Spotlight on J.C. Penney

All eyes are on J.C. Penney Co. as it rolls out the first wave of its branded shops to nearly 700 stores nationwide.

The shops are the linchpin of CEO Ron Johnson’s ambitious plan to transform the Penney shopping experience from the standard department store model to one that is made up of some 100 branded shops and a central “Town Square” area. Some of the shops will focus on one brand; others on a variety of labels. All will feature their own fixtures and signage. As for the Square, Johnson told analysts and investors at a presentation in August that it will feature seasonal merchandise and will also function as a central meeting place offering classes and other activities.

The first three shops, opened in time for the back-to-school selling season, are focused on denim, with concepts for three brands — Levi’s, i jeans by Buffalo and The Original Arizona Jean Co. Set to open at press time: shops for Liz Claiborne; Izod; and jcp, a new private brand of fashion basics. Other brands that will be eventually setting up shop in Penney range from Maidenform and Vanity Fair to Carter’s and Cynthia Rowley to Martha Stewart Living and Betsey Johnson.

Also in the wings is Joe Fresh, the Canadian cheap-chic retailer, whose branded shop concept will launch in spring 2013. The brand, owned by Loblaw Cos. Ltd., operates only a handful of U.S. stores, all of them in the New York metro area.

Of the initial batch, the Levi’s shop, dubbed Levi’s Denim Bar, is the most detailed. Each Denim Bar is equipped with iPads so customers can access more sizes, styles and finishes through a virtual experience. Trained stylists from Levi’s are available to help customers. The shop is a first for Penney in that it offers mobile checkout.

But it certainly won’t be the last. Johnson has said he wants to eliminate traditional checkouts by the end of 2013, replacing them with mobile checkout devices and self-checkout kiosks. And by February 2013, the retailer will move to a 100% (item-level) RFID deployment.

Penney’s reinvention has been rocky. Its new three-tiered pricing strategy was not well received by customers. The chain has since simplified the model and is fine-tuning its advertising to better explain the changes. The company lost $147 million in the second quarter, ended July 28, 2012, compared with net income of $14 million a year ago. Revenue plunged almost 23% to $3.02 billion amid a 21.7% drop in same-store sales.

Despite the miserable quarter, Johnson is holding firm. (And to be fair, with only the first wave of shops rolled out and the new merchandise just now arriving, the transformation is really still in its initial stages.) He told analysts at the meeting in August he has seen some hopeful signs in the business since early August. He noted that sales of Levi’s merchandise are up 25% in the stores that have the branded Levi’s shops.

“I am completely confident that our transformation is on track,” Johnson said.