J.C. Penney Analysis
J.C. Penney Corporation is one of the oldest, most renowned retail companies in the United States. Over time, it has become a department store giant and a symbol of American capitalism. Along with its successes, the company has experienced some lows with most struggles occurring during this last decade. The landscape of the retail industry is undergoing a massive transformation, and other players have been reacting to these changes in a more efficient and profitable manner. J.C. Penney has attempted to keep up with these changes in the retail environment, but has failed thus far. The company has been plagued with multiple senior management changes and initiatives that have greatly misaligned its strategic decisions with its traditional competitive advantages. Following a brief company history and analysis of the current retail industry, an exploration of J.C. Penney’s recent failings is conducted. Finally, recommendations are offered to assist the company in a major turnaround. History, Business Model, and Profitability
James Cash Penney, at the age of 26, opened his first retail store, under the name “The Golden Rule”, in 1902 in Kemmerer, Wyoming. After initial success, the company experienced significant growth and expanded rapidly over the years and survived the Great Depression. Today, there are approximately 1100 J.C. Penney stores throughout the United States as well as in Puerto Rico, Mexico, and Chile. J.C. Penney’s business model was to offer high-quality, low-cost products to customers for their everyday needs. It provided sales discounts and was very good at adapting to changing customer habits as the years progressed. The company experienced a rapid growth and expansion from the 1920’s to 1950’s. The revenues continued to grow even during the depression years and right before its 50th anniversary, the sales were at $1 billion. During the next two decades, the company continued to grow as it entered the mail-order and discount business operations with the acquisition of General Merchandise Company. While the company was riding high on these achievements, the recession that began in 1974 took its toll. J.C. Penney's stock plunged from a high of $51 a share to $17 and earnings dropped from $185.8 million to $125.1 million. As the company expanded over the years, it faced tough competition from other mass marketers as well as speciality apparel stores. The company has restructured a couple of times to reposition itself and return back to the profitability level it experienced in it’s early years. The sales continued to grow as other initiatives such as women’s, men’s and kids’ fashion programs and home furnishing lines in new markets were added. However the income and per share earnings decreased significantly from $577 million to $80 million due to a shaky economy and tough competition. The company rebounded in the mid 1990’s due to strong catalog sales and record performance from it’s Insurance and National Bank businesses rather than it’s core retail business. However, this success did not last long into the new millennium and growth slowed as J.C. Penney began to see competitors eat into its market share. “The company had become bracketed by department stores such as Macy’s from above, while discount stores such as Target encroached from below. J.C. Penney’s market position became much more focused upon continuous sales and price competition rather than quality and value.” Exhibit 4 shows how fast the company’s performance declined between 2009 and 2014 driven primarily by reorganization put into place by management in 2011 to address the competitive landscape. This was the sharpest drop in net revenues the company experienced in it’s history - net revenues decreased by $6.6 billion while net margin decreased by 14.8%. This level of profitability is not feasible for the company’s survival as it seeks to find its’ place in the market and remain...
References: 1. http://en.wikipedia.org/wiki/Department_store
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