer. The company improved its World Wide Web store (www.jcpenney. com/shopping) by adding an electronic order form that lets online customers order any item from its print catalogs. The J. C. Penny nationwide gift registry is also available online.

PRODUCTS

The company operates three main divisions. J. C. Penney Stores and Catalog primarily sells family apparel, jewelry, shoes, accessories, and home furnishings. In addition to well-known national brands, the company also sells private-label brands. Private brands include St. John's Bay, The Original Arizona Jean Company, ZONZ, Hunt Club, Stafford, Jacqueline Ferrar, and Worthington. Eckerd Drugstores primarily sells pharmaceuticals, health-related products, and general merchandise. The drugstore division boasts one of the largest in-store photoprocessing operations in the industry as well as one of the largest mail-order prescription services. J. C. Penney Insurance primarily sells life, health, accident, and credit insurance through direct-marketing channels. Membership services include LeisurePlus and MotorPlus discounts on travel. The insurance division counted more than 13 million insurance policies, certificates, and membership accounts in force in 1997.

CORPORATE CITIZENSHIP

J. C. Penney supports various programs in the communities where it operates. Charitable contributions totaled $27 million in 1997, $24 million of which consisted of cash contributions. The focus for the company is on women's charitable organizations, including programs supporting minority- and women-owned businesses. The company also has supported The United Way; The Susan G. Komen Breast Cancer Foundation Race for the Cure; several women's sporting events, including the LPGA; and other awards for women who are leaders in their field and/or communities.

CHRONOLOGY: Key Dates for J. C. Penney Company,Inc.

1902:: James Cast Penney opens a dry-goods store called the Golden Rule in Wyoming
1913:: The company incorporates as J. C. Penney Company; the Golden Rule stores are replaced by J. C. Penney stores
1929:: The company goes public
1949:: J. C. Penney opens its first suburb store
1951:: Sales top $1 billion for the first time
1958:: J. C. Penney starts taking credit at its stores
1963:: The first J. C. Penney catalog is introduced
1987:: The company stops selling consumer electronics, photography equipment, sporting goods
1995:: Free-standing J. C. Penney Home Stores open
1997:: The company buys Eckerd drugstores and sells 161 of the 1,724 stores because of antitrust concerns

GLOBAL PRESENCE

J. C. Penney attempted global expansion into Europe in the 1970s. The company had failed ventures in Italy and Belgium until 1982. In the 1990s, the company cautiously ventured into new retailing ventures in Mexico and Chile. Bolstered by a successful venture into Canada, J. C. Penney Insurance plans to launch its first overseas operation in 1998 in the United Kingdom.

SOURCES OF INFORMATION

Bibliography

"j.c. penney company, inc." hoover's handbook of american business 1998. austin, tx: the reference press, 1997.

jcpenney company, inc. annual report. plano, tx: 1997.

lasalle, patricia ann. "making change work." smu magazine, winter-spring 1997.

"update on jcpenney." plano, tx: j. c. penney company, inc., july 1996.

For an annual report:

on the internet at: http://www.jcpenney.comor telephone: (800)953-9421 or write: public relations department, j. c. penney company, inc., po box 10001, dallas, tx 75301-4301