Mike Kramer, chief operating officer, told investors on Thursday that Penney plans to spend $800 million this year to install the shops and improve technology, using cash from its operations.
Penney operates more than 1,100 department stores in the U.S. and Puerto Rico, including nine in Utah, where it also has an accounting center and a distribution center that collectively employ 1,500 people
The company is targeting $900 million in expense cuts to be completed over the first two years of its transformation, intending to lower the company's expenses below 30 percent of sales in two years. For the company's fiscal 2011 year, selling, general and administrative expenses accounted for 33 percent of annual sales. That's a higher percentage than rivals including Kohl's Corp. and Macy's Inc. Penney will cut costs from stores and advertising and at operations at the company's home office, Kramer said. The company aims to reduce the layers of management there.
With its new pricing strategy, Penney will be getting rid of hundreds of sales it held last year and instead focusing on "every day" prices, with special monthly sales and clearance. That will reduce labor costs at the stores since associates won't have to use their time ticketing products and putting up big sales signs each night. It will also reduce advertising expenses.
Penney will launch the mini-shops beginning in August. Its new pricing strategy will start Feb. 1. The latter is different from Walmart's iconic everyday low pricing. Unlike Walmart, Penney's goal isn't to undercut competitors, but rather to offer customers more predictable pricing.
Johnson said Thursday that Penney will get its first "true read" of customers' reaction to the pricing strategy on Feb. 1. He said he doesn't know what the initial reaction will be, but he's confident that "it will get better and better."
Executives spelled out the company's changes at a two-day investor meeting in New York.
Shares jumped $6.44, or 19 percent, to $40.72 in trading Thursday. They had been up 2 percent in January.