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.
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).
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
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.
J.C. Penney does have a core consumer demographic which is extremely price-focused. "J.C. Penney had a loyal customer base that was spending over $17 billion per year in their stores in 2011. Even though this has dropped to $12.9 billion in 2013, there is a core customer segment" (Petro 2013:2). Unfortunately, the typical Penney customer is not necessarily what would be considered part of a 'desirable' customer segment by many retailers. "Nearly half the people shopping at Penney's 1,100 or so stores are older than 55" (Stock 2013). This is 'bad news' for the retailer given that older customers tend to be extremely price-sensitive. They are willing to turn away from Penney if Wal-Mart offers a better deal (which it very likely may). Additionally, "only 13% of its shoppers have an annual household income of more than $100,000…Kohl's, Target, and Macy's better that result handily. At the other end of the spectrum, 29% of Penney's customers make less than $35,000 a year, compared with 19% at Kohl's and 20% at Macy's" (Stock 2013).
While some components of the business press have bemoaned the fact that Penney's must win back its old customers, in reality it must win new customers. Older customers, quite simply, have a shorter lifespan than younger consumers and Penney must actually win the hearts and minds of the next generation of Penney's shoppers to thrive and to rehabilitate its image. And higher-income consumers have more disposable income to spend. Possible customer areas to explore are "professional, middle-class, suburban mothers," the type who shop at Target to save money on children's clothing and housewares, enjoy and can afford to shop as a hobby, but are also looking for a good bargain (Petro 2013:2).
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.
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.
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).
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.
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.
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).
J.C. Penney has attempted to adapt to political pressures to become more 'green' and to draw forth a new customer…