Retail Rebrand

By
From the December 2012 issue of Columbus CEO

When Glen Gammons moved to Columbus from Dallas in June, he set out to find the best deals in the city to help him settle into his new home.

He bought a stainless steel cart for his television at an antique store on Brice Road. He perused the aisles of Grandview Mercantile Company in the Short North.

He even stopped in the newly renamed JC’s 5 Star Outlet, formerly JCPenney Outlet, with his son to look at furniture. They scored a couch regularly priced at $1,000 for $450 at the store off Brice Road.

Though he is CEO of the new JC’s 5 Star Outlet and spent 11 years as head of the JCPenney Outlet division, Gammons says he still understands the value and, in many cases, the necessity of a bargain. “I’m frugal,” says Gammons, who worked for J.C. Penney for 40 years. “I like to buy off-price. If I can’t find it there, then I go somewhere else.”

Gammons was one of about 35 managers who moved to Columbus from Texas this summer as JCPenney Outlet stores transition to JC’s 5 Star under the ownership of Columbus-based SB Capital Group, which bought the 15 outlet stores from J.C. Penney Company Inc. in October 2011. SB Capital is part of Schottenstein Stores Corp. (SSC), a longtime Columbus retailer chaired by Jay Schottenstein. SSC is privately held and at one point owned the majority of Retail Ventures Inc., whose holdings included Value City and Schottenstein’s department stores, DSW Shoe Warehouse and Filene’s Basement. RVI shed those assets (some to SB Capital) and became a subsidiary of DSW.

The JC’s 5 Star transition has included a move of the corporate offices from Plano, Texas, where J.C. Penney is headquartered, to offices near Port Columbus International Airport. The move allows the company to be more centrally located among its 15 outlets across the country and be near its flagship store in East Columbus.

Even with new owners, a different name and a renewed outlook, customers won’t see too many changes, Gammons says. The outlet group will still be an off-price liquidator selling surplus, returned or discontinued goods for J.C. Penney and other retailers. “The model worked for Penneys and we didn’t want to change,” he says. “It’s a new company, but the concept is the same.”

Don Gozzard, director of stores for JC’s 5 Star, hopes to expand product lines since the outlets now have more flexibility in buying. “The goal is the same as it was with J.C. Penney,” says Gozzard, who was store manager at the Akron outlet prior to the acquisition. “We’re value-driven. It served us well at J.C. Penney. We have a history of offering a very diverse mix of goods at a very good price.”

Though the stores haven’t changed, some associates say they have already noticed a major difference—a change in corporate culture. The outlets used to be “the caboose” at J.C. Penney, or the division that took care of problems no one wanted to deal with, says Tim Samson, a department manager at the Columbus store. Now, he says, employees have a newfound respect about being independent, part of a smaller business and in charge of their own success. “It’s done a lot for the outlook and attitude of people,” Samson says.

 

Planned Closing

Though the outlook from executives and store associates is positive now, in 2011 it was much grimmer. Many employees spent most of last year wondering if they would have jobs after J.C. Penney announced in January it was exiting the outlet business.

J.C. Penney entered the outlet business in 1962 to deal with surpluses and returns from the catalog, which was launched the previous year. The first store opened in Milwaukee. The Columbus outlet opened in 1975 and is the company’s largest.

Kira Ridgeway says she never thought the local store would actually close. “There’s no way,” says Ridgeway, while shopping at the outlet with four generations of her family. “They’ve got too much business. Every time you come here, there’s always a line. The parking lot is always full.”

The store is a retail “institution,” says Chris Boring, partner at Columbus-based retail consulting firm Boulevard Strategies. “When I moved here in the 1980s, it was a huge tourist attraction,” Boring says.

Many customers have been shopping at the outlet for several decades. “I was sort of sad,” shopper Janice Ray says. “I’ve been shopping here for years. You do get some good buys.”

Within a month after announcing the outlets’ impending closure, J.C. Penney began looking for a buyer, Gammons says. SB Capital was one of several suitors. The sale took about nine months. SB Capital purchased the 15 outlet stores and their assets for about $7 million, according to third quarter 2011 reports from J.C. Penney, which took a loss on the sale and valued the outlets’ inventory and fixed assets at $31 million.

“We’ve watched this operation for a number of years, and in doing so, could not be anything short of impressed with the business and the value offered to consumers,” said Scott Bernstein, chief operating officer of SB Capital, in a news release about the sale. “We’re excited about the prospects of continuing this great business and providing the tools necessary for future growth. We know consumers will likewise be excited about the preservation of a store that is very much a part of their shopping routine.”

SB Capital and Schottenstein representatives declined to comment for this story.

As one of the conditions of the sale, all 1,600 employees of JCPenney Outlet were offered a job at the same wage and seniority with JC’s 5 Star. Vacation time was honored. “In general, nobody does it,” Gammons says. “SB Capital is taking care of the employees, their long-term business prospects, not the short-term.”

Overall, Gammons says, things are going well. “There can be a huge learning curve to this business. SB Capital was interested in investing in management. The only learning curve we have is changing the name and the systems.” He says SB Capital was a good fit for the outlet business because of its retail liquidation experience.

Both SSC, which used to sell merchandise to RVI, and SB Capital have a lot of experience moving off-price merchandise. SB Capital led the selloff of Circuit City, and in September it formed a joint venture with Tiger Capital Group and Great American Group to sell all inventory from the 568 stores of women’s retailer Fashion Bug after its parent company was acquired. SB Capital’s portfolio also includes American Eagle Outfitters, DSW, Value City and American Signature Furniture, Cold Stone Creamery and the Mazel Company.

It made sense for J.C. Penney to sell the outlets and for SB Capital to buy them, Boring agrees. “They know the ins and outs of off-price retail in America,” he says. “They’re the experts, I would say. J.C. Penney already had a lot on its plate. Off-price is a different kind of retail. You have to be opportunistic in buying, and Schottensteins has developed those skills over the past few decades.”

 

Sales and Struggles

Columbus store manager Dan Martin says besides learning a new point-of-sale system and educating people about the new name, it’s been a fairly seamless transition. Martin took over locally in November 2011 after managing the outlet in Reading, Pa. The Columbus store manager and assistant manager retired after the sale.

“Most of 2011 was spent not knowing,” Martin says. “There was a big sigh of relief and appreciation that SB Capital came in and saved the stores and everyone’s jobs.” The store has 175 employees, a few more than before it was sold.

One change has been a bigger emphasis on furniture. The store created 1,500 square feet of showroom space to display more furniture, Martin says. The store has more furniture and handbags than it’s ever had and is selling new jewelry brands. JC’s 5 Star has a contract with J.C. Penney to liquidate its merchandise until 2020, but it can also partner with companies it couldn’t in the past. “Penneys would shy away from companies that were seen as competitive,” Gammons says. “Not anymore.”

He estimates JC’s 5 Star has gained about 50 new sources for merchandise since the sale, though he declined to name vendors because of privacy and brand protection concerns.

Customers shopping at the store in late summer hadn’t yet noticed an increase in merchandise. Ray says she’s been disappointed in the quantity and quality of items, especially in the women’s department, in the past year.

Ridgeway says she hasn’t seen any changes—good or bad—in the store, but is confused about the name. The building and some mailers still say JCPenney Outlet, while other materials call it JC’s 5 Star. Gammons says the transition to the new name has been gradual, but the chain will switch over completely by July.

Though he declined to divulge figures, Gammons admits the fourth quarter of last year was difficult. “Fourth quarter last year, our sales were soft,” he says. “Most people wouldn’t tell you the fourth quarter was tough, but it was a transition. Things weren’t optimal.”

One reason Gammons cites for the drop in sales is that amid the publicity about J.C. Penney closing the outlets, the outlets themselves weren’t quick enough to get the word out that they were still open for business, especially since many customers drive long distances to shop.

JC’s 5 Star has embarked on a marketing campaign to let people know the outlets are open, and sales have rebounded. Gammons says the stores are above plan for 2012, and they’ve been happy with the numbers.

While it spends the short term building the new brand, the long-term goal for JC’s 5 Star is to open more outlets. The company plans to open two new test stores in 2013, Gammons says—either in Columbus or within about 500 miles of the city.

Local executives say they believe the new company will do well because of the expertise of its employees and its already proven model. To be successful in this struggling retail environment, Gammons says a store either has to be exclusive or cater to middle America, especially in the fiscally conservative and value-driven Columbus market. “Whether you make $45,000 a year or $100,000, if you’re looking for a value, come here,” he says.

Boring says keeping the outlet open is good for local shoppers and brings people from outside the area. “We don’t have too many outlets in Franklin County,” Boring says. “Outlets don’t like to open too close to customers. It adds a type of retail we don’t have in Central Ohio.”

Boring says reviving the outlet should be beneficial to the hard-hit East Side. “The Brice Road corridor that it is a part of has struggled in recent years,” he says. “There have been a lot of vacancies, and to see this not go vacant is good.”

Martin says his team is excited to move into year two with the new company. “To have the buying team, corporate offices, Glen, our new owner all here, it feels a lot more solid, more of a unified team here in Columbus,” he says. “The existing associates are reenergized to go forward with the new venture.”

Allison Ward is a freelance writer.

 Reprinted from the December 2012 issue of Columbus C.E.O. Copyright © Columbus C.E.O.