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April 21, 2010


We spent the better part of yesterday at the JC Penney analyst day in New York. In aggregate it was solid big picture way to get a sense of where the company is heading, both near and longer term.  There weren’t any “Aha” moments or revelatory comments, but still it was worth hearing the $18 billion retailer’s senior leadership share their insights.  After about 4 hours of presentations and Q&A , management took the time to outline the company’s strategic long range financial goals and plans.  If they had released the financial part at the beginning of the meeting, then it’s likely that most analysts (at least the buy-side) would have left early, with the company’s five year guidance firmly in hand.

For us, there were actually some subtle but interesting takeaways from the “meat” of the morning.  A few points were clear.   JC Penney is working hard to position itself and its products for growth with the 25-35 year old consumer.  Almost every merchandising discussion was centered on driving traffic from this key (and elusive) demographic. Secondly, the general and free flowing use of the term “growth” was used on numerous occasions.  Growth in new stores, growth with new Sephora shops, growth with new customers, etc, etc…We got the message loud and clear.  Management believes that this is growth story.  We can’t say that we agree with that, but we can say that at least they aren’t sitting still.  More highlights and interesting callouts below:


- Lots of excitement surrounding the launch of Liz Claiborne.  Customer research shows that Liz loyalist who have shopped the brand elsewhere in the past, but who don’t shop Penney’s, plan on shopping for the brand in its new home.  The Fall launch will incorporate 30 categories across the store.  JCP sourcing gives the company a 400-500 bps gross margin advantage on Liz products, which should be accretive given the likelihood that unproductive merchandise is being shed to make room for this initiative.


- MNG by Mango is just one of the many initiatives highlighted to target the under-35 customer.  Initially the store in store concept with launch in 77 doors, ramping to 600 by Fall 2011.  What’s most interesting here is that JCP intends to flow new goods on a similar time frame as its fast-fashion partner- with deliveries and newness offered multiple times per month.  As it stands now, the fastest cycle time for any JCP line is about 12 weeks. 


- Interestingly, the company’s head of intimates admitted that her division became too focused on gross margin rate during the recession, which in turn led to less competitive pricing on national brands.  Moving forward the company aims to be competitive on price (at or below) and will be increasingly focused on gross margin dollars.  The offset to profitability will come from emphasis on private brands.


- An overriding theme across all division head presentations was reducing/editing assortments.  This is happening across all categories, on the floor and in marketing collateral.  Additionally, price points and the pricing message continues to be simplified.  “Over assortment” and “key item focus” were common buzzword used throughout the morning.


- Curiously, the American Living Brand was not mentioned at all until a question was asked about it from the audience.  Recall, that last year the meeting addressed some of the learnings from the brand’s first year and ultimately where the challenges existed for the brand.  Yesterday, CEO Mike Ullman reiterated that the launch was “ambitious” and they are more confident in the brand today.  With that said, it was clear that there is still much work to be done here and Ralph Lauren is working very closely with its JC Penney counterparts to get this right.  This Q&A dialogue was the only mention of American Living, which spans 40 categories, throughout the entire formal presentation.


- While most bricks and mortar retailers are seeing their .com subsidiaries outpace core retail growth, JC Penney is moving sideways.  Management presented strategies in which they plan to employ to reinvigorate growth in the $1.5 billion platform.  A completely revamped site will be launched in 18 months. Interestingly, JCP is trying to embrace emerging technologies in a big way and made it a point to mention “Facebook” numerous times.  In fact, JCP held its February board meeting at Facebook’s headquarters in an effort to educate its leadership on the changing and growing world of social media.  CEO Ullman sits on Starbuck’s board with Facebook’s CEO, hence the connection.


- Finally, management presented its 5 year plan to grow same store sales at a 5% CAGR, return EBIT to peak levels of 9-10%, and commensurately grow EPS at a 25% CAGR through 2014.  This is the benchmark for which the Street will judge results for the next few years.  Perhaps most interesting is the fact that the company has not posted a 5% CAGR in same store sales as far back as we can track. 

Eric Levine



- Sometimes things in retail just don’t make sense. On Coach’s quarterly conference call, management explained how goods have been distributed in Asia, ex-Japan. Essentially, product is shipped from Asian factories to Florida, and then back to Asia for resale! Good thing the company is opening an Asian distribution facility to support local growth. The new building/process is expected to take 6-8 weeks out of the supply chain process as well as likely reduce costs.


- Wolverine World Wide noted that it is seeing a noticeable shift in order patterns from its retail partners, which favors futures orders at the expense of at-once orders. Recall that this is quite the opposite of the trend we had seen for a year now, where retailers were waiting closer to need to place orders. Management believes this “order behavior” is due to two factors: 1) retailers feeling increasingly confident about the back half of the year and 2) a growing concern from retailers that Asian factory capacity may become scarce as the recovery continues and factory capacity does not come online commensurate with demand requirements.


- In her latest move to permeate the mass market, Vera Wang has signed a deal to create a bridal line for David’s Bridal. Given that Wang launched her career with great success in the high end bridal market, this should be an obvious extension of her growing fashion empire. The dresses are expected to be priced at $1500 and below, vs. her main bridal line which is priced at $6,000+.



R3: JCP: new look. new day. what’s new. - Calendar


Gap Launches Another Pant Style - On the heels of last year’s denim reboot, Gap is launching another major pants initiative. The men’s and women’s Premium Pant collection is inspired by “the big part of life that is work.” The pants will sell between $49.50 and $59.50. Anchored in tailoring, the seven women’s fits range from the Really Skinny to a slouchy Boyfit to a flared leg trouser style and the Curvy fit for fuller figures, and will be merchandised with a selection of filmy white blouses, cashmere sweaters, shearling and leather aviator jackets, as well as Pierre Hardy for Gap lace-up, peep-toe wedges. The three men’s fits include tailored khaki in straight, relaxed or slim cuts; classic khakis in straight or relaxed fits, and vintage khaki, which sports a button closure and loose, standard or straight fits. <wwd.com/menswear-news>

Kellwood Looks to Acquire - Kellwood Co.’s new revolving credit facility lets the firm take a deep breath and plunge into acquisition mode. Chief executive officer Michael Kramer said the new revolver, an asset-based loan, was closed last week. The facility is used for seasonal operating needs, with the draw-down during the year to build inventory levels, and repayment as soon as retail customers pay their bills. With its bank loan established in a still-tight credit market, Kellwood can focus on completing more acquisitions. Kellwood is looking at firms with annual volume of between $25 million and $300 million.  <wwd.com/business-news>

Skechers Gets Cartoon Animated - Skechers is developing two direct-to-DVD cartoon features, entitled "Hydee and the Hy-top" and "Twinkle Toes." The move follows its subsidiary Skechers Entertainment's deal to produce its first animated-series, "Zevo-3." <sportsonesource.com>

Mountain Lodging Occupancy Rose 9.6% in March - In some of the most solid results seen in the mountain travel industry during the past 12 months, lodging occupancy was up 9.6% y/y in March. Improving economic indicators have been credited with the recent upswing in mountain travel. The Consumer Confidence Index (CCI) increased sharply, up 13.1% in March, recovering most of February’s losses and settling at 52.5 points but remains unstable. Currently, April reservations are down 4.6% compared to April 2009 while lodging rates are up 4.2%. Has implications for outdoor brands: COLM, VFC, TBL, DECK, WWW, BOOT, etc. <sportsonesource.com/news>

Department Stores and Sports Retailers Drive March Retail Sales Increase - The average value of online orders increased to $180.95 in March, up 7.6% from $168.23 in January, according to Coremetrics. <internetretailer.com>

E-retailers Plan to Use Targeted E-mails to Improve Web Sales - 79% of retailers plan to send more targeted e-mails to customers to improve web sales, The E-tailing Group says in its 8th Annual Merchant Survey. 72% will refine site search and 70% will enhance web site merchandising. <internetretailer.com>

Indian Shoe Company to Jointly Manufacture in Bangladesh - Indian conglomerate Tata Group has signed an agreement with Nitol-Niloy to jointly manufacture shoes in Bangladesh. As per the agreement, both companies will set up a footwear factory with a daily capacity to produce 5,000 pair of shoes. Since Bangladesh has favorable trade access in Europe and North America, the new partnership aims to export the entire production from these plants there. <fashionnetasia.com>

Outdoor brand Ahnu is getting a little dressed up for fall ’10. The Alameda, Calif.-based brand (a division of Deckers Outdoor Corp.) has brought vibrant purples and soft blues and grays into its women’s line of performance wedges on boots and slip-ons, as well as added styling to its hiking product. On the men’s side, the brand is showing chukka silhouettes and rugged styles that cross over for casual use. Ahnu styles, priced between $100 and $150 at retail, are available at outdoor, independent and department stores. <wwd.com/footwear-news>

R3: JCP: new look. new day. what’s new. - Ahnu Fall Shoes