Why JCPenney Considers Its Private Brands to Be Vital

Key Insights from JCPenney’s Oppenheimer Conference in June

(Continued from Prior Part)

JCPenney’s private brands

JCPenney (JCP) considers its private brands as key sales drivers. Some of the company’s popular private brands are St. John’s Bay, Arizona, Okie Dokie, Total Girl, Xersion, Worthington, and Liz Claiborne. Apart from these brands, JCPenney also sells national brands like Nike (NKE), Carter’s (CRI), Levi’s, and Dockers. At the 15th Oppenheimer Consumer Conference, the company’s CEO-designee, Marvin Ellison, discussed how a proper mix of private and national brands is important for the company to remain competitive.

Higher margin

In 1Q15 ending May 2, 2015, JCPenney’s gross margin improved by 330 basis points to 36.4%, from the corresponding quarter of the previous year. One of the reasons for the marked improvement in the gross margin was the increased penetration of JCPenney’s private brands, which have higher margins compared to national brands. JCPenney’s CEO stated that it would introduce a private brand only when its margin rate is accretive to a national brand.

Another advantage of private brands highlighted in the Oppenheimer Consumer Conference is that these brands don’t get entangled in pricing pressure from online competitors. These private brands are known for their quality and also help the company to compete more aggressively with pure online retailers. Having an in-house product development and design capability gives the company more decision-making power with regard to pricing and markdowns.

The company foresees its private brands to drive further improvement in its gross margin. JCPenney expects its gross margins for fiscal 2015 to increase 100 to 150 basis points compared to last year.

Private label brands

Private label brands sold by Nordstrom (JWN) include Caslon, Chelsea28, Classiques Entier, and Calibrate. Macy’s (M) owns a wide assortment of private brands, including Alfant, Bar III, Belgique, and Charter Club.

Nordstrom and Macy’s together account for 1.4% and 0.2% of the portfolio holdings of the Consumer Discretionary Select Sector SPDR Fund (XLY) and the SPDR S&P 500 ETF (SPY), respectively.

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Browse this series on Market Realist:

• Part 1 - JCPenney Dwells on Merchandising Strategy at Oppenheimer Conference

• Part 2 - Why Sephora Was Key to JCPenney’s Same-Store Sales Growth in 2014

• Part 3 - Making Up for the Delay: JCPenney Strengthens Online Business