Penney Bets on Finer Offerings for Holiday Season

J.C. Penney Co Inc is adding more expensive items to its holiday selection this year, betting its efforts to become a more fashionable retailer will bring in shoppers willing to spend more.

For instance, the retailer will offer its most expensive handbag yet under its exclusive Liz Claiborne brand and offer fancier watches made of rose gold.

Other new additions include national toy brands such as Mattel Inc's Barbie dolls for the first time in 20 years.

Analysts expect the battle to be fierce this holiday season among department stores that cater to middle class shoppers such as Macy's Inc , Kohl's Corp and Penney, whose new CEO, former Apple Inc executive Ron Johnson, takes the reins on Tuesday.

But shoppers are spending again, especially those with more discretionary cash, and Penney is wooing them.

One Liz Claiborne leather handbag was priced at $80, far pricier than the handbags the retailer has typically sold, said Lorraine Hitch, a Penney senior vice president, as she gave Reuters a tour of the chain's Manhattan store last week.

There are definitely some more luxury touches to items- customers are responding, Hitch said.

In the last few years, Penney has sought to remake itself into a hipper retailer, able to draw younger, fashionable women willing to spend, and rely less on its traditional shopper, who is more vulnerable to the ups and downs of the economy.

Penney now operates some 300 Sephora cosmetic outlets within stores, with more to come, and is also opening more of the higher end Mango by MNG fast fashion stores within its doors.

It also recently bought the Liz Claiborne brand after being its exclusive department store retailer for just over a year.

But the chain's transformation is still very much a work in progress, analysts said.

Penney's October same-stores sales, to be reported on Thursday, are expected to rise, but lag those of Macy's, Kohl's and Dillard's Inc , according to Thomson Reuters data.

I don't think they've really succeeded in changing over their customer -- they'd love to have a slightly younger, more fashion forward customer, said Paul Lejuez, a Nomura analyst. That takes a long time.

Penney's same store sales rose 4.5 percent last holiday quarter and have continued to rise since. But on several occasions, it has missed monthly same-store sales forecasts after having to slash prices. In September, same-store sales unexpectedly fell.

Penney has also introduced a holiday store within a store called Wrapt and begun selling cookware by Calphalon, a Newell Rubbermaid Inc brand. And it is giving prominent display space to Keurig single-serve coffee makers.

The idea, Hitch said, was for Penney to be the one place you can shop for all your gift needs, especially more expensive ones. Still, beyond the Claiborne items and its private label clothing, few items are exclusive to Penney.

And Penney remains a promotional chain, reliant on bargains.

That $80 Liz Claiborne bag Penney touted was regularly priced at $120. And many items in the Wrapt display were 30 to 40 percent off, even though the holiday shopping season has not started in earnest yet.

The problem is that they still have a price sensitive customer, said Morningstar analyst Paul Swinand.

(Editing by Andre Grenon)