J.C. Penney to reduce pace of store openings

J.C. Penney Co. will further slow the pace of new department store openings and cut capital spending next year because of the weak economy.

The company said Wednesday it now plans 20 new or relocated stores next year, down from the 36 it expects to open in 2008.

Penney had once planned 50 new stores a year through 2011, but backed away from that goal in April, when it set the target of 36 new stores this year.

Penney and other retailers have been slumping as their middle-class customers struggle with higher gasoline prices, a slowing economy and a weak housing market.

Chief Executive Myron E. Ullman III said Wednesday that the Plano-based chain expects next year "to remain very challenging for the American consumer."

Ullman said the company just completed its strategic planning for 2009 and decided to cut capital spending to about $650 million, compared with $1 billion expected this year and $1.2 billion last year.

The reduced store openings will help the company cut capital spending. Penney also will renovate fewer existing stores _ 10 to 15 next year, down from the 20 it expects to renovate this year. The company had originally planned to refresh 65 stores per year through 2011.

Penney declined to say where it would delay building new stores but said it still planned to open its first store in Manhattan late next year. It believes the store will be the sales leader in the chain. The company didn't say how much the store will cost _ a spokeswoman said Penney doesn't disclose property-development figures.

Faith Hope Consolo, a commercial real estate executive in New York who scouted Brooklyn locations for Penney, said developing the New York store could cost $30 million to $40 million, with the developer paying some. Even at that price, she called it a great location _ across from the flagship Macy's store.

"I thought it was pretty brilliant not only because it faces Macy's, but because they're new (in Manhattan) and in the right price point for the customer," she said. "I think they'll capture the market by storm."

Besides slowing expansion, Penney said it would continue to control inventory levels below 2007 levels by the end of the back-to-school season.

Ullman said the moves could help blunt the impact of the "difficult retail environment" and boost gross profit margins over the year before. But even after controlling operating expenses, the company said it would face pressure from lower sales.

Uta Werner, an analyst with Sanford C. Bernstein & Co., said by reducing next year's capital spending, Penney would free up cash to support merchandise and marketing measures. She said Penney was managing its business well in a tough climate.

Same-store sales at locations open at least a year, a key measure in retailing, fell 4.4 percent in May at Penney. That was better than the 5.8 percent decline that analysts expected, but trailed results at discounters and warehouse clubs, which appeared to benefit as consumers looked for bargains.

Retailers are hoping that tax rebate checks, which began getting to consumers in May and were still being mailed out in June, could yet boost sales.

Penney executed a successful turnaround earlier this decade, lifting sales through a line of private-label clothing brands aimed at women and teens and adding a touch of class with items such as cashmere and Sephora cosmetics counters.

This year, the chain made its biggest launch, a line of home furnishings and other goods from Polo Ralph Lauren Corp. called American Living, at higher prices than typically found in a Penney store.

Penney operates more than 1,000 stores in the United States and Puerto Rico and has 155,000 employees.

Shares of Penney rose 80 cents, or 2.2 percent, to close at $37.68 Wednesday.

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On the Net:

J.C. Penney Co.: http://www.jcpenney.com