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A shopper rides an escalator to the Joe Fresh outlet located in the former Maple Leaf Gardens in Toronto on Thursday, May 1, 2014.Darren Calabrese/The Canadian Press

xLoblaw Cos. Ltd. will drop its Joe Fresh fashion line from U.S. department-store chain J.C. Penney in 2016, underlining the Canadian grocer's apparel challenges south of the border.

Just over a month after Joe Mimran, creator and namesake of Joe Fresh, left, Loblaw is now embarking on a new path in the United States under a new leader.

Mario Grauso, president of the cheap-chic clothing line and a veteran U.S. fashion specialist, said on Thursday the company will wind down its partnership with J.C. Penney, cutting ties with it entirely by early next year.

"By mutual agreement, Joe Fresh and J.C. Penney have determined to not renew our existing distribution agreement that expires on January 30, 2016," Mr. Grauso said in a brief e-mailed statement.

"This decision is driven by changes to our respective growth strategies … Going forward, Joe Fresh will focus on investing in our stand-alone tore network and e-commerce, expanding our international partnerships and continuing to strengthen our core Canada business."

As well, Loblaw is reconsidering five of its six stand-alone stores in the New York area and "will exit some or all of them," except the one in the Soho district, which will remain, company spokesman Kevin Groh said.

Under Mr. Mimran, Loblaw had ambitious plans for the U.S. market, which the high-profile designer considered crucial to helping build the Joe Fresh brand internationally. But J.C. Penney has faced its own troubles and, as it shifted its strategy, it gave Joe Fresh less prominence, hurting its sales.

Now Loblaw is moving forward with a fresh plan, betting that it can gain the same kind of profile with the affordable fashion line in other markets as it enjoys in Canada.

Susan McGibbon, president of consultancy the Retail Lab, said Loblaw will probably take a slow and cautious route in the United States after it faltered at J.C. Penney.

J.C. Penney wasn't a good fit for Joe Fresh, which was too stylish and edgy for the typical shopper of the U.S. department store chain, Ms. McGibbon said. Joe Fresh works well in Loblaw stores, where it "is the perfect 'yummy mummy' brand," she said. It caters to the time-starved woman who is shopping for groceries and ready to buy some affordable clothes, keeping her in the supermarket longer to make more purchases, she said.

Joe Fresh was launched in almost 700 J.C. Penney stores in early 2013, but was scaled back to 200 stores recently and, by January, will be cut entirely.

Galen G. Weston, executive chairman of Loblaw, hinted to reporters after the grocer's annual meeting that the fate of its J.C. Penney partnership was in question.

"We're in the process of refining the customer proposition," Mr. Weston said about Joe Fresh in the United States. "We're determining what the right size store is that we should invest behind in the stand-alone store network."

Joe Fresh has six stores in the New York area, including some prominent outlets in Manhattan in large, premium-priced spaces. Mr. Weston said the company is considering smaller stores now and using its outlet in the Soho district as a model. At 7,500 square feet, the Soho store is about half the size of its largest Joe Fresh store on Fifth Avenue.

"We continue to believe that that is the first best path forward for growth in the U.S.," Mr. Weston said.

The retailer, whose annual Joe Fresh sales are estimated to be about $1-billion, is also expanding Joe Fresh beyond North America, including in Saudi Arabia and South Korea. It plans to open two outlets in Mexico City in the next month.


Joe Fresh Locations

14 Free-standing stores in Canada

330 Loblaw locations in Canada

683 J.C. Penney locations in U.S. for 2013 launch, then recently cut back to 200. The clothing line will be dropped from all J.C. Penney stores in 2016.

6 Free-standing stores in the U.S.

9 South Korea

4 Saudi Arabia

1 United Arab Emirates

1 Egypt

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