Sunday, April 21, 2002

Federated veteran now at Penney

His mission: Improve stores, improve sales

By Anne D'Innocenzio
The Associated Press

        NEW YORK — As retailer J.C. Penney Co. Inc. turns 100 years old this month, chairman and chief executive Allen Questrom faces an enormous challenge: keeping some of the company's culture alive while retraining an organization that has struggled to keep up with competitors.

        Since his arrival in September 2000, Mr. Questrom, the first outsider to serve as CEO at Penney, has moved swiftly to implement a five-year turnaround plan. He has closed underperforming stores, cut thousands of jobs, increased advertising and spiffed up fashions.

        Most important, Mr. Questrom — credited with revitalizing Cincinnati's Federated Department Stores Inc. and Barneys New York — has helped transform Penney's outdated operations, in which buyers bought for their own stores, to a more centralized system.

        The changes helped Penney's sales improve over the past year. The company had $32 billion in revenue in 2001.

        Mr. Questrom spent 30 years at Federated, eventually as chairman and chief executive. In 1992, he and his management team pulled the retailer out of bankruptcy.

        Mr. Questrom recently discussed his company:

        Question: James Cash Penney started J.C. Penney on April 14, 1902. How are you keeping the culture alive while trying to move the company forward?

Questrom: For our company, the founding father is still very much part of the organization. It is one of the few companies I ever worked in where the principal founder, who has been dead since the 1970s, is still remembered in each of the stores I visited. ...

        He really had a relatively simple set of values. He talked about giving the customer the most for her dollar. And the way you do that is keep costs very low. ... He really talked about inexpensive quality merchandise.

        One of the things that we added is more value through fashion. We believe that it is important for J.C. Penney to be relevant on the fashion scene. Our customers see the same shows, the same movies, and they are into fashion. And we need to be able to give them the kind of fashions that they see and are aware of at prices that they can afford.

        Q: In what other ways are you changing Penney?

Questrom: We're dressing up our stores and moved from a decentralized company, which is part of our original culture, to centralized last year. That is a big, revolutionary change. It is not only changing on paper but it is changing mentally in the minds of our people. That is going to be a process that we think will take us over the next four years. We've made one year out of a five-year turnaround. ...

        We have to change all our technology systems. We have to change all our distribution systems. All that process takes a long time. Then we have to assimilate the buying organization, which is central for the first time.

        Q: What do you want Penney's to stand for?

        Questrom: We want to represent middle America's first choice for fashion, value clothing and home furnishings. Our target customers have $30,000 to $80,000 in family income. It is a very family-oriented store.

        Q: Who is your biggest competitor? Is it Kohl's Inc.?

Questrom: Kohl's is a small company, but I think that everybody is a competitor. What makes a retail business a fun business is that competitors change all the time. People who were hot yesterday may not be tomorrow. You need to keep yourself relevant.

        We think all the major players plus all the small specialty stores are all people who go after our customers' attention.

        Q: How are you differentiating yourself? Is it through private label brands such as Worthington and Arizona? Do you plan to build on those brands and add new ones?

Questrom: We are trying to take the brands we have and make them relevant. We have hired a lot of new people — mostly in the merchandising and marketing side, where we didn't have a lot of expertise in a centralized process.

        Stafford is the largest-selling dress shirt in America. ... We were one of the first companies to go after a branded private label, which is the Arizona brand. But we are not exclusively in private brands. ...

        We believe that there is a balance between national brands and private brands. We don't have a set target, but today we do about 45 percent of our business in private brands and 55 percent in national brands. Most department stores do about 15 percent in private brands.

        Q: What have been your biggest achievements since you have come on board? What about the challenges ahead?

Questrom: The biggest achievement was getting the first stage of centralization done because it is so complicated and has so many moving parts. Again, the biggest challenge is to keep it moving ... to get people to assimilate and to become part of the centralization team.

        We have to have a new culture which is a new J.C. Penney, which has changed the roles of the store. Our stores are critical for the whole process. Their roles have changed dramatically, from what they were a year ago.

        Q: You've remodeled a handful of Penney's stores. What is the plan for remodeling all the stores? Tell me about the remodeled store in Lewisville, Texas, that you are showing to investors.

Questrom: The stores are going to be versions of eight different formats. The (Lewisville) store is an old store, and we are showing how you can take an old store and bring it up to the kinds of standards you want. To get most of our stores done, it will take a four-year period.

        Q: Are you concerned that the disappearance of all the incentives that kept consumers spending — low interest rates, for example — will derail consumer spending? What about higher fuel prices?

Questrom: Last quarter of last year and first quarter of this year, we have benefited by low prices and low interest rates. We think we have to work our business through it. We have to deal with micro and macro — the macro issues are always out, but we have to do what we can do on the micro issues.

Questrom File
               • Age: 62.

        • Title: Chairman and chief executive officer of J.C. Penney Co. Inc.

        • Location: Dallas.

        • Education: 1964 graduate of Boston University with business degrees in finance and marketing.

        • Career: Questrom has spent most of his 34-year retailing career with Federated Department Stores Inc., rising from management trainee to become the corporation's youngest chairman and CEO, first in 1980 of the Rich's division based in Atlanta, in 1984 of the former Bullock's division based in Los Angeles, and in 1990 of Federated.

        He also served as president and CEO of Dallas-based Neiman Marcus.

        Questrom engineered Federated's strategic acquisition in 1995 of its chief competitor, R.H. Macy & Co. Inc., in the largest hostile takeover in retailing history. He retired from Federated in May 1997 but returned to retailing in May 1999 as chairman, president and CEO of Barneys New York.

        Sept. 15, 2000, Questrom became chairman and CEO of Penney's.

        • Family: Wife, Kelli.

        • Quote: “Our mission in life is not only to take care of the broad middle-American customer, but also to make sure she is relevant. It's not just selling her clothes but selling her clothes that are good quality and good fashion.”


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