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Apr 2, 2013
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JC Penney's home revamp is make or break for CEO Johnson

Apr 2, 2013

It's crunch time for J.C. Penney Co Inc Chief Executive Ron Johnson.

The struggling department store chain is poised to open the first of its new home goods boutiques on April 5, a launch that Johnson himself has called "pivotal" to his efforts to revive Penney.

Once the go-to place for home products like window treatments and bath towels, Penney's customer traffic fell 13 percent in fiscal 2012 while revenues plummeted 25 percent, the first full year with Johnson at the helm. For seven years running, home goods have been Penney's worst performing category.

Johnson, who first made his name in retail at Target Corp's home goods business in the 1990s and pioneered the "cheap chic" esthetic, faces pressure from Penney's board to reverse sliding sales or risk losing his job.

Penney's new home goods section, to appear at 500 of its 1,100 stores, will be anchored by designers such as Jonathan Adler and Michael Graves and have 20 shops by the time the renovations are done in late May. Sir Terence Conran's furniture shops will be in 225 stores.

Other launch brands set for April include coffee-press maker Bodum. A legal dispute with rival Macy's Inc means it will, for now, only sell some of the goods that Martha Stewart Living Omnimedia Inc had originally planned for Penney. Her line will be called MarthaCelebrations and include: food, rugs, mirrors and greeting cards.

Home products are a magnet for department store shoppers. After years of neglect and uninspired, deeply discounted goods, as well as a focus on improving its fashion selection, many Penney customers went to rivals.

The home category accounted for 12 percent of Penney's sales in 2012, compared to 21 percent six years earlier, and sales per square foot in home goods have fallen by more than half in that time. In 2008, Penney logged about $3.7 billion in home goods sales, just below Macy's. By 2012, they had fallen to roughly one-third of Macy's levels.

"They're going to have a hard time getting back people they've disappointed," said Kathy Gersch, a former Nordstrom executive and co-founder of Kotter International, which helps companies implement strategies.

Penney is also up against specialty chains like TJX Cos Inc's (TJX.N) fast-growing HomeGoods, which has almost 400 stores and which the company says could eventually have 850 locations. HomeGoods sales rose 18 percent in 2012 to $2.66 billion, almost twice as much as Penney's home goods sales.

"There are a lot of retailers going after that business," said NPD Group analyst Debra Mednick.


The new home section is part of Johnson's plan to remake Penney's larger stores into collections of boutiques-within-a-store. Some 30 percent of the space at the 500 stores will have been converted by the end of May.

Penney's fashion boutiques have reported promising early results - but not enough to convince investors. Penney's shares are down 23 percent so far this year.

The new home area will occupy up to 19,000 square feet of space, or more than twice the size of a typical Williams-Sonoma store. Penney said it intends to ultimately have about 20 branded shops in its home sections.

Adler told Reuters his "Happy Chic" collection for Penney will have "noticeably" lower prices than his other collections. For example, one square decorative pillow will go for $35, whereas elsewhere his pillows command $110 for something similar.

Johnson has said the average Penney home shopper is older than her counterpart at Wal-Mart, Macy's, Target and Kohl's, explaining the desire to pull in younger shoppers with brands retail experts have said were attractive.

A successful home goods business, however, has to attract the head of a household, more than a young urbanite. Paul Rutenis, the executive overseeing the overhaul of the home business, said beyond the boutiques, Penney will also organize home products by category at a variety of prices to appeal to a broad range of shoppers to do just that.

Penney will also regularly hold sales events and offer discounts, having learned a painful lesson last year when it unsuccessfully tried to wean its shoppers off of those tactics.

Newell Rubbermaid Inc CEO Mike Polk recently said Penney has had a tough year, and that has hurt his company's sales of Calphalon cookware and Levolor window treatments.

"I would expect that that reset doesn't get traction until the second half of the year," Polk said.

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