You simply couldn't have a better name if you were in retail. James Cash Penney was born in Hamilton, Missouri on September 16, 1875. The retail chain that he founded began at sunrise on April 14, 1902, in Kemmerer, Wyoming.
Opening at sunrise was part of the promotion for a store that was different than the competition. Regular hours were from 7 AM until there were no more people on the streets, which on Saturday night might mean midnight. Unlike the company stores of the mining companies, Penney's store didn't give credit. It was cash only.
That's why a lot of people thought he would fail. Three other cash-and-carry stores had failed in Kemmerer. Penney knew that, but he thought that stocking the things that his customers wanted and dealing fairly with both them and his employees would do the trick. He called his first store "The Golden Rule Store" to emphasize his philosophy of doing business.
That philosophy is called the Penney Idea and it's worth quoting in full.
- To serve the public, as nearly as we can, to its complete satisfaction.
- To expect for the service we render a fair remuneration and not all the profit the traffic will bear.
- To do all in our power to pack the customer's dollar full of value, quality, and satisfaction.
- To continue to train ourselves and our associates so that the service we give will be more and more intelligently performed.
- To improve constantly the human factor in our business.
- To reward men and women in our organization through participation in what the business produces.
- To test our every policy, method, and act in this wise: "Does it square with what is right and just?"
The Penney Idea seemed to work. At the end of that first day, the store had brought in $466.59, just a little less than the savings Penney had withdrawn to help fund his venture. He made a profit the first year.
Soon he was expanding. The Penney Idea wasn't his whole secret. Good retail management was another.
He worked to stock quality items that his customers wanted. He treated his employees well. He kept costs down by choosing inexpensive locations in small communities. That practice would be followed years later by Sam Walton, who got his own start working for what became the J. C. Penney Company.
By the time the J. C. Penney Company incorporated, in 1913, two things had happened. The store names had been changed to Penney's own and there were 34 of them.
Penney moved the company headquarters to New York in 1914 to be closer to sources of supply and money. He kept expanding, too. By 1929 there were almost fourteen hundred Penney stores.
Penney helped fuel the growth by offering his employees opportunity. In the beginning, when a store manager had saved enough money for a one-third investment in a new store, Penney would put up the rest, provided that the manager would train someone to take his place at the existing store.
By the end of the Second World War, Penney himself had lost his personal fortune in the Depression and made it back. He retired just as the great Post-War Economic Boom began, in 1946.
The nation was moving outward along new highways to populate the suburbs. People started to shop at something new. The one in St. Louis where Penney's opened a store in 1949 was called a "new drive-in shopping district." Now we call them shopping centers.
Today J. C. Penney has 100 million square feet of mall space. That's more than any other department store. That means that any Penney strategy needs to be rooted in the mall and mall shopping.
Even though James Cash Penney himself was gone, his conservative policies lingered. It wasn't until 1958 that the company finally began selling on credit.
In 1963, Penney's mailed its first catalog. The idea was to position the company to sell to the 34-49 year old woman who liked shopping from a distance. The catalog sold lots of high quality, private label merchandise. It also provided income to folks like Kim Basinger, Cybil Shepherd, Whitney Houston and Brooke Shields, all of whom were models in the catalog at some time.
When James Cash Penney died in 1971, he left behind a legacy of a great retail chain that had shown it could change and adapt with the times while still offering customers the kind of good value called for in the Penney Idea. But by the mid-nineties, things had started to deteriorate.
New competitors had come on the retail scene. Wal-Mart had grown into a giant Retail Deathstar, seemingly able to dominate every market or business that it entered. Mall-based competitors like Dillards offered a more upscale experience. Free standing stores like Kohl's offered better prices.
Part of the problem was something that had been a strength a couple of decades earlier. Penney's system gave the authority and the power to local store managers. They decided what to stock and how to display it. They laid out the store the way they wanted.
The results were stores that increasingly looked less and less alike, except for the signs and decentralized purchasing and logistics that couldn't leverage the benefits of Penney's size. As the stock dropped from seventy-plus down toward half of that the board decided it was time for an extraordinary move.
For the first time ever, the board hired someone from outside the company for a key executive position. In August, 1999 they brought in Vanessa Castagna as Chief Operating Officer from Wal-Mart.
Ms. Castagna saw the picture clearly. She set to work on putting "common sense" retail concepts into the stores and setting up a centralized infrastructure to support buying and logistics.
She was in the running for the CEO job in 2000 but lost out to Allen Questrom. That must have hurt, but Questrom is something of a retail legend. He ran Neiman Marcus in the late '80s, revived Barney's in the '90s, and brought Federated Stores from bankruptcy. If you're going to lose out, you might as well lose out to a legend. Especially when the legend agrees with you.
They seem to share the same concept for what Penney's could be and how to get it there. Part of that is getting the merchandise right.
"Penney is a company historically, and still today, that makes good quality product in the private?label area, probably the best in the industry," says Allen Questrom. "What we didn't focus on was the fashion. It really didn't matter back in the 1950s, but our TV society has changed that. Our customers in our smaller towns are interested in fashion today."
Castagna's retail operations should increase the amount of fashionable merchandise in the stores by using that centralized purchasing power. The basic procedures she's implemented for each store should assure that the merchandise is displayed in more consistent, more appealing and less confusing ways than before.
Cleaning up logistics will help a lot. The old Penney's had 57 "outside stockrooms" designed to service the 1100 stores. Almost a quarter of shipments were made using package carriers like UPS. That's expensive and labor intensive.
The new system calls for fourteen distribution centers located around the country. Each will serve 51 to 126 stores with state-of-the-art picking and packing equipment and more regular shipments. That should cut costs and make things easier all the way around.
The new Penney's isn't just making changes in the stores. There are changes in the catalog division too.
This year Penney's has lower catalog sales than a year ago, but is making 25 percent more profit. How? The answer is smaller "Big Book" and more targeted, small catalogs. The idea is to give each customer more of what he or she wants.
The Web site is part of the catalog division. Penney was one of the first companies to understand that their physical stores and catalog fulfillment centers gave them an edge over most Web competition. The site is a powerhouse.
Penney's is the largest online retailer of apparel and home furnishings. They convert an astonishing 18 percent of visitors into buyers. And last year the site made a profit on over $300 million in sales.
All of the turnaround work is starting to show results. It's still early in the two to five years that Questrom promised the turnaround would take, so no one's ready to sit back and declare victory just yet. But the signs are good.
So far, the turnaround has all been about a series of the "timeless values" that the advertising trumpets. Penney's is trying to give the customer a good deal on merchandise they want and using technology, good organization and common sense to make it happen.
"James Cash Penney had the attitude that when you take good care of customers, profits take good care of themselves," Questrom says. "And our history bears him out. The Company has been most successful when J. C. Penney associates at all levels made the customer the sun of the J.C. Penney universe."
That's a timeless value, one that James Cash Penney would approve.
This feature appeared on 22 July 2002
