JC Penney leaves the Outlets

DISCUSSION TOPIC

A Contrarian Penney to Sell Outlet Stores 09-02-2011

While many other retailers are increasing the number of outlet stores they operate, J.C. Penney is getting out of the business altogether.

According to a Bloomberg News report, Penney has reached a deal to sell its outlet stores to SB Capital. The department store chain made the decision to get out of operating the 19 stores at the same time it is closing its print catalog business.

SB Capital will continue to operate the outlet stores under the J.C. Penney banner for 21 months before a name change is made. The company is also bringing on Penney’s outlet store management team to run the business.

Penney’s decision to close its outlet stores runs contrary to the current trend in retailing that sees many chains and designers expanding. Sales in outlet stores are capturing a greater percentage of overall sales, particularly in select categories such as apparel. According to The NPD Group, total year-over-year apparel sales increased 1.4 percent for the 52-weeks ending April 2011. By comparison, apparel sales in outlet stores grew 17.9 percent during the same period.

Marshall Cohen, chief industry analyst at NPD, said the success of outlet stores is due to value conscious consumers “looking for brands they either already have, or that they trust. They want products that are tried and trusted and they don’t mind spending money on them.”

Discussion questions:  What do you make of J.C. Penney’s reported decision to sell its outlet store business? Do you expect other retailers to follow Penney’s lead?

My post:

This is a very interesting move on the part of J.C. Penney’s leadership.  It may seem counterintuitive to move away from a currently trending business model.  However, I applaud any business that chooses to focus on its core business vs. dabbling in other areas.  Despite the continuing challenges, Penney has made several good moves to strengthen its core:  closing unprofitable stores and formats, adding key customer-desired elements such as Sephora cosmetics, and strengthening its web offering.  A focused mid-tier department store world dominated by Kohl’s and Penney at the bottom/middle and Macy’s at the top sounds about right.

What I find really interesting is the decision of SB Capital to choose to make this purchase without the ability to keep the name.  In so doing, I assume this a pure real estate play and I doubt a new name for an outlet center anchor will emerge but rather Saks Off Fifth or similar will eventually occupy the sites.

The evolution of American retail continues…

Mike Osorio, your Dare to be Contagious! ™ strategist

www.OsorioGroup.com

What do you think?  Please add your comments and add to the discussion!

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Go to the full discussion at Retailwire.com:  A Contrarian Penney to Sell Outlet Stores

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