PLANO, Tex. — J.C. Penney is thinking big, earmarking about $3 billion to build 150 stores and renovate more than 200 others.
The initiative, Penney’s most ambitious expansion since 1980, will focus on off-the-mall units.
Speaking to Wall Street analysts Wednesday at company headquarters here, Michael W. Taxter, executive vice president and director of J.C. Penney Stores, said at least 20 percent of the new locations, to be built between 2007 and 2009, will be in communities with populations of between 80,000 to 100,000.
“Off-the-mall stores are the primary focus of our new-store growth plan, which is dramatic,” Taxter said at the close of the two-day analysts’ meeting.
“At least 80 percent to 90 percent of our new stores will be off-the-mall. There will certainly also be new mall-based stores, but our philosophy is to be where our customers want us to be and where she wants to shop.”
Penney’s has pinpointed at least 400 under- or unserved markets where it plans to open stores, although executives declined to identify them. The retailer, which will add 27 units this year to its existing 1,019 stores, plans to renovate more than 200 in the next four years. The goal is to have at least 75 percent of the chain’s stores renovated or new by 2009.
The expansion comes as Penney’s presses its rivals on several fronts by targeting consumer lifestyles. The retailer is creating a new traditional career line for women called E. 5th, enhancing its Internet presence with a goal of $2 billion in sales and establishing more private brands. It has agreed to a beauty partnership to put Sephora units in Penney’s stores starting in the fall.
The retailer, which had sales of $18.7 billion last year, also intends to target the bridal market and to shorten to 17 weeks the time in which it gets fashion onto store shelves.
Several analysts could not be reached for comment.
“We’re charting higher sales in renovated and new stores,” Taxter said. “Customers are reacting to our look and merchandising and view J.C. Penney as a step up from the competition. We are increasing our market share with new and renovated stores and, in many cases, customers are doubling the amount of trips they make, and we’re getting a higher share of their wallets.”
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Sales at off-the-mall stores are exceeding plan, and luring more week-day shoppers, many new to Penney’s, executives said. However, mall-based Penney’s units typically draw more weekend shoppers.
To fund the new construction and renovations, Penney’s has designated about $1 billion a year in capital expenditures from 2007 to 2009; $600 million for new-store construction, $250 million for renovations, $75 million for technology and $75 million for direct logistics.
“It’s all about investing in the growth of J.C. Penney and enhancing shareholder value,” Taxter said.
Penney’s stores generate sales of $221 a square foot, up 23 percent from five years ago, said Robert B. Cavanaugh, executive vice president and chief financial officer.
“We will continue to grow the business by several means, including new stores [that focus] on specialized and underdeveloped businesses, grow our private brands, launch new national and private brands, greatly enhance our inventory management and cycle time allocation, which speeds the products to the consumers and also reduces end-of-season markdowns, and continue to invest in the growth of our Internet business,” Cavanaugh said.
Penney’s guidance for 2006 sales includes low-single-digit gains for stores open at least a year and low- to midsingle-digit gains for its direct business, including catalogue and Internet. In guidance for 2007, Penney’s is planning for low-single-digit same-store sales gains and midsingle gains for direct sales, Cavanaugh said.
In response to a question from an analyst about the modest forecasts, chairman and chief executive officer Myron Ullman 3rd said Penney’s prefers to be cautious in its guidance.