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J.C. Penney's Problems Add Up to Fewer Dollars

Retailing: Competition, tired merchandise and 'dumpy' stores help explain the chain's shrinking holiday sales, analysts say.

January 15, 1999|ABIGAIL GOLDMAN | TIMES STAFF WRITER

Just down the corridor from JCPenney, the Glendale Galleria offers shoppers Macy's, Nordstrom and Robinsons-May. Big 5 Sporting Goods has a store down the block, Linens 'n Things sits across the street and Target is a short drive away.

That kind of competition from top-drawer, discount and specialty retailers, common throughout the country, is a big part of why J.C. Penney Co. was squeezed into one of its worst Christmas seasons ever, with sales in stores open at least a year down 7.6%, retail experts and shoppers say.

For the Record
Los Angeles Times Thursday January 21, 1999 Home Edition Business Part C Page 3 Financial Desk 1 inches; 29 words Type of Material: Correction
J.C. Penney--An article Friday incorrectly identified the product categories that recorded a more than 20% drop in the retailer's December sales. The decline came in athletic shoes and athletic apparel.

"Why settle for J.C. Penney's?" asked securities analyst Alan Mak of Argus Research in New York. "The discounters are getting better at offering better-quality merchandise, and the top tier are having promotions as well. That leaves J.C. Penney's in an awkward position. There isn't much of a middle market."

There are other problems as well: a reliance on Levi's jeans and other merchandise that has fallen out of favor with consumers, a plethora of stores with a downtrodden look, legions of new employees and an unfinished inventory-tracking system. Those woes are just a backdrop to the fact that the entire department-store sector has suffered in recent years as consumers flock to more specialized shops.

"Seldom do I buy clothes there," said Carole Hatem of Glendale, a Penney credit card holder who uses the store mainly as a throughway from the parking lot to the Galleria's other offerings. "The sales at Robinsons-May, they give you more bang for the buck."

Holiday sales figures show that Hatem has plenty of company.

May Department Stores Co., the parent of Robinsons-May and other stores, posted a 4.4% increase in sales at stores open at least a year. Federated Department Stores Co., which operates Bloomingdale's and Macy's, among other stores, saw their so-called same-store sales rise 5.7%.

Meanwhile, at the other end of the spectrum, discounters Wal-Mart, which reported a 9.4% gain over last year, and Target, up 7%, showed that consumers felt they offer better value than stores such as Penney.

Based on holiday sales, Sears, Roebuck & Co. seems to be likewise a problem middle child in the department store ranks, with sales up only 0.3%.

Penney's department stores, which account for about half of the parent company's revenue, are expected to post sales of roughly $16 billion in the current fiscal year, ranking it as the nation's fourth-largest retailer.

Penney's particularly bad marks this holiday season probably indicate troubles beyond being squeezed by competition, analysts said.

The store was hit hard by a shift in consumer tastes toward specialty brand names and away from such Penney staples as Levi's, athletic shoes and other sports apparel, retail watchers said.

"These are three major categories for Penney's," said Joseph Ronning, an analyst with Brown Bros. Harriman in New York. "There are industrywide weaknesses in those categories, and that's hurting them."

Exclusive lines such as Liz Claiborne's Crazy Horse continued to perform well for Penney. However, a National Basketball Assn. strike that further soured consumers whose enthusiasm for sports clothes was already waning and a renewed interest in hot labels from moderate-priced stores such as Gap Inc.'s Old Navy sent Penney's apparel sales plunging.

Sales in women's clothing decreased in the mid-single digits, said Penney spokeswoman Theda Page Whitehead. Sales in domestics, which includes furniture, also suffered a double-digit decrease, and the division that includes men's and athletic apparel and footwear saw a drop of more than 20%, she said.

That contrasts with sales at companies such as Gap, which reported holiday sales up 19% in stores open at least a year--with Old Navy showing more than a 30% increase in December sales.

The weak performance of the division that includes Penney's domestics was another sore spot. In contrast, Kmart, which reported an increase of 4.2% for December same-store sales, scored with its Martha Stewart domestics line, which had sales of $750 million in 1998--up 50% over 1997.

"That's got to be coming out of somebody's hide," one analyst said.

Penney also has a need to update what Argus' Mak called "dumpy-looking" stores, which in their current state contribute to the company's market-share decline.

"They're not pretty," he added. "You walk into there, it's dark and dim, and merchandise isn't hung onto the racks the same way that it is at the top-tier stores."

And, he noted, Penney lacks the employee dress standards that make salespeople at specialty stores models for their merchandise.

"Having a new sales force is one thing, but what's the quality of their sales force?" Mak said. "Sales associates are a reflection of who they want their customers to be. If they aren't put together in a neat and pleasant manner, it's difficult to get the consumer of a certain level of taste to go into your store."

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