J.C. Penney Bridge Plan Targets Market Share Gains in Downturn

(MoneyWatch)  The J.C. Penney bridge plan, initiated in early 2008 to help it mitigate the impact of a slowing economy, has helped the retailer survive the recession and position itself for market share gains.

In discussing 2008 results during a Friday conference call that included lower but a better than expected earnings, the company reported that it cut headquarters and store labor expenses, managing to realign its work functions without the major lay offs many of its competitors have initiated. In one example, it saved $16 million in selling-related labor costs in December even as it improved customer service scores by more effectively pegging employee hours to peak selling periods. Because it launched its plan at the beginning of 2008, J.C. Penney got a jump on costs before the economic downturn deepened later in the year, so it was in a position not only to cut labor expenses in the critical holiday selling season but also to slash inventories by 10.5%.

And, although it dropped its store opening pace from 50 annually, J.C. Penny did manage to opened 35 new or relocated stores in 2008 while committing $970 million to capital spending, down from $1.2 billion in 2007 and a little below the reduced number of $1 billion it announced under the bridge plan. The company plans to spend about $600 million this year opening 17 new stores, including its first Manhattan location, and renovating existing ones. J.C. Penney is opening new stores in a period when many rivals are closing locations, a point chairman and CEO Mike Ulman made in the call.

Store closings and some outright liquidations, of the Mervyns chain particularly, provide J.C. Penney a ready chance to win market share. So do service disruptions and problems with keeping shelves properly stocked that will arise at other stores as management deals with work force issues in the midst of major layoffs.