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Return to growth in 2013 is No. 1 priority, J.C. Penney CEO says

| Friday, Feb. 15, 2013, 7:21 p.m.

Ron Johnson hasn't lost his confidence.

The J.C. Penney Co. CEO says this is the year to judge his vision of turning the 110-year-old department store into a collection of branded shops.

Beginning in March, shoppers will see last year's hard work start to unfold in stores, he said, with big changes coming in May, when the home department gets a complete makeover.

“The first year was tougher than I expected, but I would do it over in a heartbeat,” Johnson said in a recent interview. “Our courage to disrupt made us stronger.”

For 2013, “returning to growth is our No. 1 priority,” he said.

Johnson said he's not planning to close stores, which has been a constant rumor. And he wouldn't elaborate about “an unfounded rumor” that there may be more staff cuts at the company's Plano, Texas, headquarters.

Penney's transformation is about to pick up speed.

Last year, Penney opened shops from familiar names such as Levi's, Izod, Arizona, jcp and Liz Claiborne. This year's additions will be new to Penney's customers and include unique products designed for the chain.

Joe Fresh, Canada's largest apparel brand, and home designers Jonathan Adler, Terence Conran and Michael Graves bring credibility to Johnson's vision. But will they bring in the new customers Penney needs to be successful and plug the sales declines?

Penney plans to spend the largest chunk of its marketing dollars this year on “the world's largest housewarming party,” a campaign to debut its new home departments.

Johnson also believes new comparisons will help shoppers put Penney's everyday low prices in context. Last year, manufacturers started adding their suggested prices on national brands, and this month, marketing and signs for private-label items include the comparable “elsewhere” price. Fine jewelry prices list the appraised values for insurance purposes.

But Johnson has other challenges that marketing can't help.

Year 2 of his Penney transformation starts with two legal threats. The holders of almost $400 million in Penney corporate bonds believe it is in default because it pledged merchandise as collateral for its $1.5 billion bank line of credit.

A Delaware court is reviewing the issue, which surfaced last week, and the repercussions could extend to all of Penney's $2.9 billion in debt. Penney isn't in a position to pay debt early — cash is a priority as it continues to remodel almost 700 stores, and its debt rating is already in junk status. Johnson said the default charge is without merit.

The other legal challenge is a lawsuit Macy's brought against Martha Stewart Living Omnimedia over its celebrity founder's participation in the Penney transformation. Lawsuits between Macy's, Martha Stewart Living and Penney were consolidated last year, and the case goes to trial Feb. 20.

For now, Martha Stewart's name is on rugs, window coverings and two new lines, Martha Stewart Pantry, a collection of food mixes, and Martha Stewart Celebration, a large selection of paper party products.

The 1,100-store chain also has a new private label called Everyday that includes bed, bath, tabletop, cookware and furniture, categories that Stewart must avoid because of a court order.

Penney plans to open its Martha Stewart shops by Mother's Day in 536 stores.

Joe Fresh shops, with clothes designed for juniors and women, will open on March 15 in almost 700 stores. The collection, which is the same as the clothes at Joe Fresh's free-standing stores in Manhattan, will be available at jcp.com a few days earlier.

Shoppers can get a peek at Penney's new brands at its Collin Creek Mall store in Plano. The store is being set up about a month ahead of other stores so that Penney can see which items shoppers like and test the effectiveness of the layout. That store will influence all Penney stores.

Penney has been offering tours of a prototype store that isn't open to the public on the second and third floors of its store in Dallas' Valley View Center. Penney is showing off its future to analysts, retail consultants, shopping center landlords, its employees and other opinion makers.

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