JCPenney puts strength in ‘power brands’

PLANO,, TEXAS —JCPenney does business with more than half of the households in America. And as the company continues to grow, with 50 stores planned to open each year for the next five years, it wants to capture an even larger Middle American audience. Going forward, JCPenney wants to give consumers even more reasons to shop at its stores, namely in the form of its exclusive brands and concepts.

“Our two new concepts and eight power brands give customers 10 great reasons to shop at JCPenney,” said Ken Hicks, the company’s chief merchandising officer, at the retailer’s analysts meeting held in April. “These exclusive merchandise ideas develop strong loyalty with our existing customers and help us recruit new customers.”

Hicks identified two exclusive concepts, Sephora inside JCPenney, and American Living, the company’s new brand partnership with Polo Ralph Lauren, as well as eight exclusive, private label “power brands” as reasons why he thinks both new and loyal customers are drawn into JCPenney stores. These “power brands” include Chris Madden and cooks in the home department, and Ambrielle, St. John’s Bay, a.n.a., Worthington, Stafford and Arizona for apparel.

“We are uniquely qualified to create impactful, powerful brands that resonate with our customers and are very competitive with national brands in terms of style, quality and features,” Hicks said.

JCPenney has been creating its own private brands for nearly 80 years, and these brands constitute about 45% of the store’s merchandising mix. Some brands, like Arizona, generate more than $1 billion in annual sales, and as a whole, private brands outperform the rest of the store and deliver gross margins at 300 to 500 basis points higher than national brands, according to Peter McGrath, evp of product development and sourcing.

JCPenney’s two new concepts, Sephora inside JCPenney and American Living, should also create quite a stir among more modern consumers. JCPenney’s brand merchandising is split up against consumer profiles, which it categorizes as conservative, traditional, modern and trendy. Traditional customers have the most money to spend at JCPenney, but the company’s modern customer audience continues to grow. Sephora and American Living may contribute further to the modern audience’s growth, Hicks said.

“The customer for American Living and Sephora…[have] higher income, are younger in age and [they can pay] a higher average unit retail,” Hicks noted.

JCPenney opened its first five Sephora “store-in-store” locations last October, choosing “different regions and formats” to make sure the concept could be executed correctly, Hicks said. In March, the retailer opened another nine stores with Sephora boutiques. A total of 47 stores with Sephoras will be opened by year-end. In 2008, JCPenney plans on accelerating the concept’s growth, with plans to put Sephoras in all of its 50 new stores, as well as some of its renovated locations. Hicks said he expects the continued success of the Sephoras in JCPenney, based on the customer response to its openings last year.

“Customers love it,” Hicks said. “Assortments are absolutely aligned with Sephora, the vendors are very excited and the customer spend is about equal to a Sephora store customer…Sephora is already our second highest cross-shopped department in stores that carry the concept.”

JCPenney’s Sephora boutiques are about one-third the size of stand-alone Sephora retail outlets, with 250 beauty vendors represented. JCPenney associates go through the same store training as Sephora store associates as well. The Sephora launch is JCPenney’s first entrance back into beauty in nearly three years, and as with all of its new brand launches, the company wants to have the “best of the best,” as it tries to remain competitive in the marketplace with other department store beauty offerings. Kohl’s, for example, offers a line of private-label beauty products from Beauty Bank by Estee Lauder.

Hicks said the company fully anticipates that American Living will be as well received as the Sephora concept when it lands in stores in spring 2008. It could go very well head-to-head with Kohl’s Chaps exclusive.

“American Living will be the largest launch in the company’s history and will span across the full range of merchandise categories: men’s, women’s, children’s, accessories, shoes and home. It will be an aspirational offering with an updated classic look for traditional customers.”