J.C. Penney is a retail outlet that operates in many locations globally. It deals with product lines such as clothing, footwear, beauty products, electronics, and jewelry. There are several changes that have taken place in the macro environment that promises to increase the fortunes of the company. The advertisement in technology is one single important factor that has increased the performance of the business (Ali, 2007).
The company has an elaborate website through which it uses to tap the online market. In fact, thirty percent of the company’s revenue comes from the website. The overall threat of new entrants in the retail market is a high level threat as it is relatively easy and inexpensive to enter the market. Entering the retail market as a competitor of J.C. Penney however, is a low-level threat.
The initial investment and capital requirement to enter the retail industry at such a high level is so great that it would be near impossible to compete with J.C. Penney. J.C. Penney has product differentiation by supplying the store’s own brand. They also have a long history and reputation of supplying quality products. J.C. Penney has the advantage of buying in large quantities at lower costs, and an established supply chain reducing costs of procurement of goods. J.C. Penney has established large retail space which would be extremely costly to imitate.
If internet retail stores are considered a substitute, the threat is massive. J.C. Penney has joined the online retail market and offers most of its products on their website in order to compete in this market. There are many online retailers out there that are making a strong push in the market with very similar product lines that J.C. Penney offers. Such players include Woolworths, Kohl’s Inc., Macy’s Inc., and Wal-Mart. The products include clothing, footwear, beauty products, electronics, and jewelry. J.C. Penney is a powerful buyer with bargaining power.
There are many wholesale suppliers. This creates price competition causing the price to come down. In addition, J.C. Penney buys in large volumes creating a big impact on revenue of the suppliers if they were to switch to another one. Switching costs are low for the large retailers and prime shelf space is costly to the suppliers and manufacturers of retail goods. If the price of the merchandise goes up to J.C. Penney, the profit margin goes down causing them to prefer to sell another brand with a higher profit margin.
The prime shelf space goes to the merchandise that provides the largest returns. Suppliers of J.C. Penney have low bargaining power. They depend on the large retailers for the bulk of their profit and if they lose a client like J.C. Penney because of high prices, they could kill their own business. Suppliers are at the mercy of the competition. The fact that the company enjoys economies of scale enables them to engage effectively in competitive pricing.
They must keep the prices low and the quality high or they will lose business. Retail merchandise is not very differentiated and most shoppers in today’s economy are looking for bargains. The main competitors of J.C. Penney are Kohls, Sears, Target, Macy’s (Bergner’s) and even Wal-Mart for some products. There exists much competition among these rivals. There is very little differentiation in merchandise, and there are little to no switching costs for buyers.
The time and gas to get from one store to another is really the extent of the switching costs. With the internet, comparing prices is as easy as checking on your smart phone while in the store. There are high exit barriers for these companies because most are involved in long term leases and have large amounts of capital wrapped up in inventory.
Most J.C. Penney stores are located as a hub store for a mall. The mall is a complement for J.C. Penney because many people that use the mall walk through J.C. Penney to get to the mall. If they are looking for other merchandise or are just out shopping in the mall, it is easy for them to enter J.C. Penney without using any gas (added cost) to drive from one store to another. The internal analysis of the company paints a picture of a firm that is well endowed with resources, both human and capital.
The company boasts of an asset base of $11.4 billion according to the financial reports for the year 2012. This is huge, and it shows that the company is well grounded and has the capacity to gain a competitive edge in the highly competitive retail market in which it operates (Britton & Jorissen, 2007). The company is equally endowed with qualified and skilled employees at all levels. This explains the reason why the company has consistently registered high efficiency and productivity in its operations. Mike Ulman, the chief executive officer and Mr. Thomas Engibous, who is the Chairman, head the company. The company has expanded significantly and currently it has footing in 11,106 locations globally.
Firms competing within this industry obviously must focus on several factors in order to be successful and achieve profitability. If you focus on their primary activities for their value chain analysis a few major things you need to focus on are their logistics, marketing, how they operate, and customer service. For their logistics, they offer free shipping to anywhere depending on how much you spend and where you are.
Therefore, they must have a large and quick distribution facility that can handle large orders efficiently, but also increase their ability to accept incoming materials efficiently to be able to produce the shipments. They offer the free shipping after such an amount to have a competitive advantage over other retail departments. Furthermore, as part of their excellent customer service, they will not only drop the shipment off at the door, they will come in set it up, and inspect the product to make sure that the item is perfect for the customer. For their marketing to set them apart, they found a way to decrease mailing out the weekly ads with coupon incentives, and also lower their prices to attract more customers to their store to make them look more appealing towards the middle-class families.
For J.C. Penney’s support activities as part of their value chain analysis to set them apart from their competitors, they put a lot of time into their technology development, procurement, administration, and human resource management. With their technology development, they had to put a lot of time into researching and developing stores in convenient locations with good discounts, and up to date products or services. They have a little over a few thousand employees that are specially trained to work in the optical, salon, retail and sales, electronics, and jewelry areas.
The created an easy and very lenient return policy for customers to have time to decide satisfaction of their products. As Kohl’s and Macy’s being J.C. Penney’s largest competitors, they all stay very competitive with each other. J.C. Penney’s strength against the others is having the lowest prices of all in retail, but their weakness is having fewer coupons to advertise. Therefore, this attracts the customer with prices, but not with advertising. Their return policy is more relaxed compared to others, which is more attractive to consumers, but also allows for a larger amount of losses compared to Kohl’s or Macy’s. The internal and external analysis of the company shows that the company is one of the leading global retail companies. It has the capacity to address its challenges and threats such as cut-throat completion and the bargaining power of the consumers. This is because it is well endowed with human and capital resources for enhanced business performance.
J.C. Penney Ratios for Financial Ratio Analysis 2009, 2010, 2011, 2012, 2013
Current Ratio 2.23, 2.05, 2.41, 1.84, 1.43
Quick Ratio 1.06, 1.12, 1.19, 0.79, 0.52
Cash Ratio 0.06, 0.05, 0.06, 0.06, 0.05
Inventory Turnover 3.55, 3.52, 3.36, 3.79, 3.81
Days’ Sales in Inventory 102.80, 103.68, 108.60, 96.39, 95.80
Receivables turnover 52.52, 44.45, 53.17, 41.79, 227.81
Days’ Sales in Receivables 6.95, 8.21, 6.86, 8.73, 1.60
Total Asset turnover1.54, 1.40, 1.36, 1.51, 1.33
Capital intensity 0.65, 0.72, 0.73, 0.66, 0.75
Profit Margin 0.03, 0.01, 0.02, (0.01), (0.08)
Return on Assets (ROA) 0.05, 0.02, 0.03, (0.01), (0.10)
Return on equity (ROE) 0.14, 0.05, 0.07, (0.04), (0.31)
- Ali, K. (2007). Commercial Business Organization. New York: Routledge-Cavendish.
- Britton A. & Jorissen A. (2007). International Financial Reporting and Analysis. Boston, Massachussetts: Cengage Learning EMEA.