J.C. Penney Takes Aim at Victoria’s Secret

On May 15, 2014 after the market close, J.C. Penney (NYSE: JCP  ) reported its quarterly results for the first quarter of the current fiscal year. The results were solid, showing a 6.2% increase in same-store sales and a lower-than-expected quarterly loss. The results sent the company's shares higher by over 18% as investors continued to bet on the in-progress turnaround at the department store chain.

These latest results, though, aren't all investors have to be pleased about. Not only has J.C. Penney managed to bring back customers it formerly lost, it is currently making plans to gain new customers by taking aim at other, more specialized retailers. A perfect example of this is J.C. Penney's plan to grow its intimates line-up by partnering up with businesswoman, actress, and supermodel Elle McPherson; thus, it has taken aim at Victoria's Secret of L Brands  (NYSE: LB  ) .

Taking aim at Victoria's business
Victoria's Secret is, perhaps, one of the most profitable clothing retailers in the world. Clearly,Victoria's Secret and its lineup of women's intimate apparel and lingerie is a force to be reckoned with. J.C. Penney has every reason to want to get in on the intimate apparel game.

Victoria's Secret:

 

2011

2012

2013

Net Sales

$6.121 billion

$6.574 billion

$6.681 billion

Operating Profit

$1.132 billion

$1.188 billion

$1.081 billion

For those who haven't been following what has been happening, J.C. Penney, the troubled department store, has seen its sales and operating profits fall drastically while Victoria's Secret continues to grow and generate healthy profits.

J.C. Penney: 

 

2011

2012

2013

Net Sales

$17.260 billion

$12.985 billion

$11.859 billion

Operating Loss

$(2.0) million

$(1.31) billion

$(1.42) billion


To a company that is losing sales and profits like J.C. Penney has over the last three years, any way to boost those metrics looks extremely attractive. J.C. Penney, as part of its turnaround, has worked hard to diversify its business and draw customers back. This includes opening more and more Sephora brand (owned by Louis Vuitton Moet Hennessy) store-within-a-store concepts within J.C. Penney department stores.

By teaming up with businesswoman Elle McPherson, who earned the nickname "The Body" during her time as a model, J.C. Penney not only gains instant credibility, it also gives its customers just one more reason to return to J.C. Penney stores. The name of the game when operating a large department store is to offer customers as many reasons as possible to walk through the door to increase the chance that they will make even more of their planned, and even unplanned, purchases at your particular store.

Foolish takeaway
While it seems unlikely that J.C. Penney will cut meaningfully into Victoria Secret's own sales, the company is making an effort to turn its business around by giving customers more and more reasons to return. Retail turnarounds are hard and if J.C. Penney is to succeed in its turnaround, it will need to do so on multiple fronts. Getting in on the premium-intimates game by partnering with Elle McPherson to create a line of intimates might not save the department store chain on its own, but it is most definitely a step in the right direction. Investors should keep their eyes on J.C. Penney's operating profit and watch how much this latest move impacts its women's intimate-apparel sales going forward.

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