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Customer Relationship Management of J. C. Penney -
January 18th, 2011
J. C. Penney Company, Inc. (NYSE: JCP) is a chain of American mid-range department stores based in Plano, Texas, a suburb north of Dallas. The company operates 1,106 department stores in all 50 U.S. states  and Puerto Rico. JCPenney also operates catalog sales merchant offices nationwide in many small markets.
Most JCPenney stores are located in suburban shopping malls. Previously, most stores were located in downtown areas. As shopping malls became more popular in the latter half of the 20th century, JCPenney followed the trend by relocating its stores to anchor the malls. In more recent years, the chain has continued to follow consumer traffic, echoing the retailing trend of opening some standalone stores, including some next door to competitors. Certain stores are located in power centers and can be considered big-box stores. The company has been an Internet retailer since 1998. Increased competition from big box retailers like Wal-Mart, Target and Kmart have forced JCPenney to focus on private brands such as St. John's Bay, Worthington, and Arizona Jean Company. It has streamlined its catalog and distribution while undergoing renovation improvements at store level.
In addition to selling conventional merchandise, JCPenney stores often house several leased departments such as Sephora, Optical, Portrait Studios and Jewelry & Watch repair.
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 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.
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.
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 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 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 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.
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.