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Spotlight on J.C. Penney

BY Marianne Wilson

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.

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P.Lopez says:
Apr-10-2013 07:06 pm

Johnson has said he wants to eliminate traditional checkouts by the end of 2013, replacing them with mobile checkout devices and self-checkout kiosks. chat random

P.Lopez says:
Apr-10-2013 07:06 pm

Johnson has said he wants to eliminate traditional checkouts by the end of 2013, replacing them with mobile checkout devices and self-checkout kiosks. chat random

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CityTarget love amid modest 2Q growth

BY CSA STAFF

MINNEAPOLIS — Target’s second-quarter sales increased 3.5% to $16.5 billion and the company’s profits grew 2.9% to $1.06 per share, five cents better than analysts expected.

The company’s second-quarter results were negatively affected by pre-opening expenses related to next year’s entry into Canada. Excluding those expenses, Target said its profits would have increased 4.6% to $1.12 compared with $1.07 last year. Including expenses related to Canada, Target increased its full-year profit forecast to a range of $4.20 to $4.40 from an earlier guidance range of $4.10 to $4.30.

“We’re pleased with Target’s strong second-quarter financial performance, which reflects a continued focus on delivering an outstanding experience for our guests and disciplined execution of our strategy,” said Gregg Steinhafel, Target’s chairman, president and CEO. “In addition, we’re very pleased with the initial response to the July opening of our first three CityTarget locations in Seattle, Los Angeles and Chicago. We look forward to serving guests in these dense urban areas with an exciting store format and uniquely-tailored assortment.”

The company also is looking forward to opening its first stores in Canada early next year and incurring considerable expense in advance of the openings. Thus, Target has taken to reporting two sets of financials results, one set that includes expenses related to the Canadian entry and another that breaks out those costs to present investors with clearer view of the performance of the U.S. business.

In the case of the latter, investors seem to like what they see and have propelled shares of Target to a 52-week high, despite relatively modest top line growth and declining margins. Operating profits at Target’s U.S. retail segment advanced 2.9% to slightly more than $1.1 billion in the second quarter and gross margins declined to 31.3% from 31.6%. The company said the decline reflected, “the impact of the company’s integrated growth strategies partially offset by underlying rate improvements within categories.”

To offset the gross margin decline the company has maintained tight control of expenses within its U.S. operations and as a percent of sales expenses are now 21.1% compared with last year’s 21.3%.

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Changing the Game

BY Marianne Wilson

The Annual State of the Industry Report is the centerpiece of this issue of Chain Store Age, and it’s a great read. It’s also very timely.

Prepared by the brand and design experts at Interbrand Design Forum, the report is entitled “Game-Changing Innovation.” It comes at a time when a convergence of technologies — from smartphones to geofencing to augmented reality — is changing the face of retail in ways that couldn’t even be imagined a few short years ago. New technologies are not only changing the way consumers shop, but also the physical appearance of stores and the systems used to run them. Retail companies that don’t adapt quickly risk losing out.

But as the report makes clear, retailers are by no means letting the parade pass them by. From Adidas’ in-store virtual footwear wall to Target’s new City Target format, companies of all sizes, from small merchants to mega-chains, are finding new ways to connect with customers, improve their shopping experiences and respond to shifting consumer preferences.

The report also contains the Chain Store Age Top 100, our annual listing of the largest U.S. retailers. The ranking is based on total annual revenues for each company’s most recently completed fiscal year. We think that makes it the most definitive ranking of its type.

The Top 100 retailers reflect the evolving nature of the industry and the innovation that is redefining it. Safeway, for example, is now delivering promotional discounts directly to its customers’ loyalty cards, and Starbucks is expanding in-store mobile payment options. Sears and Kmart set up mobile shopping walls in airports, bus shelters and movie theaters last year that allowed holiday shoppers to buy goods via QR codes. Talk about convenience.

But innovation is not just about technology. Neiman Marcus and Target have joined forces to create a special holiday collection that will be sold across both chains. Nordstrom is teaming up with trendy British apparel retailer Topshop to open dedicated in-store shops in select Nordstrom stores. And J.C. Penney has partnered with Canadian cheap-chic brand Joe Fresh to open in-store shops across the Penney chain as part of its ambitious makeover.

At the same time, many of the Top 100 companies are exploring new prototypes, new markets and new ways to expand existing footprints. Giant Eagle will soon debut a new value supermarket concept, Valu King, and Gap is getting ready to open the first brick-and-mortar location for its online Piperlime brand. Nordstrom is branching out to Puerto Rico (and has finally signed a lease to open in Manhattan).

Starbucks is going beyond its coffee roots to open juice bars, and it’s also entered the fast-growing upscale fast-food sector. With its recent acquisition of Bay Bread and 19-store La Boulange bakery brand, it hopes to expand the French bakery experience across the United States — the same as it did the Italian espresso bar. Meanwhile, extreme value retailers Dollar General and Family Dollar continue with their dizzying expansion.

There is a lot happening in the retail space. As the Interbrand report puts it: “The retail game will never be the same.”

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