• by Sarah Mahoney  @mahoney_sarah, February 22, 2008

When JCPenney announced last spring that it would partner with Ralph Lauren for American Living, its biggest private-label launch ever, the new brand seemed like a great idea. But since then, while the souring economy has hurt most retailers, mid-line department stores like Penney have been especially hard-hit.

On Thursday, the Plano, Texas-based chain said its fourth-quarter sales fell 4.1% to $6.4 billion, while comparable-store sales decreased 2.3%.

And its predictions for the year ahead are equally sobering. It warned investors that while total sales would increase slightly for the first quarter, it expects comparable-store sales to continue to fall, decreasing in the low single digits throughout 2008.

Still, the company says, that makes the American Living launch more important than ever. "Bringing brands like American Living into our merchandise assortment is a key part of our strategy and provides a new reason for customers to discover all that we have to offer," says a JCPenney spokesperson. "And something on the scale of American Living really has the opportunity to elevate our overall brand."

The line includes 40 categories of merchandise, from apparel to home furnishings--all created by Global Brand Concepts, a division of Polo Ralph Lauren. Products will be available this month in some 600 stores, as well as online and in its catalog. And in three stores--Glendale, Calif., Paramus, N.J., and Montrose, Colo.--Penney is creating a "store-within-a-store" concept, similar to its Sephora Inside JCPenney cosmetics departments. Those are slated to open next month.

Still, in a business where timing is everything, Penney's move is inherently risky. "In a tough economy, defense is the name of the game," says Claes Fornell, head of the American Customer Satisfaction Index at the University of Michigan, and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. "For retailers, the important thing is sticking to the basics, to make sure you keep the customers you have. Attracting new customers in this environment can be incredibly difficult and costly."

In its most recent ranking, JCPenney's customer-satisfaction score slipped a bit, but is still well above the retail-industry average, he says.

Penney says the launch will be supported with "unprecedented levels of marketing," with the ads scheduled to break during the Academy Awards ceremony on Sunday. The 60-second and 30-second Americana-themed ads were shot by photographer Bruce Weber and tie in to the "Every Day Matters" marketing positioning the company introduced last year.

Ads combine visuals of baseball, picnics, and life on the farm with vocals by Led Zeppelin's Robert Plant and country crooner Alison Krauss. In addition to TV, the 60-second version will also air in cinemas. Additional ad support will come in the form of email, direct mail, circulars, specialty catalogs, and a microsite.

The launch also builds on Penney's ambitious private-label and exclusive initiatives, including Ambrielle, a lingerie line, as well as apparel lines such as nicole by Nicole Miller, C7P ... A Chip and Pepper Production, and Sephora Inside JCPenney.

Those lines seem to be faring relatively well. The company says its strongest merchandise results last quarter were in women's and children's apparel, with the weakest performances coming from fine jewelry and big-ticket home categories. Geographically, sales have been strongest in the Northwest and weakest in the Southeast.

The company says it is continuing with its expansion plans, and says it opened 50 new and relocated stores and renovated 65 more in the latest quarter. (Interestingly, though, The Wall Street Journal has reported that investor Carl Icahn, said to have recently acquired a significant stake in Penney, thinks the company's growth plans are too aggressive.)

How well Penney does in the months ahead, says Fornell, will depend on how well it maintains spending in key customer-areas. "We know that falling customer satisfaction dampens consumers' desire to go out and spend," he says. "And between rising fuel prices, flat wages, and less access to credit, there's little to no discretionary income, anyway. So service becomes more important."