JCPenney 2003 Annual Report Download - page 5

J. C. Penney Company, Inc. 3
In 2003, the Company made further significant progress in the
turnaround of our core Department Store and Catalog/Internet
business. As promised, the Company also reached a very
important strategic decision with respect to our Eckerd Drugstore
business.
Over the last three years, our Department Stores have posted
the best comparable store sales performance of any mall-based
department store competitor. This year, after a difficult first quar-
ter, our team built momentum throughout the remainder of the
year with steady improvements in each successive quarter. With
sales improvement of over 3% in the fourth quarter, by year-end
the Department Stores achieved a comparable store sales increase
of almost 1%.
Catalog/Internet also made excellent progress, benefiting from
major repositioning of the operating model over the past several
years. Sales and operating profit contributions to the Department
Store and Catalog/Internet segment received an enormous boost
from our Internet site, which recorded impressive sales growth of
50% versus the prior year. We expect our Internet business to
continue to provide a competitive advantage for the Company.
I am pleased with the performance improvements we have
made in our Department Store and Catalog/Internet business.
For the full year, we achieved an operating profit of 4.4%, a 13%
improvement from a year ago. I remain confident in our ability to
achieve the stated turnaround objective of 6% to 8% operating
profit in 2005.
However, 2003 was not without disappointment. The sales and
profit performance of our Eckerd Drugstore business fell far short
of our expectations. In contrast to the progress made in the prior
two years, we experienced a performance decline throughout
2003 due to a failure to properly execute the fundamentals of the
business at competitive levels.
As the year progressed, it became increasingly clear that a turn-
around of Eckerd was going to take much longer and require
greater management focus than originally anticipated. This caused
us to re-evaluate the challenge of managing turnarounds in two
distinctly different segments of the retail industry. Our analysis led
us to the conclusion that while we continued to believe in the
long-term prospects for the drugstore industry, we needed to
focus on the JCPenney Department Store and Catalog/Internet
opportunities as our priority in order to maximize shareholder
value. Therefore, we elected to pursue a disposition of the Eckerd
Drugstore business. As we move forward, I believe that returning
our singular focus on the Department Store and Catalog/Internet
business will ultimately result in a more successful company for
our customers, our associates and our shareholders.
DEPARTMENT STORES AND CATALOG/INTERNET
Department Stores
In our Department Stores, we continue to focus on providing
the customer with clear reasons to shop JCPenney first.
For most customers, the first priority is being able to find the
right merchandise, and it continues as our priority as well.
Merchandise assortments – with
a blend of JCPenney private
brands, national brands and
brands exclusive to JCPenney –
are more fashionable and trend
right while also delivering the
appropriate value for our mod-
erate customer. We are pro-
moting JCPenney as America’s
year-round gift headquarters
with dominant gift-giving mer-
chandise statements located
throughout the store. In cate-
gories where we already enjoy a
leadership position with moderate customers – areas such as fine
jewelry, window coverings and men’s clothing and furnishings –
we have grown our leadership position over the past year. And,
we have strengthened our dominant position in merchandise
basics, such as towels, jeans and underwear, through improve-
ments in distribution and depth of store stock on key sizes.
Our marketing message has been strengthened with greater
emphasis on customer convenience, another clear reason to
choose JCPenney first. We are the only major apparel and home
furnishings retailer with a comprehensive presence in three chan-
nels – Stores, Catalog and Internet – providing our customer with
the convenience and flexibility to shop with us 24 hours a day, 7
days a week. Our three-channel advantage also gives customers
an unparalleled breadth of merchandise offerings plus an expand-
ed range of key item size and color choices that is unmatched in
the industry.
Our in-store presentation has been refined with an eye toward
added customer convenience as well. The goal is twofold: to cre-
ate dominant and appealing fashion statements for our customer,
and to enhance her ease of shopping. As a result, fashionable
merchandise statements are more compelling, signs and in-store
graphics have become more streamlined and effective, and a
more consistent visual presentation is now in evidence from store
to store.
The American Customer Satisfaction Index (ACSI), an annual
and independent measurement commissioned by the University
of Michigan Business School’s National Quality Research Center in
partnership with other sponsors, showed that JCPenney achieved
the highest score among any of our targeted mall-based depart-
ment store competitors for 2003. This survey, designed to
measure customer satisfaction with products and services at the
point of delivery, also indicated that customers perceived
JCPenney as the most significantly improved of the listed direct
competitors in the categories of quality of merchandise and cus-
tomer service from the prior year.
As we continue to gain experience and mature within our cen-
tralized environment, the focus will be on improved execution
and consistency. The lessons we have learned during the first three
years of our turnaround should pave the way for further progress
in 2004.
We are planning to open 15 department stores in 2004, the
To Our Stockholders
Allen Questrom, Chairman of the
Board and Chief Executive Officer