J.C Penney: Searching their competitive advantage

J.C Penney: Searching their competitive advantage

J.C. Penney is an iconic American department store founded in the mountain west region over 100 years ago. Over the years the company has evolved from its origins as the Golden Rule store in Kemmerer, Wyoming in order to withstand the continually changing business environment. As the company is experiencing poor performance and again facing severe economic and competitive challenges in the retail sector, this mini-case discusses the decision for a change in strategy that has already been made, key leaders selected to transform the company, and positioning the company wants to offer to its customers.

Over the years, J.C. Penney has repeatedly adjusted to the market needs of the time. The company’s expansive presence throughout the U.S, catalog business, broad range of goods and services, and private label brands are critical elements of its strategy which have persisted despite changing market conditions.

Revising the company’s existing strategy as it entered the new millennium, J.C. Penney took aim at the middle class consumer and positioned itself as an alternative to successful mass merchandisers. It did this by:

» modernizing and building an Internet presence,

» actively marketing with social media tools,

» taking measures to lengthen in-store visits,

» attempting to soften the store image,

» adding destinations like coffee bars,

» introducing well-known celebrity product lines,

» emphasizing a store-within-a-store model, and

» shifting to single-story (off-the-mall) venues.

At face value, these are solid moves; but in the fight for a shrinking middle class target market, J.C. Penney is still poorly positioned “in the middle” between mass merchandisers and more conspicuously focused department stores.

Competitive landscape

Mapping industry rivals can be a helpful method of visualizing a company’s relative competitive position in the marketplace. It can be particularly useful in this case where consumers and retailers are continually shifting to discover the best price-product-value combination. JC Penney operates in an industry where survival depends upon the ability to generate sales. Clearly, the successful competitors in the industry are those with an intense strategic focus and a strong brand image.

The following chart plots J.C. Penney’s key competitors according to their profitability (measured by net margin), revenue (bubble size), and relative market position (based on pricing perceptions of consumers or targeted image along a discount-specialty continuum). Plotting values are recorded in the table below.

Retailer	Net Margin	Sales ($ bil.)	Market Position
Target	4.3%	68.5	2
Sears	-7.6%	41.6	2.75
Kohl’s	6.2%	18.8	3
JCP	-0.9%	17.3	4
Macy’s	4.8%	26.4	5

Sears

Kohl’s

Macy’s

JCP

Target

Net Margin

Mass Merchandise Mid-Tier High-End Discounter Retailer Department Store

The table below further describes and explains the information displayed in the chart.

Retailer	Net Margin	Sales ($ bil.)	Market Position	Comments:
Target	4.3%	68.5	2	Based on sales volume and performance, Target is succeeding with its target market of price-sensitive consumers who are looking for style and quality associated with mid-tier retailers.
Sears	-7.6%	41.6	2.75	Sears – the second largest company in terms of revenue – formerly held a higher market position in the 3-4 range along with JCP. After the company failed in an attempt to upgrade its clothing selection into a more expensive position, it entered a merger with Kmart. This move aligns the financially troubled company more with mass merchandise discounters than with high-end stores.

Retailer	Net Margin	Sales	Market Position	Comments:
Kohl’s	6.2%	18.8	3	Kohl’s is a solid, mid-tier retailer. Smaller than most of its competitors, it has the best performance in the group.
JCP	-0.9%	17.3	4	Smaller in sales than all of the other named competitors, JCP features celebrity-focused private label product lines. The company applies pricing gimmicks to compete against discounters
Macy’s	4.8%	26.4	5	A good performer amongst this group, Macy’s is positioned at the top end of the mid-tier segment. It has a deep product portfolio of private label brands, differentiated by store to deliver exceptional value for the customer. This merchandiser operates strategically using new technological tools to execute precision marketing and to stay in touch with changing market trends.

Transitioning to the 21st century

During the first decade of the 21st century, JCP focused on increasing its Internet presence and Internet sales with Facebook campaigns, viral advertising, and a revamped Web site. To date, its Internet presence is achieving some success. Additionally, in an attempt to soften its image and keep its customers in its stores longer, JCP began opening Seattle’s Best Coffee bars in its department stores in 2009.

Around this time, JCP decided to target the middle class consumer by positioning itself as an alternative to mass merchandise stores such as Target. JCP continued its tradition of developing and marketing private label brands by working with well-known designers and product lines. These included the cosmetic company Sephora, chef Emeril Lagasse, designers Ralph Lauren, Kimora Lee Simmons, and Ryan Sheckler, and interior decorator Martha Stewart. JCP also revamped many of its successful labels such as Arizona Jeans and designs from Liz Claiborne. More of the firm’s older stores were transitioned to single-story venues with large parking lots and shopping carts. During this time, JCP was using a traditional pricing strategy with relatively high prices punctuated by hundreds of promotions and sales that occurred at different times during each year.

Unfortunately, sales began to stagnate during the financial recession of 2007. Competition increased from both low-price discounters such as Walmart and, to a lesser degree, Target, and from higher end retailers such as Nordstrom. To a degree, JCP found itself in a virtual no man’s land, unable to compete on price and without the product quality and selection to attract customers looking for more crisply differentiated products. JCP’s new CEO, Ron Johnson, who was the head of retail at Apple prior to becoming the CEO of JCP, thought the stores looked tired and that customers were insulted by the higher-than-expected prices.

Awareness of the firm’s deteriorating performance and its less-than-positive-future potential caused JCP’s board of directors to conclude that changes had to be made quickly in order for the firm to better serve all stakeholders and certainly shareholders. The board decided that a new strategy was required in lieu of merely extending efforts to find ways to improve the implementation of the current strategy. By the end of 2011, Johnson and others were prepared to initiate significant changes to improve JCP’s performance.

J.C. Penney’s new strategy in 2012 under new leadership

“I’m not here to improve, I’m here to transform.” Ron Johnson, 2011

J.C. Penney adopted entirely new strategies under the leadership of Ron Johnson. Existing strategies have failed to revitalize the company or produce sustainable results. At this time, J.C. Penney needs to stand out from among converging mid-tiered retailers

J.C. Penney’s new plans were particularly exciting because of the fresh management team that has been installed. The company’s new leaders were equipped with visionary talent, proven records in retail, fashion, and international settings, and transformative experiences. The individuals forming a key part of JCP’s new leadership team have critical experience with companies that have established a recognizable brand name or image. They worked with companies that have done things differently and had success doing so. Whether it is experience with Apple, Target, Abercrombie & Fitch, or Kellwood, the key underlying commonality is that they all had knowledge in identifying and highlighting products and experiences for consumers. New CEO Ron Johnson had devised a restructuring and rebranding plan aimed to both rejuvenate store sales and to recover shoppers who are trending toward online purchasing. With the goal of becoming “America’s Favorite Store”, his strategy was a bold attempt to differentiate J.C. Penney and to create value for customers. However, it was not without risk. Johnson’s plans were costly, and failure can do severe and permanent damage to the company.

The main thrust of Johnson’s strategic shift was to abandon the company’s traditional pricing strategy (based on relatively high prices punctuated by hundreds of promotions and sales throughout the year) in favor of a stable “Fair and Square” three-tiered pricing scheme. It is here that most of the debate centers. He was aiming in the right direction, but it is uncertain whether he was employing the right strategy to achieve the company’s goals. Johnson’s new strategy is oriented to differentiating JCP from competitors in ways that create value for customers. Offering customers low and stable prices for goods and services is a key aspect of the strategy Johnson is implementing at JCP. Since he knows that JCP cannot outcompete discounters rivals such as Walmart by competing only on the basis of prices offered to customers, Johnson decided to focus JCP’s