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How Private Brands Are Enhancing JCPenney’s Performance

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Apr. 26 2016, Updated 11:05 a.m. ET

JCPenney’s private brands

JCPenney’s (JCP) strong assortment of private brands is facilitating increased store traffic by attracting its loyal customers. Some of the company’s popular private brands include a.n.a, Worthington, St. John’s Bay, The Original Arizona Jean Company, Ambrielle, and Cooks.

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Strong presence

In fiscal 2015 ended January 31, 2016, JCPenney’s private brands accounted for 44% of the total merchandise sales, up from 42% in fiscal 2014 and 41% in fiscal 2013. Exclusive brands accounted for 8% the total merchandise sales in fiscal 2015. National brands like Nike (NKE) and Levi’s accounted for the remaining 48%.

JCPenney plans to further increase its private brand penetration, supported by an established global network of nine overseas sourcing offices and a team of over 200 in-house designers. According to the company, over 70% of its private brands carry five-star ratings.

In fiscal 2015, JCPenney launched new private and exclusive brands, including The Collection by Michael Strahan, Disney apparel by Okie Dokie, and Belle & Sky. JCPenney accounts for 0.2% of the iShares Core S&P Mid-Cap ETF (IJH).

JCPenney’s rival Kohl’s (KSS) also sells private brands like Apt. 9, Croft & Barrow, and Jumping Beans. Macy’s (M) private brand portfolio includes Alfani, Epic Threads, Hudson Park, and Thalia Sodi. Nordstrom (JWN) sells private brands like Caslon, Zella, and Halogen.

Margin expansion

In fiscal 2015, JCPenney’s (JCP) gross margin increased significantly to 36% from 34.8% in fiscal 2014, primarily due to improved margins on the company’s clearance merchandise. The company’s operating margin continued to be in the red in fiscal 2015 but improved on a year-over-year basis.

JCPenney considers private brand penetration as of one of the drivers for further gross margin expansion. JCPenney’s private brands carry higher margins than the national brands as they help in managing product development costs, allow flexibility with regard to price offerings, and don’t require dependence on a third party.

We’ll look at the robust performance of JCPenney’s stock in the final part of this series.

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