Mark Cuban's stock purchase and J.C. Penney's recovery strategy

J.C. Penney News Is Bigger Than Lawsuit Decisions, Revenue Losses, and Resignations - Mark Cuban's Stock Purchase Is Better Than Money for J.C. Penney's Recovery (JCP, MSO)

Organizational context: J.C. Penney

J.C. Penney is one of the most famous and renowned of the major U.S. department stores. It is well-known for its image of Americana and its reasonable prices. However, within this particular market segment, J.C. Penney is facing increasingly stiff competition from major retailers such as Wal-Mart and Target. Wal-Mart boasts that it has considerably cheaper prices than all of its competitors, including Penney; Target has managed, despite its bargain-basement image to cultivate a more sophisticated aura than J.C. Penney. J.C. Penney is struggling to eke out a future for itself, despite a host of challenges that are partially environmental and partly of its own making.

History

The J.C. Penney Company was first incorporated in 1913. It expanded rapidly, with the company boasting over "371 stores in 27 states" by 1922 (History timeline JCP, 2013, JCP). What was so innovative about Penny's was its convenience: its stores were located in downtown urban areas and offered a wide variety of private label brands "including Gaymode hosiery, Silver Moon lingerie, Big Mac work clothes, and Towncraft menswear" that could suit almost every customer's needs and budgets (History timeline JCP, 2013, JCP). Customers could easily do all of their shopping at Penney, spanning from farm equipment to silk stockings. It upheld its image of being a stalwart American company as one of the leading sellers of war bonds during World War II (History timeline JCP, 2013, JCP).

Penney was a profitable company: in 1951, "company sales exceed $1 billion dollars" however, not until the 1950s was it willing to introduce selling on credit, until then having a cash-only policy, given that its founder viewed selling on credit to be immoral both for the retailer and for the customer (History timeline JCP, 2013, JCP). In the 1970s, Penney stores became better known for their clothing and housewares rather than for dry goods and farm supplies. Stores evolved into "anchors" in increasingly popular shopping malls and began advertising on television (History timeline JCP, 2013, JCP). It was one of the first major retailers to launch an e-commerce site (History timeline JCP, 2013, JCP).

Organizational image

The history of J.C. Penney has thus been a mixed one: in some ways, it has been quite innovative as an organization; in other ways it has shown considerable resistance to change in crafting an image that is likely to be popular with consumers. "By the 1990s, J.C. Penney was on the rocks. Customers were leaving the big department stores and spending their money at specialty stores like The Limited and Gap" (Petro 2013:1). Penney suffered from a Middle America image lacking in 'cool.' By the 1990s, everyone wanted to seem stylish and the relatively dowdy image of Penney caused even lower-income consumers to turn away in droves.

Attempts to revitalize its image unfortunately only solidified the idea that Penney was a down-market company: "their strategy was to focus on where the customer was shopping; hence they vacated old mall locations, closed underperforming stores and opened new stores with at-the-door parking to compete with Kohl's, TJ Maxx and Target Despite these efforts, from 2003 to 2011, JC Penney's sales dropped 45% from $32.3 billion to $17.8 billion" (Petro 2013:1). Stressing the 'discount' component of Penney's and striving to compete with Kohl's only reinforced what people disliked about the company brand image.

Size and locations of operation

The American-based department store J.C. Penney Corp. operates 1,100 department stores in 49 states and Puerto Rico (J.C. Penney, 2013, Yahoo finance).

Type of products, and/or services offered

J.C. Penney is primarily known for selling men's, women's, and children's clothing, shoes, and accessories at reasonable prices. It does also sell some times of housewares and goods 'for the home.'

Environment in which the organization operates

Task environment

As a mid-market retailer, the primary task of Penney is to sell reasonably-priced clothing that still satisfies consumer's desires to look good and feel good. Other than pricing, Penney's does not cater to a specific 'niche' (such as the outdoorsy consumer of L.L. Bean or Land's End). Nor does it try to cultivate a specific ethos and style such as Target.

Suppliers

Penney had had a troubled relationship with its suppliers as well as its customers. "Allen B. Schwartz, co-owner of apparel company A.B.S. By Allen Schwartz, terminated his five-year-old Allen B. line with J.C. Penney, Women's Wear Daily reported," after the upscale supplier claimed the company undervalued him (Thau 2013:1). "Meanwhile, Bodum USA, the Danish company best known for its French press coffeemakers, filed a lawsuit against. J.C. Penney…alleging that the retailer did not meet its contractual obligation to feature the kitchenware firm's merchandise in hip, contemporary Bodum shops in 683 J.C. Penney stores" (Thau 2013:1). Thus two major suppliers critical to rehabilitating Penney's downscale image had a major, highly public break with the retailer.

Competitors

Penney is faced with competition from a number of highly successful retailers. Wal-Mart is able to easily compete with Penney on price, offering many similar-quality clothing within a comparable or cheaper price range. Wal-Mart also offers the convenience of one-stop shopping, given that it has many different types of goods, spanning from tires to groceries, as well as clothing and home goods. K-Mart and Sears, although less successful, also offer clothing and a wide array of practical home goods. Target and Kohl's selections are only slightly more limited and Target in particular has cultivated a sense of 'style' and a funny, kitsch ethos that Penney's stores lack.

Regulatory group

The J.C. Penney Corporation is the 'holding company' and regulatory group for the department store and 10 Foundry Big & Tall Supply Co. stores (J.C. Penney, 2013, Yahoo finance).

General environment

Mid-range department stores (despite the success of Target) as a category have been struggling in the United States for a variety of economic and social reasons, including the dominance of big box stores and inexpensive clothing merchandizers like H&M (Moore 2012). The greater segmentation of highly affluent vs. low-income consumers has further priced mid-market stores out of the marketplace.

Economic environment

During the 2008 recession, mid-market stores, brands and restaurants were particularly hard-hit. Very high-end stores experienced minimal impact, given the fact that high-income customers are relatively insulated from economic upheavals, as most of their disposable income is not salary-dependent (Moore 2012). Middle-income consumers turned to lower-end brands like Wal-Mart and McDonald's. As it is not 'the cheapest' of the major clothing-focused department stores, Penney continues to suffer being in brand limbo: it is not genuinely upscale nor is it cheap enough to compete with big box retailers.

Social/cultural environment

As well as suffering a lack of an economic customer niche, Penney also lacks a cohesive brand image. Even its major competitors with similar images such as Sears and K-Mart offer a wider range of services, enabling these companies to cushion themselves against potential losses, such as when consumers cut back on clothing purchases during a recession and focus upon buying strict necessities (such as replacing a washer when it breaks).

Political environment

J.C. Penney has attempted to adapt to political pressures to become more 'green' and to draw forth a new customer base it is marketing this sustainability. It boasts having a transparent supply chain, a commitment to recycling, and refuses to buy ethically tainted 'blood diamonds' for its jewelry lines (Corporate social responsibility, 2013, J.C. Penney).

Legal environment

Legal conflicts with suppliers have brought negative publicity to Penney; there was also a lawsuit regarding the conflict of interest of Martha Stewart when she attempted to launch a new brand at Penney, to which Macy's (which already had a relationship with Stewart) objected (Thau 2013:2).

Technological environment

Technologically, Penney was an early entrant into the online market but has failed to capitalize upon this first-mover status. Also, online retailers such as Amazon offer competition in terms of offering greatly discounted merchandise.

Organization's mission/vision and goals

Mission

J.C. Penney recently rewrote its mission statement to read that the "J. C. Penney Company, Inc. (NYSE: JCP), one of the nation's largest apparel and home furnishing retailers, is undergoing a resurgence to become America's preferred retail destination for unmatched style, quality and value. Across 1,100 stores and at jcp.com, customers will discover an inspiring shopping environment that features the most sought-after collection of private, national and exclusive brands and attractions" (About us, 2013, J.C. Penney).

Its appropriateness and relevance to organizational history and environment

This mission statement is designed to be commensurate with the 'old' company's emphasis on delivering value to consumers while emphasizing the fact that it newly capable of offering style and also adapting to the online environment.

Organization's strategy

Its relationship with organizational goals and mission/vision

Penney is attempting to create new-found brand loyalty in younger consumers, as part of its objective to reinvent itself as a more youth-focused entity that offers shoppers a distinct 'reason' to choose Penney. One of its most recent CEOs, Ron Johnson, who was widely praised for its retailing efforts at Apple "abruptly scrapped JCPenney's dubious pricing policies of marking up prices and then offering discounts, with heavy promotions, and coupons. He proposed to offer more interesting products, from lines like Martha Stewart and Joe Fresh, at reasonable prices all the time" (Denning 2013).

Its relationship with the environment in which organization exists

Johnson's strategy was called a failure because "the change in pricing occurred with merchandise that was already in stores and that customers were used to, rather than on brand-new merchandise. The approach didn't fare well with Penney's customer base of bargain hunters. They rebelled, traffic declined, sales fell and Penney slowly returned to the prior era of pricing, with lots of promotions, lots of price-focused ads, and marked-up prices that would be later marked down" (Denning 2013). However, although the new strategy may have not brought in new revenue initially, overall many outside analysts believe Penney should have continued with Johnson's approach, given that branding is so important to young people today: defining one's self as a brand is a critical component of adolescent and twentysomething self-definition.

Organizational structure

Appropriateness of structure to the environment, objectives, and strategy

Penney is a rather consolidated company: it only encompasses the department stores and the recently-acquired Foundry Big & Tall Supply Co. stores (J.C. Penney, 2013, Yahoo finance). This can be problematic, given the emphasis on a single market niche (clothing and housewares) in a competitive organizational environment although it is compatible with the company's domestic-focused strategy.

Organizational culture

The personality of J.C. Penney is often called rather conservative and attempts to uphold the original, core values and beliefs and values of the founder. "Reportedly Penny's genuine desire to treat customers well and provide them with a valuable service was a personal priority which he also made the jcpenney company mission, and the growth of the jcpenney company was an organic result of that" (Farfan 2013). However, lately there has been an increasingly strong emphasis on profit-making, as noted by Ron Johnson's swift dismissal when his organizational philosophy of emphasizing high-demand brands resulted in losses rather than gains in the short-term.

The rules for behavior and language may be customer-focused and technologically literate, but ultimately J.C. Penney, despite this language, has shown a greater emphasis on the 'rules' of profitability rather than creating a new organization that is 'built to last.' At present, Penney has a paucity of important rituals, symbols, and artifacts to create long-lasting relationships with either employees or customers because of its lack of a clear sense of mission -- it is not sure if it wants to emphasize deep discounts or a unique brand quality and hovers in the deadly 'mid-range' of marketing clothes, neither the cheapest nor the most stylish in relation to its competitors

SWOT Analysis

Strengths

J.C. Penney has a long-standing reputation as a company. Consumers are hungry for deals, and Penney's has a reputation as a cheaper retailer. It is located in many malls across the United States, which gives it a consumer base of automatic foot traffic.

Weakness

Penney currently has a very weak brand definition. It is not a 'hip' and cool brand like Target. Nor does it have a reputation as 'the' cheapest place to purchase items like Wal-Mart. Unless a business can operate on a vast economy of scale like Wal-Mart, it can be extremely challenging to emphasize price above quality and find a niche demographic, given that Wal-Mart and other discount retailers can always place downward pressure on prices.

Opportunities

Given that the economy is still shaky, more consumers may be open to shopping at Penney. In the popular media and in style, there is also a certain degree of nostalgia for vintage and retro looks and Penney could capitalize upon this.

Threats

Wal-Mart's pricing and Target's fun image continue to threaten Penney's from a brick-and-mortar perspective. Online, there is a great deal of downward price pressure from all retailers because of consumer's ability to price-shop. Amazon in particular has cultivated a strong relationship with its customer base through services such as Amazon Prime. Malls, where many Penney stores are located, are also under increasing threat as 'anchor stores. "In the old days, mall economics were so simple: Plunk down two big department stores as anchors and sandwich smaller shops in between. Open doors. But the past 20 years, the draw of the major department store has begun to erode, with many sold or shuttered as aging malls struggled to modernize" (Moore 2012).

Recommendations Based on the SWOT Analysis

Although Deming's strategy was problematic in its execution, ultimately his higher aim seems to be in the right place: "Make J.C. Penney a leader in style with good products and honest business practices" (Denning 2013). Delight customers and offer something unique. This uniqueness can be low-priced, but Penney is not equipped to compete with Wal-Mart on price alone on an economy of scale. The company must define 'who it is' for the future beyond price.