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J. C. Penney Company, Inc. Analysis

Brooke Rea

BPS 4305.502 University of Texas at Dallas

5/2/2015

J. C. Penney Company, Inc.

Executive Summary

J. C. Penney is a department retailer selling family apparel, accessories, and home furnishings; as

well as providing services such as a styling salon, optical, portrait photography, and custom

decorating. The following narrative was commissioned to conduct a thorough business analysis

regarding the overall operations of J. C. Penney Corporation which includes in-depth

investigation of J. C. Penney’s (1) Financial performance, (2) External Analysis of market

condition, (3) Internal Analysis, (4) An insightful identification of J. C. Penney’s strategy, and

(4) Comprehensive Recommendations for J. C. Penney to follow to improve its ill-performing

business. These Comprehensive Recommendations include (1) Rationalizing its product line, (2)

Continuing and expanding promotions and couponing, (3) Relocating outlet locations away from

shopping malls, and (4) Conduct a human resource revitalization effort. At the current time, J.

C. Penney is one of the oldest department retailers in America and deserves nothing short of

strong financial longevity. The following report is the first step towards that continued

operation.

J. C. Penney Company, Inc.

TABLE OF CONTENTS

INTRODUCTION 1

FINANCIAL ANALYSIS 2

OVERVIEW 2

NET INCOME 3

CURRENT RATIO 4

TOTAL DEBT RATIO 5

PROFIT MARGIN 6

INVENTORY TURNOVER 7

EXTERNAL ANALYSIS 7

OVERVIEW 7

THREAT OF NEW ENTRANTS 8

THREAT OF SUBSTITUTE PRODUCTS AND SERVICES 9

BARGAINING POWER OF BUYERS 9

BARGAINING POWER OF SUPPLIERS 10

INTENSITY OF COMPETITIVE RIVALRY 10

INTERNAL ANALYSIS 10

OVERVIEW 10

STRENGTHS 11

WEAKNESSES 12

VALUE CHAIN ANALYSIS 13

RESOURCES OF NEW MARKETS WITH KEY STRATEGIES 14

IDENTIFICATION OF STRATEGY 15

STRATEGY POINTS FOR J. C. PENNEY 16

STRATEGY POINTS FOR DILLARD’S 16

STRATEGY POINTS FOR KOHL’S 16

STRATEGY SUMMARY TABLES 17

RECOMMENDATIONS 19

1 J. C. Penney Company, Inc.

Introduction

“J. C. Penney Company, Inc. is a holding company whose principal operating subsidiary is J. C.

Penney Corporation, Inc. (JCP). JCP was incorporated in Delaware in 1924, and J. C. Penney

Company, Inc. was incorporated in Delaware in 2002, when the holding company structure was

implemented. The new holding company assumed the name J. C. Penney Company, Inc. The

holding company has no independent assets or operations, and no direct subsidiaries other than

JCP. Common stock of the Company is publicly traded under the symbol “JCP” on the New

York Stock Exchange. Since our founding by James Cash Penney in 1902, we have grown to be

a major retailer, operating 1,062 department stores in 49 states and Puerto Rico as of January 31,

2015. Our business consists of selling merchandise and services to consumers through our

department stores and our website at jcpenney.com, which utilizes fully optimized applications

for desktop, mobile and tablet devices. Our department stores and website generally serve the

same type of customers and provide virtually the same mix of merchandise, and our department

stores accept returns from sales made in stores and via our website. We fulfill online customer

purchases by direct shipment to the customer from our distribution facilities and stores or from

our suppliers' warehouses and by in store customer pick up. We sell family apparel and footwear,

accessories, fine and fashion jewelry, beauty products through Sephora inside JCPenney and

home furnishings. In addition, our department stores provide our customers with services such as

styling salon, optical, portrait photography and custom decorating.”(J. C. Penney Company Inc.

2014 10-K Report)


Financial Analysis

Overview

Financial health of any corporation is a product of many factors. Beginning in 2013, JCPenney

underwent a transition of strategies to regain lost sales and market position. According to the

10K Filing, JCPenney looked to undo “merchandising and pricing strategies [that] did not

resonate with our customers. JCPenney’s profitability is dependent upon their ability to source

and sell merchandise to customers in a timely manner, at a great price, and for great quality. For

all companies, financial health is an ability to meet financial obligations and maintaining

operations for growth into the future. Several pertinent ratios (and financial data) go into

determine a company's financial health. For our particular analysis towards JCPenney, we will

focus on Net Income, Profit Margin, Current Ratio, Debt Ratio, and Inventory Turnover.

We will also include similar analysis in the above areas for JCPenney’s competitors Kohl’s and

Dillard’s to paint an adequate, relative market picture.


Net Income

Net income is a company's total earnings and is simply a measure of profit of the company. It is

often called “The Bottom Line” since it appears at the bottom of an income statement. For

JCPenney, net income has been in the severe negative in the past few years. The graph below

shows how JCPenney has performed since 2013. While they have seen less negativity from

2013 to 2015, they have reported net income losses. Compare that to Dillard’s and Kohl’s who

have operated with positive incomes. It is also worth mentioning that it appears all three

competitors are experiencing some market conditions since all three have the same net income

trajectories from 2013 to 2014 to 2015. We can ascertain that other market forces are working

here against JCPenney, Kohl’s, and Dillard’s.

“JCP, Inc: Income Statement 2011-2015.” Mergent Online. Web 15 April, 2015.

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

Jan-13 Jan-14 Jan-15

Net Income

JCP Kohl's Dillards's


Current Ratio

The Current Ratio (Current Assets/Current Liabilities) measures a company's ability to pay

short-term obligations. Ratios under 1 indicate that a company would not be able to pay off its

debts if they came due at that point in time. The higher the current ratio, the more capable the

company at paying its debts and obligations. The current ratio gives insight to the efficiency

within an operating cycle and to the ability to turn its product into cash. Surveying the chart

below, we can see that JCPenney has the lowest current ratio of all three companies, while it is

still above the magic threshold of 1. Dillard’s is in the best position of with a current ratio above

2. Summary: JCPenney has the lowest current ratio and the lowest capability to pay its short term

obligations.

“JCP, Inc: Balance Sheet 2011-2015.” Mergent Online. Web 15 April, 2015.

0.0000

0.5000

1.0000

1.5000

2.0000

2.5000


Current Ratio



Total Debt Ratio

The debt ratio is given as a percentage is the proportion of a company’s assets that are financed

by debt. The higher this ratio, the more leveraged the company is; hence, the greater it’s

financial risk. Debt ratios greater than 1 indicate a company has more debt than assets. Debt

ratios less than 1 indicate that a company has more assets than debt. JCPenney operates with the

highest debt ratio. They are under the threshold of 1, but as of 2015 they are operating at 82%.

Summary: JCPenney is the highest and its assets are financed.

“JCP, Inc Balance Sheet 2011-2015.” Mergent Online. Web 15 April, 2015.

0.0000

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

0.9000


Total Debt Ratio



Profit Margin

Profit Margin (net income divided by revenues) measures how much out of every dollar of sales

a company actually keeps in earnings. Profit margin is very useful when comparing companies

in similar industries, like retail department stores. A higher profit margin indicates a more

profitable company that has better control over its costs. Looking at the figure below, we

quickly realize that JCPenney is operating beyond its means, with the negative margin.

Conversely, Kohl’s and Dillard’s contribute significant more portions of every dollar to earnings.

Summary: JCPenney’s profit margin is well below desired level.


-0.1500

-0.1000

-0.0500

0.0000

0.0500

0.1000


Profit Margin



Inventory Turnover

Inventory turn refers to how many times a company's inventory is sold then replaced over a period

of time, usually calculated every month then every year. A low turnover implies poor sales and,

therefore, excess inventory. A high ratio implies either strong sales. A low turnover is usually a

bad sign because products tend to deteriorate or in the retail segment, grow unfashionable the

longer they sit. Below is the current turnover for JCPenney, Kohl’s, and Dillard’s. JCPenney is

performing strong with a higher turnover. Dillard’s, while not the subject of this review, and

needs further investigation explaining the less than 1 turnover.

Summary: Keep up the good work JCPenney – inventory turnover in retail keeps foot traffic up

and sales rising.

JCPenney Kohl's Dillard's

Inventory Turnover 2.8508

3.1200

0.6872


External Analysis – JCP

Overview

External Analysis of JCPenney will investigate and provide overview of the general business

environment of department stores, the industry dynamics, and market competition facing

JCPenney. This review will also provide commentary to JCPenney’s ability to operate

successfully within the context of Porter’s Five Forces Model. As a reminder, Porter’s Five

Forces are:

1. Threat of New Entrants

2. Threat of Substitutes

3. Bargaining Power of Consumers (Buyers)


4. Bargaining Power of Suppliers

5. Intensity of Competitive Rivalry

Department stores are a part of consumer spend sector known as discretionary spend or

discretionary sector, meaning that as consumers have more or less disposable income, their

ability to shop in this category reflects directly. The product line offered by JCPenney relies

largely on consumers having disposable income to purchase the clothing, accessories, furniture,

and household items. Additionally, department stores are equally impacted by other industries.

While there is some buffering between industries, retail shopping (department stores) are

impacted by events and changes in related economic sectors like shipping, farming, labor, and

banking. JCPenney faces several layers of competition in retail. JCPenney finds itself

competing across a wide spectrum of fellow retailers, from the high end Macy’s to low end Sears

along with stand-alone retailers like Kohl’s and Belk. Market competition is fierce in the

department store sector of the economy, with JCPenney not quite fitting in any particular price

segment.

Threat of New Entrants

The first labeled force in Porter’s analysis is the Threat of new Entrants. It is one of two

horizontal forces that play upon industry rivalry and dynamics. This portion is most active when

profitability is high, when there are few players in the market, and when the barriers to entry are

minimal or non-existent. JCPenney finds itself in a retail market that has a mild but real threat to

new entrants (the potential is there for new-comers and expansion). With the existence of

barriers to entry, JCPenney is somewhat protected from this particular rivalry threat (it is

nonetheless threatened from substitute competitors as mentioned below). Current market forces

such as multiple pre-existing retailers contributing to brand loyalty, capital requirements for


better product selection, and minimal abilities for product differentiation barricade new retailers

from entering the department store market. While new department store retailers are possible,

the real potential is through expansion and store front growth from already existing companies

like Belk, TJ Max, and Sears.

Threat of Substitute Products and Services

The second labeled force in Porter’s analysis is the Threat of Substitute Products and Services. It

is the second of two horizontal forces that play upon industry rivalry and dynamics. The threat

of substitute products and services works in parallel with the new entrant threat. With the

current department retailers like Sears, Dillard’s, Macy’s, and Kohl’s having been in place for

some now, new growth stores like Belk, TJ Max Home Goods, and Steinmart are gaining market

share and larger foot print. These retailers serve as viable substitutes since JCPenney appears to

have an identity crisis with its recent CEO, merchandise, and marketing changes (They are

engaged in a turnaround strategy to stabilize business and rebuild the Company in an effort to

reconnect with core customers). In the meantime, competitors are emerging on the retail market

with stronger product lines like Macy’s and Dillard’s, better pricing such as Sears and Kohl’s,

and wider home good varieties like TJ Max Home Goods and Belk due to minor barriers to

expansion. These barriers include distribution access, capital requirements for inventory, and

infrastructure existence. All of these are currently easily mitigated which is allowing consumers

to choose better suited retailers versus JCPenney.

Bargaining Power of Buyers

Many factors account for the consumer’s bargaining power, including price, quality, style,

service, product availability, and convenience. The bargaining power of customers is the ability

of consumers to affects the price changes from the vender. This is first vertical force that is part


of Porter’s Forces that which make up industry dynamics. This force is based on the consumer

having many alternatives and choices as it relates to a firm’s product line. Firms seek to

minimize the bargaining power, usually through loyalty programs and store location.

Bargaining Power of Suppliers

The bargaining power of suppliers is referred to as the market of inputs, such raw materials,

miscellaneous components, labor, expertise, and specific products exclusive to the company.

This is the second vertical pressure placed on the firm in the Porter model. This pressure is a

source of power when there are few substitutes for which the firm can draw upon. JCPenney has

a diversified supplier base and is not dependent on any single supplier. They enjoy products from

over 2,000 domestic and foreign suppliers, many of which are long term.

Intensity of Competitive Rivalry

This force is the major source of the competitiveness. It is based on several factors including

competitive advantage, advertising leverage, overall strategy, the firm’s transparency, and the

company’s concentration ratio. Rivalry amongst department stores and retail shopping outlets is

extremely competitive. Even though JCPenney is one of the largest department store and e-

commerce retailers in the United States, they compete with brick and mortar firms as well as on-

line only retailers on numerous fronts.

Internal Analysis

Overview

Internal Analysis of JCPenney will investigate and provide overview of the general business

strength and weaknesses found inside JCPenney of which they bring to the competitive

department store environment. This review will provide commentary to JCPenney’s ability to

operate successfully from a value chain approach, highlighting its strengths and weaknesses.


JCPenney’s strengths include having established historic name recognition, immense product

and service selection, highly sought after shopping convenience (via storefront or online), and

attractive credit and loyalty program availability to consumers. JCPenney’s weaknesses include

a poor marketing image, uncompetitive product selection, and poor financial performance

resulting in multiple human resource issues.

Strengths

Over the last two years, JCPenney’s stock price has nose-dived from over $17.00 per share to

just over $8.00 currently. JCPenney, despite its recent lack luster performance, carries several

strengths that could capitalize into stronger financial performance in the department store

industry. These strengths include having established historic name recognition, immense

product and service selection, highly sought after shopping convenience (via storefront or

online), and attractive credit and loyalty program availability to consumers. JCPenney has been

in incorporated since 1924, having been founded since 1902. With over 1,000 stores nationwide,

JCPenney is a recognizable stable in the department store industry with known prominence in

shopping malls across America. With this long-term establishment, only the small few will not

know what JCPenney sells. JCPenney consists of selling an immense product line along with a

few service selections, like hair styling and family photography. Their core product selection is

men’s women’s and children’s apparel, home merchandise, and apparel accessories. With their

wide variety of goods and selection, a typical family will find a lot of what they need. JCPenney

has stayed true to the modern times by offering shopping in both stores and online. This

provides shoppers another avenue to wider products that there local JCPenney may not have.

JCPenney also boasts strong credit availability and operates a special loyalty program. These

offerings keep customers engaged in JCPenney’s product line.


Weaknesses

JCPenney operates in a highly competitive industry, on a local, regional, and national stage. The

competition ranges from other department stores to specialized retailers (i.e. competing with

Dillard’s then with Anna’s Linens). Recently JCPenney has seen a financial downturn largely in

part due to the multiple weaknesses within their operations. These include a poor marketing

image, uncompetitive product selection, and poor financial performance resulting in multiple

human resource issues. JCPenney for many years has residing exclusively in large retail

shopping malls. While there are still some upscale malls out there, research (and JCP’s own

10K) has shown that the major mall shopping is in decline, of which JCPenney has most of its

stores. JCPenney has been labeled a low quality provider because they have failed to stay

modern by moving into the independent storefront arena, similar to the way Kohl’s has operated.

Additionally, JCPenney has suffered from a poor marketing image due to the recent financial

headlines plaguing the company. Both of these weaken the company’s performance. A further

weakness affecting JCPenney is the lack luster department store selection. While the types of

merchandise sold is strong ranging from Men’s apparel to home goods to linens to jewelry, the

competitive selection within each of those categories is limited. For example, while a consumer

would know to shop at JCPenney for home furnishings, the selection is limited; or a consumer

would know that that JCPenney offered living room furniture; there selection is only of two

styles. Recent poor financial performance has resulted in multiple human resource issues. With

the recent poor financial performance, JCPenney has been unable to pay additional wages and

bonuses to employees; thus furthering already high employee turnover. Not having a bright,

engaged work force with the company only diminishes the available service provided. Weak

financial performance forces employees to take on additional roles and duties spreading the


talent pool to thin. An employee is made to be a jack of all trades, but a master at none. As

covered in their 10K, “The failure to retain, attract, and motivate our employees, including key

positions, could have an adverse impact on our results of operations.”

Value Chain Analysis

The Value Chain Analysis describes five generic categories of primary activities that span across

any industry. The primary activities are Inbound Logistics, Operations, Outbound Logistics,

Marketing and Sales, and Service. JCPenney operates a logistics system through distribution

centers strategically located in 5 states. Their supply chain network operates 25 facilities at 14

locations including 11 store merchandise distribution centers, 7 regional warehouses, 3

jcpenney.com centers, and 4 furniture distribution centers. This network is adequate to meet

selection and delivery needs for both retail outlets and online orders. Overall the inbound

logistics, operations, and outbound logistics for JCPenney are on par with rivals and those

outside the department store industry. This is a key source of competitive advantage. Marketing

and Sales include the activities related to entice the consumers to purchase the goods and

services from JCPenney. This includes advertising, promotion, sales force, and pricing. This

particular portion of the value chain is where JCPenney remains uncompetitive. In 2014

JCPenney continued its turnaround strategy, seeking to reconnect with customers. JCPenney has

recognized the need to increase customer traffic in its stores. One of their Marketing and Sales

strategies is to increase mark down pricing and sales promotions. One failed attempt at this

occurred a few years back when JCPenney offered even numbered, strict pricing without the

discounted sales promotion. This failed. It produced an image of JCPenney as low quality and

unable to offer a deal. JCPenney offers multiple incentives to customers via their rewards

programs, TV advertising, and online promotions. While this is amount of enticement is on par


with fellow retailers like Dillard’s and Kohl’s’, it fails to yield the operating and sales results

desired. As stated in their 10K, “Our ability to increase sales and store productivity is largely

dependent upon our ability to increase customer traffic and conversion.

Resources for New Markets with Key Strategies

Looking forward into 2015, JCPenney has several avenues and resources to reach existing

markets, new markets, and continued turnaround from the recent poor financial performance.

JCPenney must follow a few key strategies through capitalizing on existing strengths and

mitigating the weaknesses and failures of the past five years. Two key strategies, outlet location

move and a merchandise revamp, will reach new markets as well as regain lost ground in

previously lost segments. First, JCPenney must make a clear and decisive departure from their

current store locations at malls to more free standing outlets. With the decline in mall shopping

traffic, this affects JCPenney immensely since they are already experiencing a decrease. While

this strategic move will take multiple years and significant capital, the added consumer traffic

and associated indirect rebranding that will occur is critical for JCPenney’s long term

sustainability. Second, JCPenney is in dire need of product line right sizing and re-focus. As

covered previously, JCPenney offers a wide array of merchandise that is suited for families and

individuals. While it’s a wide array, the selection is limited. For example, JCPenney might offer

home furniture the selection is only of two styles. The better key strategy is to discontinue the

furniture line and allocate those dollars and resources towards a better selling commodity.

Furthermore, JCPenney needs to standardize and bring consistency to store inventory. After

further in store research, it was determine that locations only a few miles apart offered vastly

different lines. While some variance is desired to account for local consumer tastes, what was

noted was as different as night and day. The limited selection at both locations failed to justify


the foot traffic and braving a visit to the already dreaded shopping mall. JCPenney needs to

determine the strongest sales opportunities, and expand and standardize; hence, scrubbing itself

of the lack luster product lines.

Identification of Strategy - JCPenney, Dillard’s, and Kohl’s

JCPenney’s business model consists of selling merchandise to various consumer segments

through department stores and via online at jcpenney.com. With the department store/retail

industry being extremely competitive, JCPenney fundamentally competes with multiple retailers

including Dillard’s, Kohl’s, Sears, Macy’s, Belk, and Steinmart. The main focus of this review

will be placed on JCPenney’s primary competition: Dillard’s and Kohl’s. The department store

and retail shopping industry is highly competitive, requiring a strong commitment to consumer’s

micro-economic condition and a well-articulated corporate strategy. Currently, as stated from

their website, JCPenney is “Dedicated to fitting the diversity of America with unparalleled style,

quality, and value. Across approximately 1,060 stores and at JCPenney.com, customers will

discover a broad assortment of national, private, and exclusive brands to fit all shapes, sizes,

colors, and wallets.” JCPenney’s current strategy began a few years ago as a result of some

tumultuous financial results. JCPenney engaged in a multi-year stabilization effort to rebuild

reconnect with core customers previously lost.

The following breakdown highlights the key strategy points for not only JCPenney, but its

primary competitors: Dillard’s and Kohl’s.


Strategy Points for JCPenney:

Multi-year stabilization effort to rebuild JCPenney and reconnect with core customers

previously lost

Revitalize key areas of beauty, jewelry, shoes, handbags, and accessories

Discontinuing trendy brands and bring back previously successful store labels.

Expand e-Commerce and bring back the classic JCPenney printed catalog.

Continue offering incentives via JCPenney rewards program to increase foot traffic. J C

Penney offers a point system based on individual spend that accumulates to in-store cash.

JCP offers a credit line with special financing and coupons for credit holders only.

Strategy Points for Dillard’s:

Trimming store count to minimize costs and drive up the image of exclusivity

Focus is largely on middle to upper middle income retail segment

Largest focus is on apparel and home furnishings via name brand and private label.

Entirely mall based, identical to JCPenney only at a higher price point and perceived

quality serving as the primary competitor (location specific).

Only offering incentives via Dillard’s credit line, not offering sale specials or extensive

advertising for foot traffic.

Strategy Points for Kohl’s:

One of the fastest growing retailers which is entirely based away from malls. This is

opposite of Dillard’s but at the same relative price point as JCPenney’s.

Offers a large selection of primarily apparel for men and women, but also offering an

extensive line of home furnishings. Kohl’s is a direct competitor at this level rather than

Dillard’s at a higher perceived price and quality.


Continue to offer a rewards system for repeat shopping. Kohl’s offers an in-store cash

system based on individual spend that accumulates to further in-store cash. (“Kohl’s cash”)

Offers multiple sales discounts and specials frequently throughout the year to maintain foot

traffic. JCPenney follows suit but is still recovering from a bad pricing strategy a few years

ago. Dillard’s limits its special sales, still showcasing itself with some level of exclusivity.

The Retail Industry is highly competitive and that results in department stores adopting

strategies that focus on certain objectives with the consumer. As with each action, there is

economic balance required and risk exposure. The following Strategy Summary Tables indicate

the main facets of each firm’s strategy (reaching out to consumer shopping segments in retail)

and summarizes its focus, risk, and impact on the focal firm JCPenney.

Strategy Summary Tables

JCPenney

Strategy Highlight Focus and Impact Risk Impact on JCPenney

Multi-year

stabilization effort to

rebuild JCPenney

Reconnect with

core customers

previously lost

Stabilization may not

be possible due to

macro-economic

conditions

Consumer re-connect may not

be possible.

Revitalize key areas

of beauty, jewelry,

shoes, handbags, and

accessories

Reconnect with

consumers but also

reach a new

market segment

“Revitalization” may

not resonate with

current or potential

JCP consumers

Further decline in sales, foot

traffic, and favorable retail

image, or expanded sales due

to rebranding.

Discontinuing trendy

brands; bring back

previously successful

store labels

Reconnect with

core customers

previously lost and

attract new ones

May not resonate with

current or potential

JCP consumers

Further decline in sales, foot

traffic, and favorable retail

image, or expanded sales due

to rebranding.

Expand e-Commerce

and bring back the

classic JCPenney

printed catalog

Reach out to non-

traditional

shoppers looking

for convenience

Website security of

consumer information

is paramount as well

as proper non-regional

pricing.

Possible sales growth

including offering not-in-store

products and easy shopping.


Dillard’s

Strategy Highlight Focus and Impact Impact on JCPenney

Trimming store count

and maintaining

stores only in retail

shopping malls

Right sizing the

number of stores

to minimize costs

and drive up the

image of

exclusivity

With Dillard’s being a mall location rival, consumers

not finding what they like will put forth the additional

expense for a better product and shopping experience.

Focus largely on

middle/upper middle

income retail

segment

Drive up the image

of exclusivity as

well as

maintaining the

higher price point

If JCPenney fails to reach its consumers with their

desired fashion at the right price point, consumers could

leave JCPenney and flock to Dillard’s, for only the

slight increase in price.

Largest focus on

apparel and home

furnishings via name

brand/private label

Focusing on wide

product

availability at an

upper end pricing

Since Dillard’s is a location competitor, JCPenney must

maintain a cutting edge product line, a traditional line,

as well as provide a solid customer service base.

Kohl’s

Strategy Highlight Focus and Impact Impact on JCPenney

Free standing entirely

based away from

malls

Capitalize on

current consumer

trend of strip mall

shopping and in-

neighborhood

availability.

Consumers will often choose a more local provider.

Recent studies have indicated that mall traffic is on the

decline and Kohl’s is set to quickly capitalize on this.

With retail shopping being a portion of discretionary

spend, some consumers will simply go to Kohl’s and

avoid JCPenney all together.

Offers a large

selection of apparel

and an extensive line

of home furnishings

Focus is placed on

product, size,

fashion, and

current

furnishings.

If JCPenney fails to reach its consumers with their

desired fashion at the right price point, consumers

could leave JCPenney and shop closer to home at the

same price point; thereby avoiding malls. The result

could be loss of foot traffic and sales.

Offer a rewards

system for repeat

shopping: in-store

cash system

Creates increased

foot traffic and

frequent repeat

shoppers for high

inventory turnover.

The more aggressive the Kohl’s rewards, a more

natural propensity for a price war will ensue.

JCPenney should counter with aggressive rewards, but

that could limit profits.

Offers multiple sales

discounts and specials

frequently throughout

the year to maintain

foot traffic

Creates increased

consumer “buzz”

and frequent repeat

shoppers for high

inventory turnover.

The more aggressive the Kohl’s sales specials and

discounts, JCPenney will be forced to offer aggressive

price reductions and advertising sales, but that could

limit profits and margins.


Recommendations

JCPenney has undergone a transformational period in the recent years. With the poor financial

performance in recent times, JCPenney went through two CEOs and several marketing and

merchandising strategies, all with no success. Based on first hand retail research and review of

JCPenney’s 10K from 2011 and 2015, the following recommendations can be made:

1. Rationalize all product lines offered by JCPenney. At the current time, JCPenney stores

offer a wide array for apparel, accessories, and home furnishings. JCPenney needs to

return to their “roots” of high quality, affordable brands of clothing and accessories made

for the mature professional. JCPenney should continue to offer home furnishings like

bedding, small kitchen appliances, and decorative home goods; but then JCPenney must

also discontinue poor selling and one-off items like furniture and exercise equipment.

2. JCPenney needs to continue its coupon and in-store sales promotions, even expanding

them to increase foot traffic and directly compete with retailers like Kohl’s. Consumers

love a deal, and it’s these sales promotions and coupons that instill that “getting a deal” in

JCPenney’s customers.

3. JCPenney needs to undertake a broad based departure from mall locations to free-

standing/strip mall locations. They must retain store outlets in only newer or upper end

mall locations, knowing that mall foot traffic on the decline and shoppers preferring more

local residential type outlets. This will directly compete with Kohl’s and provide easier

access for potential shoppers that avoid large shopping malls.

4. JCPenney should cap the above changes with a well-promoted corporate image strategy

highlighting the glamor and advantages of working for JCPenney. JCPenney has suffered

from layoffs and a resulting poor image of not being a good place to work. JCPenney


needs to staff additional personnel in stores as well as offer new positions at the corporate

level. JCPenney needs to transform its human resource with the ultimate goal of being a

top tier employer.

JCPenney has seen poor financial performance in recent times (notice that net income is in the

severe negative). Commitment to the above strategies is crucial to continue the reconnection

JCPenney is seeking with its customers and improving its financial performance. Implementing

the above recommendations requires deliberate, strategic planning. A well rounded strategic

implementation plan will include a multi-phase merchandise rationalization effort; to include a

study on JCPenney merchandise sales statistics on historical best sellers. The second piece will

include a multi-phase pricing and couponing enhancement effort; to include real time econometric

impact amounts to steer the best sales promotions. The third retail outlet location shift must be

implemented over the long term. Departing from the normal locations (shopping malls) will

require large capital investments. The logistics of operating in all new locations is a large

constraint, overcome with added foot traffic and convenience of sales. Finally, as a last piece of

the strategic outline, a human resource rejuvenation campaign is a must. With the layoffs in

recent times, JCPenney needs to phase in added personnel and engage in a broad media campaign

to highlight JCPenney as a top tier employer. The added labor expense is constraining, but

having strong employment ties within the community pays tenfold.


Works Cited

J. C. Penney Company Inc. 2014 10-K Report. J.C. Penney Company Inc, 2013. Web. 15 April,

2015. http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-irHome

J. C. Penney Company Inc. 2012 10-K Report. J.C. Penney Company Inc, 2013. Web. 27

January, 2015. http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-reportsAnnual

“JCP, Inc: Balance Sheet 2011-2015.” Mergent Online. Web 15 April, 2015.

http://www.mergentonline.com.libproxy.utdallas.edu/companyfinancials


http://www.mergentonline.com.libproxy.utdallas.edu/companyfinancials.

http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-irHome

http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-reportsAnnual



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