Published: Friday, 31 Jul 2009 | 11:09 AM ET

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After a century in the business, JC Penney finally made its move to Manhattan with the grand opening of a three-story store in Herald Square Friday.

While other big retailers like Macy's

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[M  Loading...      ()   ] and Bloomingdales have been hit by the recession, Penney is relying on the struggling economy to generate its success, according to JC Penney

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[JCP  Loading...      ()   ] Chairman and CEO Myron Ullman, who is optimistic about Penney's opening in Manhattan.

"We do business with half of American families every year and obviously middle Americans work and live in Manhattan," Ullman said. "We're quite confident that Manhattan is where we should be."

The new store is key to Penney's campaign to boost sales by shedding its reputation for dowdiness, an effort that in recent years has included adding exclusive affordable collections from designer Nicole Miller, home furnishings from home maven Chris Madden and trendy in-store Sephora cosmetics shops.

"Our research showed that our customers gave us great credit for quality and for affordability but they really hadn't recognized that we stepped up our style," Ullman said. "So stepping up our style, part of it is getting in the style capital of the United States, so right here in Manhattan."

Watch Ullman's full comments below

Penney, which expects the store to be its largest sales generator, believes even New York fashionistas are looking for affordable options as the recession maintains its grip.

But Wall Street is taking note of the changing Manhattan retail landscape and will watch who shops at Penney and whether they are defecting from rivals like Macy's, a fixture since 1902 in Herald Square, where the Christmas movie "Miracle on 34th Street" is set.

"Penney's has been around for a long time, but it hasn't had the visibility of its competitors," said Faith Hope Consolo, chairman of real estate firm Prudential Douglas Elliman's retail leasing sales division.

Consolo said higher-priced Macy's and even the neighborhood's Victoria's Secret store, have "reason to be concerned" because Penney is likely to draw a full cross-section of the 250,000 shoppers who store officials say visit the area daily.

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Penney, which usually sticks to staid radio and print ads to promote store openings, seems to be having fun ruffling feathers in the historic retail mecca.

"We hear Herald Square needed a good department store," one bus shelter proclaims. And another: "The real miracle is now on 33rd Street."

But Macy's spokesman Jim Sluzewski declined to comment, pointing out only that the 2.2 million-square-foot flagship is the world's largest store and one of New York's biggest tourist attractions. That compares with the much smaller Penney store, with about 150,000 square feet.

Sales at Plano, Texas-based Penney, which has 1,000 stores across the U.S., have stalled and profits dropped since the recession began in late 2007 and shoppers started cutting back on discretionary items like fashion. But competitors like Macy's have suffered more, slashing its work force and closing stores. Penney's has only slowed store expansion and cut inventory.

The average 7.8 percent sales decline since February at Penney stores open at least a year compares with 7 percent at Kohl's Corp. and 9 percent at Macy's.

Ullman hopes that back-to-school sales bring NYC based customers in.

"The customers respond very well to what we call appointment shopping - whether it is Mother's Day, Father's Day or Easter," Ullman said. "We know we are going to back-to-school and that is one of the biggest appointment periods all year."

Despite their success during appointment periods, Ullman reveals that the sales during the remainder of the year are not as exemplary. "During the other weeks, frankly, the traffic level falls back to kind of the new normal, which is quite slow, for all retail and we think that is likely to be the same until employment improves."

Competitively priced trendy merchandise has been Penney's strong suit in the recession, said Chief Marketing Officer Mike Boylson, while mid-priced basics and big-ticket items like furniture and jewelry have been weak.

Penney already operates stores in the Bronx, Staten Island and Queens, but Boylson believes the Manhattan store "is going to have a halo effect on the entire brand."

When Penney's opened a temporary store in Times Square in spring 2006, sales immediately rose in its borough locations and Jersey City and stayed higher until the recession began, Boylson said.

Given the recession — and how expensive it is to live in Manhattan — Boylson believes customers will appreciate Penney's lower prices, like dresses that top at about $90.

Despite JC Penney's anticipated success, Ullman says, "Like the rest of our industry, we've been very cautious about predicting any turnaround."

The Associated Press contributed to this report.

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