Corporate Case Study: Century-old JC Penney selling the story of its turnaround

JC Penney is in the middle of a five-year turnaround process that involves further enhancing internal communications, as well as proactively disclosing company news

JC Penney is in the middle of a five-year turnaround process that involves further enhancing internal communications, as well as proactively disclosing company news

JC Penney celebrated 100 years of more ups than downs in 2002, while climbing out of one its most severe dips. "With their repositioning...they've got a lot of good news to report, and they want to get the word out," observes one journalist who covers the department-store chain. "They have so many stores, there's not a lot they can hide." The company is standardizing and streamlining once unwieldy and decentralized processes like purchasing and store design. It's emphasizing home furnishings, and restructuring its catalog operation. Meanwhile, its CEO and IR staff watch their words so as not to raise hopes too high. "Management never pushes the envelope in promising more than they can deliver," notes Bernard Sosnick, a Fahnestock & Co. analyst. Long-term turnaround Company spokespeople often say JC Penney is in the middle of a five-year turnaround. "This is a very commendable approach in keeping things on an even keel," Sosnick opines. SVP Wynn Watkins, director of communications and public affairs, says the strategy is to present the recovery as not a destination, but a journey in which wrong turns can be corrected. JC Penney's current rally reflects a trend often repeated during its century of selling dry goods to the middle-class masses: The company does well in hard times, when consumers search for value. Perhaps that's part of the reason the chain didn't prosper in the high-flying, free-spending '90s. James Cash Penney founded the empire in 1902 when he opened his Golden Rule store in Kemmerer, WY. The Baptist preacher's son offered local miners an alternative to "owing their soul to the company store." Penney set a strict ethical code, and popularized the practice of calling workers "associates" instead of "employees," while helping them buy into the company. Reflecting this strong historical emphasis on employee relations (JC Penney has published an employee magazine since 1917), the PR function reports to EVP of HR and administration Gary Davis. Within 20 years, the chain grew to 1,400 stores, about 300 more than it now operates. Despite picking 1929 to go public, JC Penney expanded during the Depression. It got into drug stores, hardware, and catalogue sales in the 1960s with varying degrees of success. Retooling began in the '80s, when it dropped hardware, fabrics, appliances, sporting goods, and electronics, and moved its headquarters to the Dallas area from New York. James Oesterreicher became CEO in 1995, the year Penney dove into e-commerce. Two years later, the company bought the Eckerd drug-store chain, which despite ongoing lawsuits and other woes, represents about 40% of overall sales. Smaller, neighborhood-focused Eckerd stores outnumber JC Penney stores by more than two to one. In January 2000, the CEO brought all store and district managers together for the first time since 1925 to discuss changes, particularly a new centralized buying process that took some autonomy away from local managers. Oesterreicher also broke with tradition by hiring several top execs from outside JC Penney's ranks, including former Wal-Mart executive Vanessa Castagna, who was recently promoted to chairwoman following rumors that Payless Shoe Source wanted to hire her away. When Oesterreicher retired in 2002, the company recruited plainspoken turnaround artist Allen Questrom, who had brought Federated Department Stores and Barneys New York out of the basement. Changes in Penney's PR leadership A PR changing of the guard also took place. As part of belt-tightening and efficiency measures, JC Penney closed more than 100 low-performing stores in the last two years, and has dropped some 43,000 jobs since 1999. Two key communications staffers took early retirement in late 1999/early 2000: longtime public and financial information manager Duncan Muir, and communications/corporate image president Gale Duff-Bloom. Most often quoted on the company's behalf these days is PR director Rita Flynn, who reviews all press releases, Watkins says. A 35-year JC Penney veteran, Watkins moved up the ranks through store management to lead IR in the early '90s, and take over the top communications post in 1998. He oversaw the consolidation of communication functions previously scattered among marketing and PR departments. Although staff size shrank over the last decade, some 80 employees still report to Watkins. He credits technological efficiency with allowing his staff to do more with less. "We have made a concerted effort to be more proactive, to tell our story rather than having other people telling the story for us," Watkins says. "Prior to 1998, I wouldn't come to you with a pitch. I would wait until you called me." JC Penney maintains an in-house broadcast studio to use for things like SMTs and video conferences, and places special emphasis on keeping employees up to date through the company intranet. Watkins also oversees corporate philanthropy, the cornerstone of which is an after-school program that has become the focus of most of the company's charitable efforts in the last two years. The JC Penney Afterschool Fund is a nonprofit organization, and partners with the YMCA, Boys & Girls Clubs of America, Junior Achievement, the Afterschool Alliance, and 4H. Analysts and retail trade reporters describe JC Penney's communications staff as responsive, especially now that the company has good things to talk about. "The CEO is very forthcoming in articulating what the problems have been," says Barbara Thau, senior editor of Home Furnishing News. "It also helps that they have a CEO who is like retail royalty." Questrom just waved the company flag at the Dallas Cowboys' training camp in San Antonio, where he and team owner Jerry Jones announced an unusual three-year merchandising deal through which JC Penney gained exclusive rights to sell Cowboys apparel in Texas and its four neighboring states. As a part of its sponsorship, the company will also launch a sweepstakes, and maintain a billboard at Texas Stadium tracking Emmitt Smith's efforts to break Walter Payton's lifetime rushing record this season. PR usually supports advertising Despite the good press, evidence seems to indicate that advertising strongly leads JC Penney's overall marketing scheme. The company announced a $100 million increase in its marketing budget as a part of the turnaround effort, but all of that money went into the division headed by marketing EVP John Budd, who reports to Castagna. PR usually supports advertising. "We follow their guidance" on merchandising issues, Watkins says. JC Penney doesn't employ a PR agency of record, but does pull in outside firms for projects. Most recently, Dan Klores Communications in New York helped with JC Penney's 100th anniversary activities in April. The celebration provides a good example of marketing integration, Watkins says. Radio and TV ads announced sales, while the PR team issued press releases and developed brochures and fact sheets on company history. During its anniversary week, JC Penney persuaded A&E to rerun a documentary on the chain's founder. Executives led reporters on tours of a prototype store layout in suburban Dallas. Employees watched broadcasts of Questrom ringing the New York Stock Exchange bell, followed by a CNBC interview. They even cut birthday cakes in stores across the country. Not all the news was good for JC Penney associates, however. Questrom told analysts that week a new move toward centralized checkout counters will reduce staffing needs by another 25%-30%. However, the company's willingness to lay out such plans illustrates the new openness Watkins describes. "We've taken the posture that we can never over-communicate during the change," he says.

--------- JC PENNEY Director of communications and public affairs SVP Wynn Watkins (reports to EVP of HR and administration Gary Davis, who reports to CEO Allen Questrom) Associate communications director VP Mike Ray Company comms and PR director VP Anne Towery PR director Rita Flynn Community relations director Robin Caldwell Afterschool program director Ed Solczak IR VP Eli Akresh (reports to CFO Robert Cavanaugh) Government affairs VP and associate general counsel Bob Hood Internal staff 80 full-time employees, plus freelancers (two people assigned to the Eckerd subsidiary report to that company's CEO in Largo, FL) PR firms Employs outside firms on a project basis, including Dan Klores Communications, The Dutko Group, and Ketchum. Ann Magnin does product placement for women's apparel

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in