J.C. Penney Co. Inc. understands that enticing busy consumers who crave accessibility begins with making decisions on location and size.
Those are starting points in Penney’s multipronged drive to become the dominant midtier U.S. retailer, targeting the powerful demographic of women ages 30 to 54 with household incomes of $35,000 to $80,000.
Penney’s, which posted sales of $18.7 billion in 2005, is on a streak that saw third-quarter earnings beat Wall Street estimates. Management said the chain will meet growth targets for 2009 by next year. The company’s almost 1,000 units at malls across the country are in the midst of a revitalization effort that aims to put a fresh face and new attitude on Penney’s doors, including new Sephora boutiques front-and-center as the chain reenters beauty in a big way.
The retailer is also looking beyond the mall with a broad move into new territory — freestanding stores in previously untapped areas of the U.S., including communities of fewer than 100,000 people that are near major population centers.
It’s part of an accelerated growth strategy led by chairman and chief executive officer Myron E. “Mike” Ullman 3rd, who has said that Penney’s plans to spend more than $3 billion and open 150 stores during the next three years — mostly off-the-mall.
“We have a unique advantage in that our off-mall department stores provide a neighborhood presence that offers convenience and accessibility for midweek shopping while complementing our mall stores, which continue to be a weekend and holiday shopping destination,” Ullman said. He noted that the chain had embarked on its most aggressive store-opening program in more than 25 years.
Penney’s has concluded that off-the-mall stores make sense given that new shopping center construction has stalled. In addition, consumers have expressed the desire for a faster and more focused shopping experience that’s close to home, easier to navigate than a big mall and even equipped with Internet kiosks that link Penney’s $1 billion Web site to its stores. In essence, the 1,037-unit Penney’s is bringing its stores closer to shoppers’ homes and highlighting shoppers’ lifestyles in its merchandising mix.
“Off-the-mall stores are a very integral part of our new-store growth plan,” said Michael Dastugue, senior vice president of property development. “There are so few new malls being built in the U.S., and we want to be located where our customers live and want to shop. It’s part of our plan to focus on our customers’ lifestyles.”
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The freestanding stores represent a model that is expected to shape the future, though Penney’s is by no means turning away from mall-based business. The company now has 45 off-the-mall stores. Executives said the chain intends to grow sales and gain market share by opening in regions with rising populations and those with high growth potential.
“The whole off-the-mall concept as it relates to department stores really has great value to consumers and to businesses,’’ said Alan Shor, founder and president of The Retail Connection, a consulting firm in Dallas. “There are very few malls being built and there’s so much retail consolidation going on at the malls that are out there that off-the-mall stores become even more viable options. It’s a great way for retailers to grow their businesses and [it] creates a new avenue of reaching consumers.”
Penney’s plans to spend about $250 million annually through 2009 for existing-store renovations that will create better lighting, wider aisles, Internet kiosks, centralized service and checkout areas, more enticing and focused trend presentations and a focus throughout on customers’ lifestyles, from home to fashion. The retailer’s mall-based stores average 150,000 to 200,000 square feet compared with 100,000 square feet for freestanding units.
The chain has designated more than $1 billion a year from 2007 to 2009 for capital improvements, including $600 million for new-store construction, $75 million for technology and $75 million for direct logistics — along with the renovation expenditures.
The long-range goal is to have 75 percent of the chain’s stores new or renovated by 2009. Penney’s revved-up construction and renovation program is expected to have a net effect of about 3 percent square footage growth per year starting in 2007.
Penney’s has identified 400 under- or unserved markets across the U.S. in which it plans to open stores, with 20 percent of the units located in communities with populations of 80,000 to 100,000 that it says are under- or unserved by mid-tier retailers and that also are poised for growth as more middle-income consumers relocate seeking more reasonable costs of living.
So far this year, Penney’s has opened 28 stores, including 23 off-the-mall stores, 17 of which were freestanding units, with locales in smaller communities such as Dardenne Prairie, Mo.; North Conway, N.H.; Olean, N.Y.; South Jordan, Utah; Murfreesboro, Tenn., and Trussville, Ala. The majority of new stores are in the top 20 U.S. population markets, including areas around Dallas, Chicago and Denver.
About 80 percent of the new stores will go into markets that typically have “populations in excess of one million people and individual store-trade area population in excess of 300,000 people,’’ Dastugue said. “About 50 percent of the large stores will be in the top 20 metropolitan markets….Clearly, adding multiple stores in large markets provides the opportunity to gain market share’’ and leverage expenses.
Penney’s executives have said the company will continue to acquire mall-based stores in attractive locations when opportunities arise. For example, Penney’s plans to open a 150,000-square-foot store in Main Place Mall in Santa Ana, Calif., a takeover of a former Robinsons-May unit.
“Our in-house research department studies U.S. markets and demographic trends and helps guide us in our choices of which markets to enter,” Dastugue said. “We also work closely with real estate developers across the U.S. — and sometimes they come to us first asking us to be the first tenant in a planned lifestyle development or shopping enclave.
“We’ve also gotten the reputation of being first to the playing field and tapping into underdeveloped and/or unserved markets, so now we’re also getting calls from other specialty chains asking us which areas of the country or which particular part of a city we might be interested in,’’ he said. “They want to follow our initiative, which reinforces our leadership mind-set.”
Penney’s main off-the-mall format is on a single level that places women’s apparel, including several new private brands such as Ambrielle lingerie and East 5th ready-to-wear, front and center, just behind the approximately 2,000-square-foot Sephora beauty boutiques located at the front door — just as they are at Penney’s mall-based stores.
Penney’s has also recently installed almost 40,000 point-of-sale terminals that are linked to its Web site jcpenney.com, which generates more than $1 billion each year.
The off-the-mall stores generate higher sales per square foot than mall-based stores and also register more frequent customer visits. Penney’s off-the-mall stores can generate as much as $250 per square foot after one fiscal year, compared with $157 per square foot average for all stores, including mall-based units, up 23 percent from five years ago.
“Our excellent results over the last three years have given us the confidence that our new-store program can be dramatically expanded to generate profitable growth at J.C. Penney,’’ Dastugue said. “The acceleration of growth at J.C. Penney moves us up to a position of leadership with the department store industry.”