The rise and fall of J.C Penney
By Andrew Gomes
Advertiser Staff Writer
J.C. Penney Co. Inc. had high hopes when it entered Hawai'i's infant retail scene in 1966, the last state to be entered by the Texas retailer.
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After opening its Ala Moana store, it quickly followed with a store in Pearlridge six years later. It opened a Maui store in 1994, followed a year later by a store in Hilo.
Completion of a fourth-floor addition at Ala Moana Center was celebrated with a blessing ceremony.
But nationwide pressures changed its outlook. In the past three years, the retailer has struggled to reverse sales declines and has closed more than 10 percent of its stores nationwide, which today number just more than 1,000.
In 1998, it closed a store at Windward Mall.
So the announcement Friday that the Plano, Texas-based retailer would close three of its four remaining Hawai'i department stores by Jan. 10 came as little surprise to many in the retail industry. Options also are being discussed to dispose of its fourth store, at Queen Ka'ahumanu Center in Maui, though no decisions have been made.
Still, some had held out hope that the retailer might remain in Hawai'i. When first one nationwide campaign to cut costs, then another, came and went and the downsizing waves seemed to have missed Hawai'i, there was some optimism.
New merchandise and centralized cashier stations recently appeared in stores. And the department store company appeared to be on the road to recovery.
So what happened?
Retail experts in Hawai'i and on the Mainland say a combination of forces likely changed J.C. Penney's outlook, including more pressure to cut costs, local consumer spending declines, competition on the horizon and attractive payments for some of the company's store space.
Company spokesman Tim Lyons said Friday that the retailer's stores at Ala Moana Center, Pearlridge Center and Hilo's Prince Kuhio Plaza were unprofitable and showed no signs of turning around in the near future.
Lyons would not say specifically what the problem was for the stores and why the outlook was grim, but said, "We've had to be a little more aggressive in looking at our stores and positioning the company to return to growth."
Roz Bryant, a retail stock analyst with Morningstar Inc. in Chicago, said the company has made a lot of progress reducing costs, but its ability to enhance revenue has been less certain.
"Given the economy and the level of competition that J.C. Penney has at this point, it makes it a little bit more difficult to win its customers back — that's a lot more difficult proposition than cutting costs," she said.
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In Hawai'i, total retail spending by consumers has shown signs of rebounding, but were still down $600 million in the first six months of this year as consumers opened their wallets more cautiously amid a sluggish and uncertain economy.
Shoppers in recent years were more likely to pass by the Ala Moana Center outlet.
At the same time, competitors such as Sears, Ross, Macy's, Kmart, Wal-Mart, Costco and others have fiercely battled for customers, some of whom used to shop more at J.C. Penney, analysts said.
Attacks on J.C. Penney's market share in Hawai'i have grown especially in the past several years, as Costco keeps expanding and the Macy's chain arrived in town.
More recently, Sears began aggressively remerchandising and renovating, and Wal-Mart plans to open a store across the street from Ala Moana in early 2004.
Stephany Sofos, a local retail analyst, said she's sure Wal-Mart's move influenced the decision by J.C. Penney to close its store at the largest and most successful mall in the state.
"Wal-Mart is cannibalizing on their customer," she said. "J.C. Penney kept changing their product to become more competitive and protect their market share, but Wal-Mart and the other category killers just were taking the customers away. Even Costco has clothes, shoes and jewelry."
Fred Noa, vice president of retail services for CB Richard Ellis Hawai'i Inc., said the shopping habits of Hawai'i consumers also played a part in J.C. Penney losses here.
"In my opinion, J.C. Penney did not stay connected to the needs of the community," he said. "Hawai'i consumers have a propensity for value. That is why the category killers have continued to do so well here. Hawai'i also has a propensity for specialty stores such as Pier One and Williams Sonoma.
"It's interesting, they're on a recovery from a national perspective. They are in the second year of a five-year plan for turnaround. They've paid off a lot of debt. ... The fact that they are closing out says a lot about our customers."
Still, Noa said he was somewhat surprised that J.C. Penney would leave Ala Moana.
Other retail consultants said Friday that the company's decision likely was influenced by mall owner General Growth Properties Inc. paying the retailer to get the valuable lease back so it could offer the space to Nordstrom, which for years has wanted to be at the mall.
In Hilo, where J.C. Penney owned its store at Prince Kuhio Plaza, General Growth is buying the property for an undisclosed amount.
Another possible factor in J.C. Penney's decision may have been its new centralized merchandise distribution system being rolled out across the Mainland.
Bryant of Morningstar said she's sure that if J.C. Penney were making money in Hawai'i it would have maintained at least some of its local stores, but Hawai'i's remote location probably made the decision to withdraw easier.
Closing three stores out of a little more than 1,000 is not expected to have a large effect on J.C. Penney's bottom line, but will nonetheless help the retailer's earnings.
The company rebounded from a net loss on continuing operations of $568 million in 2000 to earn $114 million last year.
For the first 26 weeks of the year ended July 27, income totaled $80 million, compared with a $12 million loss in the same two quarters the previous year.
Advertiser staff writer Frank Cho contributed to this report. Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
