Analysis of JC Penney company and comparison of it with its competitors such as Dillard’s, Sears and others.

1. Individual Case Assignment: JC Penney 1
Individual Case Assignment: J.C. Penney
Roman Yakhin
MGMT-6351-Seminar of Strategic Management
University of Texas Victoria

2. Individual Case Assignment: JC Penney 2
Abstract
J.C. Penney Company was founded in 1902 and sells merchandise and services in 1,020
department stores and via its website. The merchandise on the website and in the physical stores
are essentially the same, and target the same type of customers. The company sells jewelry,
beauty products, home furnishing, footwear, apparel and so on. There are 10 warehouses and
distribution centers. J.C. Penney is a key player in the department store industry.
This paper analyzes the department store industry environment. By identifying political,
economic, sociocultural, and technological drivers for change. The paper also analyzes economic
characteristics, provides competitive analysis with strategic map, five forces analyses, and
identifies key success factors in the industry.

3. Individual Case Assignment: JC Penney 3
A. General Environmental Analysis
Section 2.1. General Environmental Analysis
Drivers of Change
Political- The Trump administration policies, such as low taxes for wealthy people will
benefit upscale stores. However, it is unlikely to help the majority of JC Penney’s customers.
Reduction of government programs will negatively affect the poor and low middle class
Americans, many of them who are JC Penney’s target clients.
Economical- The US economy is expecting to grow 2.2% in 2017, this should encourage
spending and help department stores. Many of the customers that typically buy attire in discount
stores will buy their outfits in department stores if the economic situation improves, and middle
class consumers buy clothes more frequently. One of the more serious economic changes
affecting department stores continues to be the concertation of wealth. The middle class in the
US now is only about 50% of the population vs 61% back in 1971. Greater concentration of
wealth in the hands of the upper middle class, 49% now vs 29% in 1970 is a positive trend for
upscale stores. However, stores that target middle class consumers are likely to suffer because of
the shrinking middle class in America.

4. Individual Case Assignment: JC Penney 4
Sociocultural- Changes in demographics and trends greatly affects department stores.
Department stores also must be very careful about changes in seasonal trends. One of the most
important changes in US demographics that affects department stores is the replacement of Baby
Boomers by Millennials as the most numerous population group. Millennials are dramatically
different from Baby Boomers in many ways.
Department stores must adjust to cater to more young people instead of Baby Boomers.
Millennials are also more racial diverse than older generations. People from different ethnic
backgrounds can have different preferences in fashion.
1971,61% 2015,50%
0%
10%
20%
30%
40%
50%
60%
70%
1971 2015
Middle class % in 1971 vs 2015
0-17 years
23%
Millennials
24%Gen X
20%
Baby Boomers
23%
Silent/Greatest
10%
Generation %

5. Individual Case Assignment: JC Penney 5
Technological-Department stores in recent times have greatly benefited from automatic
inventory control software, and point-of-sale equipment. RFID tags and digital security cameras
help to reduce shrink from theft.
B. Analysis of Economic Characteristics of the Industry
Section 2.2.1. Description of the Industry
Department stores are huge stores offering a large array of goods. They sell furniture,
clothes, apparel and so on. Goods are divided into sections and arranged by departments. The
departments are operated under single management. These stores have 50 or more employees.
Section 2.2.2. Industry Dominant Economic Futures
The market capitalization of department stores is $6.5 Billion. The industry employs
992,107 people and 7,936 businesses. The department store industry is defined as 3 categories:
Upscale, Mid-tier, and Discount. Department stores carry a wide variety of sizes and carry
household goods. Department stores usually offer their customers lines of credit.
There are several types of department stores. Branch stores or small stores operated by a
parent store, flagship stores are also known as parent stores and are in the central business
Millennials,
44%
Baby Boomers,
25%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
MILLENNIALS BABY BOOMERS
Millennials vs Baby Boomers % of
Non Whites

6. Individual Case Assignment: JC Penney 6
districts. Flagship stores are responsible for the merchandising of the entire operation. Junior
department stores have smaller size and fewer choice of merchandises. They have relatively low
sales and therefore, they have a hard time to compete. Chain stores are a group of stores
controlled by a single office. Life cycle of department stores are in the decline. The industry
consists of 68 stores, with about 70 to 80% of merchandise carried by the different stores being
the same. Apparel represents about 55% of sales, cosmetics 10%, footwear 9%, and appliances
5% of sales.
The industry has a monopolistic type of competition. The vertical integration in the
industry is low; however, some major players including JC Penney’s use some vertical
integration by having private brands.
Section 2.2.3. Market Size
The entire retail industry is almost 2/3 of part of the U.S. GDP. The industry employs 23
million people. In 2015, total retail sales were $5.3 Trillion. However, department stores are only
Apparel
55%
Cosmetics
10%
Footwear
9%
Appliances
5%
Other
21%
Sales by Categories

7. Individual Case Assignment: JC Penney 7
a small part of retail industry. The revenues of department stores industry in 2016 were $157
Billion.
Section 2.2.4. Market Grow Rate
The industry has reducing profitability. The department store industry is shrinking in size.
It has decreased by 3.8% over the last year.
Section 2.2.5. Industry Trends
One of the largest trends in the department store industry is the expansion of the online
component of the business. Online sales continue to grow while store sales continue to fall.
Retailers try to create omnichannel shopping experience that allow shoppers to easily combine
their online and physical store experiences.
If we exclude gasoline, groceries, and vehicle sales, that are rarely purchased online
the % of online sales would be much greater than 8.3% of total sales.
C. Competitive Analysis of the Industry
Section 2.2.6.5.1-2.2.6.5.2
2004,2.2%2006,3.1%
2008,3.6%
2010,4.6%
2012,5.4%
2014,6.5%
2016,8.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2004 2006 2008 2010 2012 2014 2016
Online sales as % of Retail Sales

8. Individual Case Assignment: JC Penney 8
Analysis of strategic position of major competitors in the industry and their potential strategic
moves.
The department store industry has several main competitors. The graph below represents
their market shares.
Nordstrom: This upscale department store outperforms any other retailer. In the last 5
years, its shares have increased by 110%. The cornerstone of their strategy is impeccable
customer service. Which includes an outstanding return policy. Outlet stores is another
important component of Nordstrom’s success. Only 10% to 20% of outlet customers are regular
Nordstrom store clients, so outlets reach a completely new demographic. Outlet stores were
instrumental in accessing young customers, which is something that a majority of department
stores have a problem with. Nordstrom emphasizes omnichannel approach. For example, it is
possible to instantly buy an item from Nordstrom’s Instagram account. Nordstrom’s value
proposition is high quality merchandise and exceptional quality of service. It is a strong position
Macy's
17%
Sears
15%
JC Penney
10%
Walmart
10%
Nordstrom
7%
Target
5%
Other
36%
Market share

9. Individual Case Assignment: JC Penney 9
because customers are willing to pay for this and the margin of profit from upscale products is
high; however, it has some challenges. The majority of sales growth in the future will come via
online and it is difficult to create a point of differentiation on one website from another to justify
the significant price difference. Nordstrom will try to improve its online operations in order to
create the same upscale shopping experience online like it has created in its physical stores.
Target: The company’s strategy is based around creating a hassle-free customer
experience. It is mostly accomplished by investing significant money in supply network and
technology. In 2016 the company invested $1.8 Billion, and $2.5 Billion in 2017. The company
has achieved an excellent inventory control due to this investment. We should expect more
aggressive investment in technology by Target to create advantage other its competitors via
technological superiority.
Walmart: The company cannot be characterized as a classical department store because
significant part of its sells came from selling groceries; however, Walmart is a large seller of
typical department store products such as apparel, furnishing, and closing. Walmart is the world
largest retailer and its greatly benefits from the economy of scale. Walmart has the strongest
negotiation position with suppliers among any retailers. It can spread its fix cost among a great
number of products and therefore achieve price leadership in many categories. The company is
very innovative and tried to apply the best practices in all its stores. Unlike many other
companies in the industry Walmart has a large international present, that provides its additional
advantage. Walmart will continue to take advantage of economy of scale and will achieve price
leadership in more consumer categories.
Macy’s: The company’s strategy is customer centered. It is particularly emphasizing
omnichannel. Macy’s tried to achieve perfect integration of online, as well as in-stores sales.

10. Individual Case Assignment: JC Penney 10
Macy’s strategy is known as M.O.M. (Macy, Omnichannel, Magic). Macy’s applies
technologies such as RFID tags. The company trains associates how to implement omnichannel
strategy. Macy is rolling out M.O.M. 2.0 program in order to build on the success of the original
program.
Kohl’s: The retailer is trying to compete directly against Amazon by stressing
omnichannel strategy. The company can deliver products very quickly by shipping them from
stores. Its online sales helps to compensate for any reduction of sales in traditional physical
stores. Kohl’s will continue improve its online capabilities to take an advantage of growing
online sales.
Retailers operate in Upscale, Midrange and Discount markets. JC Penney is a midrange
department store. Retailers such as Walmart, Target and Nordstrom are its competition, but not
direct ones. However, Kohl’s and Macy’s are very direct competition to JC Penney. Below is a
strategic map based on total revenues, revenues per store and number of stores, this represents
these corporation’s stand in relationships to each other.

11. Individual Case Assignment: JC Penney 11
This graph illustrates JC Penney’s issue with low store profitability. The company’s
strategy involved closing many not profitable stores and focusing on increasing profitability of
remaining businesses. The company will also focus more on its online sales.
D. Five Forces Analysis and Key Success Factors
Section 2.2.6. Five Forces Analysis
 Threat of new entrants
The number of department stores in US has been decreasing over the years; however, the
industry is very lightly regulated by government and the switching cost for consumers is
low, so the threat of the new entry is from low to medium.

12. Individual Case Assignment: JC Penney 12
 Threat of substitutes
The threat of substitute is high. Department stores must compete with such stores as
Walmart as well as with highly specialized stores. The main threat for department stores
is online stores, such as Amazon. More consumers every year prefer online stores than
traditional department stores.
 Bargaining power of customers
Individual customers can argue with a store clerk about the price of an item; however,
collective consumers can demand a certain level of quality and price for products. So, the
bargaining power of consumer is average as overall.
 Bargaining power of suppliers
Suppliers have very little bargaining power in retail industry. They greatly depend on
contracts from such retailers as JC Penney and can potentially be replaced rather
effortlessly. JC Penney’s, also like other large retailers, promotes its own store brands
such as Saint John’s Bay and Arizona. Private labels help to put additional pressure on
suppliers by forcing them to reduce prices and increase quality of their products.
 Industry rivalry
The industry rivalry is very high. Department stores are near each other and target similar
customer groups. The industry is not growing. Products are very similar from one
company to another. Consumers have very low or non-existing switching cost. The exit
barriers for companies on the other hand is high.

13. Individual Case Assignment: JC Penney 13
Summary of Five Forces Analysis
Instore Sales Online Sales
Now Future Now Future
Bayer Leverage Low Low Medium High
Supplier Leverage Very Low Very Low Very Low Very Low
Threat of New Entrants Low Very Low Medium Low
Threat of Substitutes High High High Medium
Intensity of Rivalry Very High Very High Very High Very High
Profit Potential Low Very Low Medium Low
Section 2.2.7. Industry Key Success Factors (KSFs)
Understanding behaviors of consumers. Companies have access to a great wealth of
information about each consumer’s purchasing history if this consumer use credit, debit or a
loyalty card to make a purchase. All this data must be carefully analyzed, to target every
customer more effectively with advertisement.
Multichannel strategies. Department stores are aided with well-designed online retail
sites that compliment offerings in the physical stores. Stores are custom made for different
locations. Some areas require large stores and some smaller one. Offerings in stores must be well
adjusted to the demographics in each area.
Improving operational efficiency. The store layout must create the best possible
conditions to properly display products. Staff must be well trained to be increase productivity.
Checkout processes should be fast and efficient. The inventory must be electronically controlled.
It would allowed reduce inventory size. Greater efficiency, reduce cost, and therefore gives an

14. Individual Case Assignment: JC Penney 14
opportunity to a retailer to reduce prices to customers to more effectively compete against other
retailers.
Enhancing customer experiences. Consumers must expect clean store layout, available
parking space, fast and polite service.

15. Individual Case Assignment: JC Penney 15
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16. Individual Case Assignment: JC Penney 16
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17. Individual Case Assignment: JC Penney 17
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