JC Penny is an iconic American brand that has catered specifically to the middle class for generations. This strategy upon inception was beneficial, as JCP was able to operate in the great depression. Through use of a "Fair Price" model, customers flocked to JCP for its value orientation. This allowed the company to grow even in the midst of the great depression. However, capitalism evokes change even in the most well run businesses. JCP quickly found competition for other, more focused department stores such as Sears and Wal-Mart. JCP has now been forced, through competitive pressures, to re-evaluate its cooperate and business strategy. This has become particularly true since the great recession, as consumers are still not completely confident about their future purchasing behavior.
Below is a SWOT analysis of JCP relative to peers in the industry. As a retailer focused on the middle class, JCP has a vast amount of market share to take. However, due to its focus on the largest segment of consumers in America, the middle class, JCP also has a vast amount of competition. When reviewing the SWOT analysis JCP has threats from many "pure-play" online rivals. These rivals such as Amazon and EBay are fierce competitors and compete often on price or convenience. JCP also has a significant weakness in distribution as low cost producers such as Wal-Mart, have spent decades cultivating their competitive advantage. However, JCP has a strong brand, strong store network, and a strong asset base to propel it into the future. This asset base, as mentioned below will be key in driving future profitability and growth for the company.
Strong Brand image among middle class consumers
Over 2500 supplies allows the company to be nimble
Strong management team
Strong private label brands
Strong store presence with locations in nearly every state
Excessive debt as compared to peers in the industry
The JCP distribution network is not as robust as competitors (i.e.- Target, Wal-Mart)
Lower margins as a result of low cost focus
Excessive leverage due to debt can be a disadvantage...
Higher debt to equity ratio than peers
Cash conversion cycle lags behind peers in the industry
Internet sales are becoming a larger portion of revenue
Economy is on a steady rise as GDP continues to grow
Consumers are becoming more confident regarding their financial future
Low interest rate environment allows the company to make capital investments at a low rate using debt
Strong competitive pressures in the middle class consumer segment
Consumer discretionary income is declining
Purely online competitors (Amazon, EBay, etc.)
True department stores
JCP should focus on its internet sales leadership while utilizing its extensive store network. The greatest strength of JCP is its online sales and strong store network. JCP relative to competitors has a large amount of real-estate assets at its disposal. Currently, due to lack luster sales growth the return on these assets is lower relative to alternatives. JCP can monetize these real estate assets in numerous ways. If JCP can leverage its strong asset base with its store network, it can vastly increase its competitive leadership.
Currently, low cost competitors are stealing market share from JCP. Consumers, particularly after the great recession are trading down to lower cost alternatives. They are electing cheaper alternatives as they are fearful about their financial and economic future. These consumers are therefore attempting to save money to compensate for this uncertainty. In addition, those who are in the higher economic classes are electing to shop with luxury retail providers as oppose to JCP. As a result, sales and margins have declined as JCP must reduce prices to remain competitive. JCP however does not possess the economies of scale necessary to compete as a low cost producer. Wal-Mart, with its "just-in-time," inventory system and extensive distribution network has the platform to compete as a low cost producer relative to any of its retail peers. JCP therefore is at a competitive disadvantage against both the high-end producer and the low end producer.
To compensate for this disadvantage, JCP must rely on the competitive advantages it possesses relative to peers. This comes in the form of a diverse and integrated store network. In many instances, JCP engages in very long-term leases or owns the property outright. Therefore, the company can leverage this asset to reduce costs, raise margins and increase sales.
To accomplish this task, the store must shrink to lower costs. One method of doing so would be to sub-lease space within its existing store operation. Larger competitors such as Macys and Sears have already begun this tread. Currently occupancy rates are at record highs. In addition, rental rates per square foot are high as demand for space is increasing. JCP can take advantage of this trend by leasing space that it does not need. Unprofitable or low margin business segments will be eliminated and replaced with competitors who are willing to sub-lease the space vacated. This will lower costs for JCP while also increasing rental income for the store.
The second aspect of this transformation would be to use the remaining space to integrate it with the company's online network. JCP has a very strong internet presence. In…
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