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Susan Dickenson

JC Penney's ‘Home World' to include Michael Graves, Jonathan Adler, Terence Conran, Bodum, Martha Stewart

On Tuesday, May 15, JC Penney gave its first earnings presentation since the retailer began its four-year plan to become "America's favorite store" by transforming its pricing, promotions and products -- and how those products are presented. In a nutshell, the first quarter loss was bigger than expected, sales were down 20%, the company is discontinuing its dividend, and the markets responded the following day with a 20% drop in share value, JC J C PenneyPenney's biggest drop in more than three decades.

"Our first 90 days are a little tougher than we expected," CEO Ron Johnson said at Tuesday's presentation. "We expected the sales to be down double digits. They are at the low end of that range, of our expectation."

The drop in sales was attributed to the replacement of coupons and discounts with a new pricing and promotional strategy that Johnson said the company will need to do a better job of communicating.

The good news, Johnson said, is that the transformation, which will see 47% of the retailer's merchandise assortment completely changed by August, is way ahead of schedule. "What the teams at JCP have accomplished internally with our vendor partners in the stores in 90 days has shattered any expectations I had for what a 110-year-old organization to do."

Johnson, the former VP of retail operations at Apple who joined the retailer in June, asked JCP President Michael Francis to discuss some of the merchandise changes customers will see in coming months. Francis, a former CMO at Target, announced new partnerships and plans for the home area, which will involve the installation of all-new 20,000-sq.-ft. "Home World" neighborhoods anchored by Martha Stewart shop-in-shops, as follows:

Martha Stewart - "this will be the cornerstone shop within a completely transformed Home World by March 1, 2013 ... We are tremendously excited to bring Martha's vision to life in a brand-new environment." 

Jonathan Adler - "We are tremendously excited to announce a partnership with Jonathan Adler for the collection called Happy Chic ... we believe that his collection will be completely unique, completely fresh and unique in department store retailing.

Michael Graves - "We are also announcing today that Michael Graves is joining JC Penney as we transform our assortment. I have had the great luxury and honor of working with Michael Graves for many years. He has put together for JC Penney the most comprehensive and innovative assortment of goods that range from functional to giftware that I have seen. Uniting it is Michael's consistent philosophy of ‘great design doesn't have to be expensive.' Innovative, fresh, compelling, this will truly be a remarkable addition to our mix."

Bodum - "Another announcement we make today is the partnership with Bodum. Bodum Design started in 1944 in Denmark, currently led by Jorgen Bodum. This is a brand that many of us are familiar with for its functionality, for its innovation, for its trend, for its quality. And as we look to bring this to life we will do so in a manner that presents items from the collection in a manner never seen on this side of the Atlantic, with an all new shop environment."

Sir Terence Conran - "We are also announcing today a partnership with Sir Terence Conran, founder of Conran's, founder of Habitat and legendary retailer, designer and restauranteur from the U.K. Sir Terence Conran has created a remarkable retail force, a true lifestyle brand in the UK. And you may have seen it here, for example, at ABC (Home). His collection for us is truly astonishing. It runs the gamut from furnishings to decorative home to lighting. And it is designed to have not only affordability, but great value at every level in terms of the design aesthetic, the functionality and the contemporary nature of the presentation.

Royal Velvet - "... is a heritage brand that many of you are familiar with from

JC Penney shop in shopJC Penney's transformation will include in-store shops and 'neighborhoods.' Image: JC Penney 2011 Annual Report.
Bed and Bath. With an exclusive license we are taking the quality of this collection and extending into other categories through the back half of the year in furniture, in window, and tabletop."

Johnson, when asked about the store-in-store concept, said the sizes will vary, with three types of installations:

Our largest are called the stores, like we are going to have Martha Stewart, where it almost had a complete storefront ... about 2,000 square feet. And we will do those in Home. We will give them elsewhere, but very selectively. We then do shops, which are a minimum of 500 square feet. The third type... is called a boutique, about 300 square feet. It might not have all the walls, but it gives you a very nice presentation. That is close to what you would see at Selfridges in the UK. So we have a variety of shops. We will vary by products, things -- how many stores it goes into, but I would count on about 700 stores for most shops.

On pricing, Johnson said the company is in the process of reconfiguring all its basics:

We think we are going to win in basics. We configured them for a promotional strategy, which means you want to sell them in big bulk, so you can sell big savings. So I'll give you an example. In dinnerware, we haFair and Square pricing, JC Penneyd 72-piece dinnerware sets. Now I don't know who needs 72 pieces of dinnerware, but that is what we sell. Why do we do that? So you can say save $100 on dinnerware. If you go to Crate & Barrel, Pottery Barn, Sur La Table, they start by selling dinnerware open stock. And if they have sets, they are up to 16. If they do drinkware it is in four packs. Everything we carry today is in 16, 32 piece, 72 piece set. Because that was our former strategy. We have got to get our merchandise aligned with our new pricing strategy, and those things just take time.

"I think about the home area, which I ran at Target," Johnson told the attendees. "Anchored by Martha, with design partners like Michael Graves and Jorgen Bodum and Jonathan Adler and Terence Conran, it is profound. And then you add all the other houseware names from Cuisinart to Calphalon and all the great cookware, we are creating an experience like none other. And that doesn't talk about the experience we are going to create within the store, which we will talk about in about three months."

 

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