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JCPenney catches heat from investors

The retailer moved its annual meeting to Kansas, but it couldn't hide from angry shareholders.

Shareholders gave J.C. Penney Co. executives a tongue-lashing at the retail giant's annual meeting after being forced to make a pilgrimage to this distant suburb of Kansas City just to do so.

The meeting was abruptly relocated here from corporate headquarters in Dallas, apparently to keep criticism to a minimum. But a hardy group of about 100 shareholders made the trip to unload on the top brass of the troubled retailer.

Most were retirees from the company who rely on JCPenney stock to augment their pensions but have watched in horror as their nest eggs have shrunk. As JCPenney stock nose-dived from a high of $78 two years ago to as low as $18 this week, the current management has presided over a company that lost $15-billion in shareholder value. The stock closed unchanged Friday at $18.13.

About 16 percent of all JCPenney shares outstanding are held by current or retired workers thanks to an employee stock purchase plan that was considered a valued benefit when the company's fortunes were better. Now, like many old economy companies with lots of employee stock ownership, work force morale has deteriorated while the benefits of one of the biggest bull markets in history bypassed JCPenney employees.

"Somebody sure needs to be jacked up," said Gary Mayfield, a Marquette, Kan., retiree who inherited his shares from his father, a Penney store manager for 30 years. "A lot of folks are very unhappy."

One shareholder complained that store clerks are not being trained to be salespeople, only unhelpful cashiers. A few said Penney should sell its Largo-based Eckerd Drug chain outright rather than issue a separate tracking stock as planned. But most directed their barbs at top managers they said violated the spirit of founder James Cash Penney's retailing legacy.

One shareholder was not satisfied that chairman and chief executive James Oesterreicher, 58, has announced plans to step aside in favor of an unpicked successor.

"You should resign effective immediately," a tearful Gary Nystrom told Oesterreicher. Nystrom, a Vacaville, Calif., store detective who is out on disability, said, "I have friends who have lost more than $100,000 of their retirement money. By James Cash Penney's standards (of strictly tying pay to performance) you should be standing there in your underwear."

Analysts have put several knocks on JCPenney. The biggest is that the company has been run too long by insiders who have been resistant to change and lately have made too many blunders.

"We have recognized the need to institute fundamental change, to do things differently than we have done before," Oesterreicher told the stockholders.

JCPenney executives said they staged the meeting in Lenexa, home to a huge distribution center that fills catalog and online orders, to highlight its fast-growing non-store retailing capabilities. Catalog and online sales can be delivered by mail or picked up at an increasing number of Eckerd stores. JCPenney's Internet sales are forecast to more than double this year to $260-million.

The company is midway through another in a series of restructurings after selling its credit card operation for $3.9-billion to reduce debt last year. Its insurance and membership club operations may go on the block next. The company is closing 40 of its 1,100 department stores this summer and 277 of its 2,900 Eckerd Drug stores. Only one of the department stores is in Florida, a Key West property only 8 years old. Critics noted that among the closings were three stores purchased just five years ago to strengthen JCPenney's presence in Washington.

The Eckerd closings were announced at 289 stores, but the number was later trimmed to 277 once it was determined 12 had leases that could not be broken easily or quickly enough. John Fesperman, Eckerd's interim CEO, said 259 stores have been closed so far.

By the end of fiscal year, the company will have opened 460 new Eckerd stores in 1999 and 2000. Fesperman said no more big cost-cutting surprises are in the works even though Eckerd has more unprofitable stores. "There is no pig left in the python," he said. "But there still may be a few bunny rabbits."

While regretting the departure in recent weeks of some high-ranking Eckerd executives, including longtime pharmacy boss Rick Powlus, Fesperman said there has been no big exodus.

Eckerd also has abandoned a plan to spend $100-million building its first stores in Puerto Rico, a bastion of rival Walgreens for decades. The plan was junked to concentrate on domestic markets where new stores cost one-third as much to build.

Eckerd also will open full-service photo labs inside two Miami JCPenney stores as the company looks for more ways to share assets of its two biggest retail properties.