By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
By Eric Nicholson
If good-ol'-boyism isn't hurting J.C. Penney's bottom line, then clearly something else is.
In the third fiscal quarter this year, which ended October 31, Penney's profits fell 24 percent compared with the same period in 1998. The company earned $142 million in the last quarter, compared with $186 million for the third quarter of 1998. Department store sales, which account for roughly 50 percent of Penney's annual revenues, have flagged or remained steady for three years in a row. Competitors report sales for their stores increased more 5 percent in October. J.C. Penney saw a 5.7 percent decrease for the month.
Upstart retailer Kohls opened four stores in the Dallas area last month. Since 1998, J.C. Penney has closed more than 75 stores, including one in NorthPark Center and another at Prestonwood Mall.
Even under the savviest management, the company would have faced a difficult road over the past few years. Discount chains and higher-priced retailers have squeezed middlebrow J.C. Penney. Shoppers hit Target or Wal-Mart for inexpensive items and head to upscale department stores like Neiman Marcus to pick up pricey designer products.
Nevertheless, J.C. Penney's corporate culture seems ill-suited for the task of keeping pace with changing markets whose tastes are determined mainly by women. The MTV generation now has credit cards -- lots of them. Nike and General Motors executives pay style-watchers to take them on visits to Harlem streets in search of marketing tips. And J.C. Penney's top management remains white-bread.
While Baker's testimony portrayed corporate ossification in its worst possible light, for years J.C. Penney executives proudly cultivated an insular atmosphere. Until recently, no top executive ever came from outside the company. At J.C. Penney, employees knew, loyalty paid off. Managers were almost all men who had been with the company two decades or more. Oesterreicher had 34 years with the corporation, and like most of the other directors had once served as a store manager. Many top executives were bumped up from stores into their executive positions when the company moved its headquarters from New York City to Plano nearly a decade ago.
J.C. Penney's bosses who weren't long-serving men might be those men's children or wives. Oesterreicher's son is a store manager, according to Baker's testimony. At one point four vice presidents were married to four other vice presidents. Marilee Cummings, who is president of merchandising for J.C. Penney's stores and catalogs and one of the highest-ranking female executives, is the daughter of a former vice chairman. Her husband also works for the company. Half a dozen of the former and current directors have their sons or daughters at the company.
It's not as though women aren't represented at J.C. Penney. Some 80 percent of the sales workers are women, as are 80 percent of the chain's customers. But until this summer, the company never had a female executive in the No. 2 position, overseeing the stores and catalogs. Vanessa Castagna, a former Wal-Mart executive, was chosen to become Penney's chief operating officer and executive president of merchandising about the time an arbitrator ruled that the company must pay Baker some $533,000 in back wages and deferred stock for her wrongful dismissal.
Credited with jazzing up Wal-Mart's clothing lines by bringing in brand-name fashions, Castagna arrived with high expectations. But some skeptics, particularly women who once worked for J.C. Penney and who say they suffered under an oppressive male atmosphere, are not convinced Castagna will have the clout needed to make dramatic changes.
"Is she going to be listened to, and is she going to be able to fire people?" asks former senior buyer Elise Greenberg.
So far, Castagna, who started her new job August 1, has kept a relatively low profile, canceling her first scheduled news conference in October. At a telephone conference last week, Castagna spoke publicly for the first time since coming to J.C. Penney. Stock market analysts who were allowed to question the new executive were polite, though some seemed anxious for her to speak candidly about J.C. Penney's veterans. Jeffrey Edelman, a research analyst at PaineWebber Inc., wanted to know what "surprises" Castagna had discovered "about the company's organizational structure."
Castagna deflected the question. "The surprise is that so much potential is already there," she told Edelman. Specifically, Castagna mentioned the $22 million J.C. Penney reported in Internet sales this past quarter, a figure higher than expected. Analysts agree that the company, with its large existing catalog sales operations, could become an Internet powerhouse if it harnesses the market correctly.
Although upbeat about the potential, Castagna didn't misrepresent the obstacles before her. In the comments she made before taking questions, she sounded optimistic, though most of her points focused on change. The company's efforts to make a name for itself as a national brand (now led by a veteran male executive) "needs more work," Castagna conceded.
She said the company was "working with suppliers now in a way that J.C. Penney has never done before," trying to share more sales information via computer. She also said that the company's advertising and marketing had simply failed with consumers. It hadn't "shouted value," or clarified for customers precisely when a significant sale was to take place. Instead, the company had sale upon sale, which perplexed consumers.
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