Private Labels Bolster Penney as Baton Passes to Exclusive Brands

(MoneyWatch)  In a bright spot for the retailer, consumer acceptance of own brands helped J.C. Penney beat Thomson Reuters analyst average estimates for the first quarter, but in contrast to competitor Kohl's, Penney has been bolstering the private label part of its portfolio, at least thus far.

Private label helped women's apparel emerge as top performing department in the first quarter at J.C. Penney, Ken Hicks, president and chief merchandising officer, said in a conference call. The work that the company has invested in existing private labels including a.n.a., Worthington and St. John's Bay had paid off, he said, while new house brands Allen B by Allen Schwartz and I Heart Ronson by Charlotte Ronson have gained customer acceptance. Significantly, American Living has improved in women's and throughout the store, Hicks said. The brand was a critical multi-department introduction last year, but industry scuttlebutt said its launched was slower than the retailer had wished.

In the conference call, Hicks' comments suggested where the brand's challenges lay and what J.C. Penney has done to meet them:

We're also seeing improved performance of American Living throughout the store. Last year's introduction of American Living succeeded in introducing a new line of classic traditional merchandise to our offering, and customers liked the style and quality of the merchandise. This year, we have taken the feedback from our customers and working together with the global brand concepts division of Polo Ralph Lauren, we have applied those learnings to improve our assortment and increase the value offered on select items. The changes we have made have been successful. So far in 2009, American Living is ahead of both last year and our plan in sales and gross margin.

So, customers found American Living a little pricey and perhaps a little undefined. J.C. Penney responded by providing some lower prices as enticements into the brand. It also began discussing the Ralph Lauren connection more, which may have helped clarify its styling direction. Additionally, Argus analyst Christopher Graja noted that the retailer has been working to shorten the American Living production cycle to speed response to fashion trends.

He also noted that J.C. Penney now can build on its growing experience in operating private labels to refine their positions as desired, as was the case recently with its Ambrielle lingerie:

We believe that the expansion of the lingerie business was an attempt to get existing customers to spend more of their lingerie budget at J.C. Penney, rather than at retailers like Victoria's Secret. We believe that the company is attempting to do something similar with Xersion, a new line of performance-oriented exercise apparel.

Despite its recent private label emphasis, J.C. Penney is turning to exclusive licensed brands including JOE Joseph Abboud in a apparel and Cindy Crawford Style, both launching in the second half of the year. The company will build its promotions for young men in the back to school period around three brands, Rusty, an existing surf label that the retailer is introducing, RS By Sheckler, a J.C. Penney special collection designed by skateboarder Ryan Sheckler, and an exclusive label Third Rail a Zoo York Production. J.C. Penney has worked with licensed brands before, nicole by Nicole Miller among them, and now it seems that it wants to add a little of the glamour they provide on top of the solidifying base of private labels it has developed.