00:00One company that follows it very closely is Catalyst Brands. It's the parent company of
00:05JCPenney's, Brooks Brothers, Aeropostale, Eddie Bauer, Lucky Brand, and Nautica. A little bit
00:08of blast from the past. Some nostalgia in there for you, too. CEO Mark Rosen joins us now. Mark,
00:14really great to see you. And obviously, a brand like JCPenney, known maybe for deals with back-to-school
00:19shopping. And I know you've got a few in those, too, like a price lock guarantee. So maybe setting
00:23aside Brooks Brothers, most of these brands are catering towards not the high end, maybe every
00:28day to lower consumer. How has their behavior been at this moment where we continue to see
00:33inflation woes, especially ones, growth in inflation, that outpace the growth in wages?
00:40Yeah, I think good morning, first of all, and thank you for having me. As we're going into
00:44back-to-school, what we're seeing is that the consumer is actually committed to their family,
00:49and they're going to make sure that their kids go back to school with the items that they want
00:53and the brands that they want and the right things to make sure they have a really successful school
00:57year. And that's really important to families. And we see consumers shopping for that. Like
01:01you said, we're prepared for that because we know that value, deals, and quality are going
01:06to be really, really important to them. And we have thousands of items at JCPenney that are
01:12under $10, really important for the consumer. That's shorts, T-shirts, leggings, our uniform polos.
01:20We have Aeropostale offering buy one, get free denim. And we're also, for the first time this year,
01:26offering a price lock guarantee, which means from August 2nd to August 27th, almost the full month
01:31of August, that core back-to-school season, consumers can shop any time they want, and they're
01:37going to get the lowest prices of the season. And on those key items, those prices are at or below
01:43last year's prices.
01:44The buy one, get free denim is pretty cool. You held prices despite the tariff pressures last year.
01:50Can you keep doing that? Or should consumers maybe expect higher prices ahead?
01:56Really, as we go into the season, our merchants are focused on the key items that really matter
02:01to consumers in this season, which at the back-to-school time is denim, it's T-shirts,
02:08it's fleece, it's polo uniform shirts, it's backpacks. We're making sure that those key items
02:14are at the best possible price that we can get for the consumer. And I think it's one of the
02:18powers
02:18of what has become Catalyst is bringing our brands together. We now source over 30 million units of
02:24denim over the year, and so we can work with our suppliers to make sure we're getting the best and
02:28the lowest price for our supplier. But I think what we're also seeing with consumers is that quality
02:32is really important. And so we're making sure the quality and durability is there, and the product
02:36that they could buy is going to last for the entire school season.
02:40We do have some alternative data sources here at Bloomberg, and one of them does track
02:44specifically Catalyst brand stores. What it has shown, though, are some really tough numbers.
02:49And to be clear, the industry as a whole has had tough numbers, but it shows your sales declining
02:53over the past three months to a degree which are worse than the benchmark. Mark, I wonder what you
02:58are seeing on the ground and what you're doing to address some of those slowing sales.
03:04What we're seeing is that in some cases, consumers are making fewer trips, and I think a lot of that
03:09may be driven by gas prices. But what we're also seeing is that when they do come into the store,
03:14they're buying more units when they come into the store. In other words, they're consolidating trips
03:18and really putting more items into the cart when they do come into our stores. And so we're focused
03:24on making sure, like I said, during the back-to-school season that they can come anytime during that
03:28season, and they're going to find the best value. We're also making sure that they can shop across our
03:34brands and get value there, too. And one of the things that we've done is introduce a joint loyalty
03:39program between Aeropostale and JCPenney. We know that about half of our customers shop between
03:44those two brands. And now when you sign up for that loyalty program, and we've had about a million
03:48sign-ups in the last month since we introduced the program, you're going to get a cash pass
03:53instantly on your first purchase. So I think it's making sure that that value is clear, that they
03:57can consolidate the trips, and they can shop when they want to. And you've also announced workforce
04:02reductions while also increasing automation. So how do you balance cutting costs with also investing
04:06in growth? And what does that strategy look like moving forward?
04:10We are focused on growing the business and serving the customer and offering the customer
04:15the lowest price. We have certainly put, there are places where we have introduced AI into our
04:21business and our distribution centers and throughout our replenishment systems and inventory management
04:26and all of those things. But in most cases, those are actually freeing up our team so that they can
04:31work on some of the more complex problems that are facing our business.
04:35I do just wonder in this environment. So you have apparel demand softening. You're trying to do some
04:40things to address that. You're trying to protect margins, for example, using technology versus people
04:45you would have otherwise employed. I know some of your brands like Aero Pastel, Brooks Brothers,
04:51Authentic Brands owns the IP for it. So how does that work when you need to pay royalties and at
04:56the same
04:57time try to protect your margins? Right. So in those cases, as you said, Authentic Brand owns the IP and
05:03we operate the business and we buy the merchandise and source the merchandise and really sell that
05:10product to the customer. And our job is to work that out across the business so that we can both
05:15invest in the marketing, pay the royalty and make the margin that we need to to drive and grow our
05:20business. And then last year, JCPenney explored selling 119 or so properties, but the deal ultimately
05:26didn't happen. What's the latest thinking on your real estate strategy and are the assets still
05:30on the table? Right. So I think that, first of all, to just clarify, the deal that was reported
05:36was somebody who owned our property selling that to another owner. It was not a JCPenney transaction.
05:42So there was really no change for the core JCPenney business. And we have a portfolio now across
05:48Catalyst of about 1,400 stores. About 640 of those stores are JCPenney stores. And over the next year,
05:56we will be opening stores. So we're opening Brooks Brothers stores, Aeropostale stores. We have about
06:0135 store openings, and that includes one JCPenney store. The reality is that there have been a very
06:06small number of store closings, fewer than 10. And most of those are just unique situations with
06:12landlords in specific markets. How are you then just thinking, I know you have a specific like JCPenney
06:19Spark merger that involves Brookfield, a couple other brands too. How are you just thinking,
06:23not necessarily the stores themselves, but about that real estate footprint?
06:30Yeah. So as we think about our footprint, we are owned, as you said, by Simon Properties,
06:36by Brookfield, and by Authentic Brands. And some of our stores fall with those landlords,
06:41others of those stores we own. And many of the stores are owned by a set of independent landlords.
06:45And we continue to manage that across that group. And like I said, we're continuing to invest in
06:50and grow our portfolio of stores. I think physical stores have become more important than ever to
06:55the consumer, especially if you think about younger consumers coming back to the mall.
07:01That physical experience is really important to that younger consumer.
07:05Mark, are they coming back to the mall? Because I was just thinking my childhood mall,
07:07where I had one of my first jobs, I went there the other day. It's a ghost town. There's no
07:10one
07:10there. They're shutting stores. The only mall that's doing well is like the high-end one that has
07:14all the designers at it. Are people coming back to the mall?
07:17People are coming back to the mall. I think that younger consumer wants that physical experience
07:21of, A, first of all, social shopping with their friends. They want to try on product. And I think
07:26one of the unique things about our stores is that they can also get experiences. So if you think
07:31about beauty in our JCPenney stores, or one of the things that we're offering for back to school
07:35is $10 haircuts. And we're planning on giving for both students and teachers this season over
07:41$100,000, $12 haircuts for our customers. And about two-thirds of those customers also
07:49buy product when they come into the store. So I think it's a combination.
