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Penney, Eckerd count up losses

Penney's chief executive, on the job only two months, says the chain's road to recovery will be long.

By MARK ALBRIGHT

© St. Petersburg Times, published November 15, 2000


Reporting a $30-million third-quarter loss Tuesday, JCPenney's new chief executive said he had underestimated how deeply the venerable department store chain and its Largo-based Eckerd Drug unit have fallen.

"This is not going to be a quick fix," said Allen Questrom, the former Federated Department Stores Inc. CEO who took the reins of J.C. Penney Co. Inc. two months ago.

Penney reported losing $30-million, or 15 cents a share, for the quarter ended Oct. 30, down from a net income of $142-million, or 52 cents a share, in the year-ago quarter. Revenues slipped 1.2 percent to $7.7-billion, down from $7.8-billion. The department store chain's mediocre earnings performance was dragged into the red by Eckerd clocking in a $63-million loss.

JCPenney shares, beaten down to a record low a few months go, closed at $11.13, up 50 cents.

Making Penney's recovery even tougher is a nationwide slowdown in consumer spending and retailer profitability. Both were reflected in the results of several other big retail chains that announced earnings Tuesday. The Department of Commerce reported retail sales in October crept up only 0.1 percent from September. Sales were flat across the South, according to the Bank of Tokyo-Mitsubishi, which tracks the sales of 80 retail chains.

Wal-Mart Stores Inc. and Home Depot Inc. said third-quarter net income rose at a slower pace as retailers absorbed higher costs of energy because of their inability to raise prices in a climate of bloated inventories and moderating consumer spending. Earnings declined at Target Corp., while Staples Inc., the office supply chain, reported a loss blamed on discounts required to clear out unsold goods.

"This was one of the most difficult quarters in recent retail history," said Lee Scott, Wal-Mart chief executive.

At JCPenney, Questrom and Wayne Harris, the former Grand Union supermarket executive hired to get Eckerd back on track, made their first public appearance in a conference call with reporters and securities analysts.

They outlined several short-term steps to improve results through new marketing and merchandising initiatives. Questrom said the department store chain's turnaround could take more than two years, largely because it requires big changes in the company's corporate culture and way of doing business. He doesn't see the synergies once touted by his predecessors between the department store and drugstore operations that were part of the company's justification in acquiring Eckerd in 1995.

Harris hopes to focus Eckerd's management on its stores and customers. "Several layers of management" at Eckerd's headquarters, where more than 800 people are employed, have worked too frequently at cross purposes, he said, broadly outlining cost-cutting. Harris also has put the brakes on Eckerd's aggressive moves to relocate 300 more of its 2,600 stores from shopping centers to more prominent corner locations and instead will remodel them. He said the store layout now is too convenient to generate more sales in the front end of the stores, where sales slumped 1 percent.

Rival Walgreens and CVS generate more sales from each store, he said, partly because customers must wander through the aisles to get to the pharmacy. At Eckerd stores built since 1996, customers find a direct, wide pathway to the pharmacy counter. A more circuitous interior layout is being created to make customers linger.

Questrom said his long-term goal is to get JCPenney back to its roots as a moderate-priced department store providing quality goods at a value price.

"People don't need another upscale department store," he said. "We're looking for the middle of the road."

Internally, the most disruptive change already has begun. Penney switches to a centralized buying organization next year after 34 years of having buying decisions made at each store. Since June, 44 percent of JCPenney's merchandise buyers have been assigned a new job and 16 percent of them were working for other retailers.

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