Penney on Risky Hunt for Special Retailing Niches

For J. C. Penney, the nation’s fourth-largest retailer and once a stodgy general merchandiser, the Units chain is part of a strategy of diversifying into flashier specialty stores.

Penney also has 20% stakes in Alcott & Andrews, an upscale career clothing store for women, and Beeba’s Creations, a San Diego clothing manufacturer that will supply mix-and-match junior clothing for a Penney’s start-up of shops and in-store departments called Mixit. In addition, Penney is starting up a bed and bath chain called In Detail.

Analysts have generally applauded Penney’s diversification into these specialty niches because they provide avenues for growth. But highly defined apparel concepts occasionally backfire, noted Walter F. Loeb, an analyst with the Morgan Stanley & Co. investment firm in New York. And fashion customers are notoriously fickle.

Consider Banana Republic, once a high-flying division of the Gap and now a chain hunting for a new identity, since its rugged safari look has largely run its course.

“Suddenly, everyone had a safari suit and didn’t need another one,” Loeb said. A company can sometimes develop “such a tight niche that you paint yourself into a corner.”