Photo: J.C. Penney
Could Authentic Brands be the lynchpin in J.C. Penney’s turnaround?
Simon Property Group and Brookfield Property Partners were announced as the new owners of J.C. Penney last week. This week, the two mall operators are reportedly in talks with Authentic Brands Group (ABG) to join them in parenting the department store chain.
The deal being discussed between the three parties, according to reports, doesn’t appear to include ABG buying a piece of Penney, but would instead have it contribute brands from its portfolio to the department store’s in-store and online merchandise selection. The licensing firm owns the rights to Aeropostale, Forever 21, Frye, Greg Norman, Juicy Couture, Nautica, Nine West and other fashion brands. ABG also owns the rights to many celebrity brands, and it acquired Sports Illustrated in May of last year.
Early reports about the bidding process for Penney had ABG joining with Simon and Brookfield in acquiring Penney. In the end, however, ABG was not part of the $800 million deal ($300 million in cash and $500 million in new term debt) to acquire “substantially all” of the retailer’s operating and retail assets. The two mall operators and ABG have worked together before to acquire distressed retailers, including Aeropostale and Forever 21. Simon and ABG have teamed up this year to acquire the Brooks Brothers and Lucky Brand businesses.
ABG announced last month that it had received $600 million from BlackRock, General Atlantic and Leonard Green & Partners to assist it in acquiring brands and retailers that have found themselves in tenuous financial positions due to the coronavirus pandemic and other factors.
Jamie Salter, ABG CEO, told CNBC last month that he and his company were “in the first inning” in pursuing new opportunities.
Mr. Salter, who sees brick and mortar as continuing to be an important part of retailing well into the future, said in the same interview, “The brands that don’t have stores are harder to market and expand globally. You need a footprint and a supply chain. Those are two critical parts to running a business.”
- Authentic Brands in talks to join J.C. Penney takeover – TheRealDeal
- Authentic Brands Could Join J.C. Penney Buyout – The Motley Fool
- Our Business – Authentic Brands Group
- J.C. Penney rescued. Will it now find success and save the mall, too? – RetailWire
- Barneys’ savior Authentic Brands is sitting on about $1 billion in cash and on the hunt to buy more troubled retailers – CNBC
- Authentic Brands raises $600M for retail acquisitions – TheRealDeal
- Simon sees a big and profitable upside in acquiring retail tenants – RetailWire
- Who will come to J.C. Penney’s rescue? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Is brand merchandise a problem for J.C. Penney in attracting new, particularly younger, shoppers to its stores and site? Do you see a deal with Authentic Brands Group as being helpful in reestablishing Penney as a fashion destination?
Poll
BrainTrust
Clothing is a massive issue for J.C. Penney. In particular, the assortment and the way in which it is merchandised has been off-pitch for years. Authentic Brands can play a role in helping to refine this and bringing newness to the offer. However before this happens, J.C. Penney needs to go back to fundamentals: who is the customer, what do they want, and how can J.C. Penney meet their needs in a unique and compelling way? Once these things have been answered, then a range revamp can begin. What J.C. Penney does not need is a lot of random brands shoved into the store and online. Discipline and curation are the watchwords for success!
J.C. Penney’s problems still remain: no consistent vision of who their customer is, the value proposition, the need for big stores, a branded customer experience, a website that is compelling, etc. I don’t see adding more SWS as a fix but a tool. Who’s in charge and where’s the vision? After two years we’re still not seeing it from the top.
Brand is EVERYTHING for busy consumers; look at Wayfair, Apple, IKEA, Sephora, and Starbucks. Without an obvious brand identity, J.C. Penney can only limp.
I honestly don’t know if the current brand merchandise at J.C. Penney is the main problem in terms of attracting young new shoppers to the store – I think the bigger problem is the lack of interest or recognition of the store itself. So while it does matter what is inside the four walls, the first thing they need to do is make the J.C. Penney brand more relevant which is an uphill battle.
While ABG’s portfolio could offer up some brands that cater to younger customers, I would think they have to be careful of cannibalization within the mall space. Maybe if you don’t have a Forever 21 in the mall you can put it F21 merchandise into J.C. Penney, but how many locations are there where both retailers don’t already have a footprint?
Unless Simon/Brookfield inject a ton of marketing dollars to attract new customers, this whole project is basically just keeping J.C. Penney on life support.
Merchandise is one problem — but only one. There is much more that needs to be done. And while there’s no doubt that having access to some of the brands ABG offers could be an interesting proposition, offering new brands alone won’t be enough. It will be very interesting to see what Simon and Brookfield do with J.C. Penney – the world is watching.
I do not know if this will salvage J.C. Penney or not. Many other department stores sell name brands as well but I think it is more about being relevant in the market – what about the test store with a lot of new fresh ideas? When will that happen? I think the addition of brands could layer on top of that. But just adding brands alone? I just don’t know if that will bring throngs of shoppers to their stores.
The bigger issue in my opinion for J.C. Penney is the store’s brand. A refresh of products and brands in the store can certainly help to change perception in the marketplace, but it takes time for potential customers to believe that the store is different and that the change is “real.”
The other question that needs an answer, 20 or so years Ron Johnson introduced a number of changes to assortment and promotional strategy in an attempt to refresh the brand and attract younger customers. We all know that resulted in the alienation of their core customer — the impact of that decision is at the core of their issues today. They have a fine line to walk here to reposition themselves and grow market share.
I think “verticalization” is the future of the mall. I don’t see a problem with a combination of brands and private label within the store, as I expect that to become what the mall looks like as well.
J.C. Penney needs a strategy first. Who will be its target market, what unique positioning can it own within its target market, who is it competing with, etc.? These are fundamental issues that need to be dealt with before any branding decisions are made. No doubt J.C. Penney is struggling and Authentic Brands could be a life saver, but only after the larger strategic issues are addressed.
Until J.C. Penney figures out what its purpose is and who its customers are, no injection of brands will help. Authenticity starts with asking yourself some hard questions.
Sure, ABG has some interesting brands that would lift J.C. Penney’s profile — a little. Macy’s has a portfolio of great brands and yet they struggle also. The whole department store shopping experience has to evolve beyond swapping out some tired brands for newer, “better” brands. ABG can help with a couple of the first moves on the chess board, but it’s still a long complicated game after that.
Absolutely. I can’t recall ever going to J.C. Penney for a single brand. No Kenmore, Craftsman or DieHard to be found. Not even a collaboration like Lands’ End, And those would up being the only value left in Sears beyond the real estate. Perhaps J.C. Penney could become a “house of brands” for other ABG labels — particularly clothes. Though that would seem to defeat the purpose of maintaining multiple retailer rent streams for Simon and Brookfield. In the end, it might be the most sustainable proposition.
J.C. Penney’s merchandising model has been built for years on its own private and exclusive labels, but it has been guilty of over-assortment and duplication among these brands. Is there room for more national brands inside J.C. Penney, especially if they are moderately priced and not carried by either Macy’s or Kohl’s? The answer is probably yes, but only if J.C. Penney cleans house first instead of adding product on top of more product.
Yes! Apparel is a significant issue for J.C. Penney! Their assortment has not held much appeal for shoppers for some time and there hasn’t been much visible movement to improve this situation to draw in new customers. There is a good opportunity for ABG to deliver fresh brands to J.C. Penney that may appeal to a new customer demographic. Could this be the savior J.C. Penney needs? Possibly, it isn’t the only challenge but it is a good start to instituting real change and could lead to a new definition of what a department store shopping experience could become. That said, throwing every ABG brand into the store isn’t automatically the best answer – J.C. Penney needs to decide who their target customer is and what that customer wants. Then they can look at that target through the lens of ABG’s family of brands.
Certainly the merchandise carried by J.C. Penney is an issue, but so is the brand itself. It’s tired and bland, and it changes so much it’s hard to determine what you will find inside the store.
The brand has a bad perception. You can put whatever you like inside, but that won’t change the fact that the stores are perceived as old and tired. This isn’t a quick fix. If J.C. Penney wants to attract young consumers it needs an entire “take another look” campaign with deep pockets.
Most of the comments posted are correct, however the strategy must include product leadership, price leadership, and service leadership. Any retail brand must be great at one and at least good at the other two. Today J.C. Penney is not leading in any of these areas. The position strategy must be clear and, no matter what, the customer has to say holy cow, J.C. Penney is great when it comes to this. No matter what. All the other stuff is helpful but just noise. All of the best brands lead in at least one of these areas and are good at the other two. Pick your position J.C. Penney and stick with it! Sell it to your financial stakeholders and go do it.
There is definitely a consensus in today’s comment thread: J.C. Penney is a brand that has lost its way and its soul. In the absence of a clearly articulated and executed brand promise, inclusive of knowing who the customer is and compelling reasons to shop there, I’m afraid the company will soon be the next Sears.
Getting the brand off life support will require bold thinking — an entire re-imagining of what this retailer is and how it will effectively compete in today’s retail environment. Simon and Brookfield, more than anyone, have a vested interest in making it happen. The question is, do they have the courage and the time to pull it off?
ABG has a number of still well-loved brands in its portfolio, brands that failed based more on leadership than product. Enter Jamie Salter. Injecting fashion, volume-driven brands like Nine West, Forever 21, and others into J.C. Penney flips the switch from dreary product to a portfolio of proven mainstream, fashion relevant products missing from the marketplace for too long. The ABG brand list, with more brands on the way, reads like the brand list of a major specialty retailer providing well-proven, appealing, price point oriented fashion brands giving J.C. Penney a chance to reinvent itself. Key to J.C. Penney’s reinvention will be leveraging online shopping, along with stripping away the very dreary J.C. Penney store interiors. A big lift for J.C. Penney and ABG.
As a side note, I believe Jamie Salter is a retail visionary. Picking up the scraps of mismanaged brands, each brand still relevant in the minds of consumers who still miss the brand. Merchandised and assorted properly, newly re-discovered ABG brands will fill the void of the lost mainstream fashion aesthetic.
Authentic Brands smacks of Ascena to me. What makes them think that they can turn all these distressed brands around — their history of doing that (none)? I don’t mean to be Joe Bummer on this but it would help if they had the resume of say, Les Wexner or even Bezos rather than folks that see turnaround and flip as the way forward instead of smart retailing. I guess we shall see, but taking stock in dinosaur brands for anything but a quick buck doesn’t seem like a good strategy to me. Simon has to or they’re dead, but these guys? Take a close look at that gift horse.
This combining of brands feels like the way malls are heading, so that should be a good thing. The bigger issue, in my mind, is if the Authentic Brands Group deal would be enough to make J.C. Penney relevant again…
It all starts with “who is our target customer(s),” and “what do they want to buy?” Starting with the brands available to a renewed J.C. Penney and “what do we want to sell?” is backwards. Unless JCP wants to be a small mall with a diverse set of stuff inside, (and I doubt they can outcompete either Amazon or the full mall for that), some of the brands under discussion don’t appeal to the same target customer. Identifying and locking on to a target customer group that is ideally consistent with the traditional JCP customer if at all possible and then building out an assortment are the first two steps along this journey.
The single most foolish thing the investors should try to do is resurrect JCP. A strategic alliance with Authentic Brands will help the investors in their cash flow pursuit and the financial strategy that they set out.
But the idea of turning JCP around or establishing it as a unique location for fashion is a discussion that should end with the comment “no way.” Don’t put millions more into this. Don’t put nickels into this. The obituaries for JCP are just waiting to be printed.
JCP is not known for the younger customer crowds and most young people don’t have the discretionary funds anyway to buy expensive clothing or merchandise.
This would only work under new branding — can’t keep operating as JCP. They will need something attractive that leverages some of their exciting celebrity relations and especially Sports Illustrated. They’ll need clarity about the market they wish to target and then build in either a store-in-store concept like the beauty brands, or something external like an outlet/rack/etc.
It would be interesting to see a JCP mini-mall with a Brooks Bros, Sports Authority, Nautica and Aeropostale. Not sure they can pull this off with the current numbers, but they now have some real firepower and cash reserves with the arrangement and supporting companies with ABG.
Although name brands are certainly a part of department stores, and I believe Selfridges calls itself a “House of Brands” (or something to that effect), simply filling up the store with stuff offered elsewhere is no solution. JCP needs to develop its own brands — perhaps I should say expand them since it already has some. Successful stores are filled with what people want, but they also have control over the merchandise.
Looks like more of the same. Authentic Brands better step lightly here. Putting its brands into JCP may actually hurt the equity of said brands.
Many of the Authentic Brands brands would need to be downgraded in price (and probably quality) to fit into JCP. There is also the issue of the dated depressing appearance of most JCP Stores- they are not the appropriate venue for upper end brand product. The JCP Store will bring down the higher end product.
As for the Aero and F21 brands, I don’t think the core JCP customer is interested in teenage brands and I’m not sure the core JCP customer is interested in shopping around teenagers either.
Also I am not sure the Aero and F21 customer wants to go into the dreary depressing understaffed JCP store. I was in the Reno, NV JCP on Labor Day. The mall was quite busy, likely due to the heavy smoke in the air from local fires; the busiest I’ve seen the mall since last December. The 150k square foot two level JCP Store had exactly 2 places to pay for items — one upstairs and one downstairs. Both payment areas had only 2 cashiers working (very slowly at that) and lines of at least a dozen customers. In the mall the Aero and F21 Stores had no line to pay and adequate staffing for their small footprints. I walked into Macy’s and saw 4 cashiers all checking customers out at the women’s shoe department (first area you see when walking in), and obviously additional cashiers in other spots around the store as well.
So we are proposing putting Aero, F21, and Sephora (and a bunch of luxury clothing brands) under the roof of JCP. Let that sink in for a while. All different customers. All different brand messages. All different store environments. This will not work.
The core consumer demographic that currently shops at J.C. Penney would never describe the retailer as “fashion destination.” To attempt this route, would alienate any remaining loyal customers and instead of elevating the Penney brand, it would erode the values of brands like Brooks Brothers and Lucky.
As a brand, J.C. Penney needs to redefine it’s positioning and adding better known brands to its aisles is short-sighted — not to mention the loss of value to the brands.
Who is the core ABG customer? Is there significant overlap with J.C. Penney’s consumer? With many of the brands, I don’t think so. While ABG may be able to offer some suggestions with logistics, and perhaps data as well, I find it unlikely that J.C. Penney will ever be the place to buy Frye, Hickey Freeman, or Barneys to mention a few of their existing stable. There may be some interesting store-in-store opportunities with brands such as Forever 21, but many malls already have both of these properties in the existing store.