Penney's American Living line already marked down

NEW YORK Mon Feb 25, 2008 4:04pm EST

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NEW YORK Feb 25 (Reuters) - One day after J.C. Penney Co Inc (JCP.N) launched the advertising campaign for its newest brand, American Living, the mid-tier department store operator has slashed prices for the upscale line by roughly 25 to 40 percent on its Web site.

American Living, which began arriving in Penney's stores earlier this month, is the biggest merchandise launch in the retailer's 105-year history, and Penney rolled out the ads for the brand during the Academy Awards television broadcast on Sunday.

The collection, developed by Polo Ralph Lauren Corp's (RL.N) Global Brand Concepts, includes clothes, shoes, handbags, luggage and bedding infused with an Americana feel.

The line is forecast to eventually generate annual sales of $1 billion, and Penney said the products will be priced at the top end of what it sells in each category.

But American Living is landing in Penney's stores, catalogs and online as the retailer's middle-income shoppers pull back on spending, squeezed by falling home values, high energy cost and rising food prices.

Last week, Penney reported a nearly 10 percent drop in quarterly profit and said there is no clear indication the consumer environment will improve this year.

In interviews leading up to the launch, Penney executives said they did not scale back plans for the American Living launch due to the tough economic climate. While American Living will have a "promotional" element, they said they were not worried about its higher prices.

"We will promote the line," said Michael Boylson, Penney's chief marketing officer, in an interview earlier this month. "But we're not going to give it away at half price."

On its Web site on Monday, moves to quickly promote the brand were on display. A men's navy blazer was listed for $159.99, down almost 42 percent from an original price of $275, while a women's navy jacket was priced at $112.50, down 25 percent from $150.

A wheeled garment bag was marked down 40 percent to $203.99, while a bedding set was also 40 percent off at $199.99, down from an original price of $335.00.

Kate Parkhouse, a Penney spokeswoman, said the price cuts were in line with Penney's typical strategy for introducing a new brand. While the American Living prices were marked down, she said they are still among Penney's most expensive.

"In this environment, it's probably prudent to do that," said BMO Capital Markets analyst Wayne Hood of the price cuts.

Hood, who has an "outperform" rating on Penney's shares, said that even amid the difficult climate, retailers have to try to innovate and offer new products to try to win shoppers' limited dollars.

But he said Penney needs to be careful about how much American Living it offers in each of its stores because it might not resonate with shoppers in every one of Penney's 1,067 locations.

Penney shares were up 36 cents at $49.16 in late afternoon New York Stock Exchange trading. (Reporting by Nicole Maestri; Editing by Tim Dobbyn)

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