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  • Published on: 14th September 2019
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Abstract

During the release of the J. C. Penney company\'s results of the 2nd quarter, Ron Johnson who is the CEO of the departments store of company was getting ready as he was reconsidering the dramatic changes that he initiated in favor of the business model and brand image of the J. C. Penney\'s company. Ron Johnson in February identified and put in place new pricing scheme that he dubbed as \"Fair and square\", and which was going to be a new strategy central component. This scheme was initially factored in three pricing tiers and which eliminated typical sales promotions with an attempt to make the shopping experience simplify for consumers; this scheme thus moved J.C. Penney from its initial practice of high-low pricing. Subsequent new strategy components was comprised of included the layout of the new store, the inclusion of several well-known brands, and also having special lines that are designed by designers who are well-known. The troubling first quarter\'s results however continued into the summer months and seemed to give indications  of J.C. Penney shoppers getting accustomed to receiving JCP Cash coupons and its circulars to advertise the week\'s specials, which were slow in embracing the format of new pricing as it  also began to leave the retailer to be in droves. Despite the enormous pressure that would easily compel Johnson to turn things around so as to achieve the all-importance back-to-school and shopping seasons of holidays that were seem to be imminent, he made up his mind to adjust the initial scheme of pricing that was set to come into effect on August 1st. The arising questions therefore remains to be: \"Were these alterations sufficient to turn things around?\", \" Should Johnson retain the course on the other elements of his efforts of repositioning \",  \"Does Johnson have an experience in setting up Apple stores that can help or hurt him as he tries to achieve his goal of making J.C. Penney \"America\'s favorite store?\"

This paper is therefore going to explain and explore the JC Penney\'s financial statements of JC together with its four main rivals: Kohl\'s, TJX, Wal-Mart, and Target, as it goes ahead analyze their net profit margin as compared to the industry\'s, returns on the assets, return on the investment, return on the equity, ratios on the price-earnings, inventory turnover, Beta, etc. and then goes ahead to compare these variables against the other stores. This information therefore gets be analyzed right from the investors\' point of view and even states my opinion in these investments and which company in which I will be happy to in invest in and even recommend my friends to invest in.

Executive summary

It is over a century since J. C. Penney was identified to be a dependable retailer that provides a regular shopping destination for most of the American families. Having been founded in the year 1902 under the patronage of James Cash Penney, the principle of the golden rule formed the establishment backbone of the department store. All throughout the years, the J. C. Penney have since developed a reputation that can serve as a tool for putting their customers first and even provide their needs on daily.

The research has however revealed that it J. C. Penney has not been consistent according how majority of the women who are in their 25-34 years of age. Among the people in a demographic that is so interested in fashion, these women will prefer going specialty clothing stores and small boutiques to do most of their shopping.

We, as a company have come to figure out and understand the rationale of our target market when we engage in making deciding where to go for shopping. Atmosphere, style, and brands are seen to be a components that is an essential to an enjoyable shopping experience. Women prefer and would want to purchase the forefront runway styles.

We as a company also believe that the marketing strategy of J. C. Penney needs a fresh change that can be helpful in connecting this demographic in a better way. These women will therefore have a changed perception towards the J. C. Penney fashion even while emphasizing on the quality, brand names, and even a digital technology. The excess of the  boutique will provide the women with the exclusive designer brands that will enhance their shopping experience generally. These alterations will therefore be communicated using traditional and non-traditional means that will be effective in directing their market to innovative strategies that are digital. This campaign will play a very important part since it will give J. C. Penney the tools it requires in to become a destinations of fashion, as stipulated according to the goals of J. C. Penney\'s CEO Myron Ullman who was heard saying himself, that the company have centered the merchandising leadership at J. C. Penney in such a way that will allow their efforts to be focused majorly on the confirmation of J. C. Penney as a destination style. James Cash Penney is therefore Ready for Change, and  it is believed that women will be excited upon seeing these bold, new changes that are made by Penney. This campaign will therefore in most important way effect a great strides in helping J. C. Penney to become a destination style.

J. C. Penney is known for changing their of pricing their merchandise, hence choosing to know and put a value that will be preferred by customers and instill willingness in them to pay for and to place their preferred prices that are categorized into three different classes: everyday, month long, and best. Despite the J. C. Penney\'s stocks prices being declining, they still have hopes of sustaining their new policy and the perspective they have on things that this situation will reach a point that it turns around and JC Penney will once again be revived to become the favorite Store among the Americans. The table below stipulates the J. C. Penney financial ratios and that its competitors as at 10/2012.

    

    JC Penney  Kohl\'s  TJX  Wall-Mart  Target

Net Profit   2012-3  605   60 7  103   704  20

Margin   5 Yr Avg2  406   00 5  503  604  00

Industry   5 Yr Avg0   900  90 0   903  403   40

Return on  2012-8   1010  1041  9014  909   80

main/core problems

Despite the J. C. Penney being one of the leading store in the U.S, Iit has been going through a number of problems that post threats to the prosperity of the Company. These problems can be listed below:

a) Lower (decline) in sales as compared to what they were in the 1990s, the retail landscape becoming more competitive, and Competition becoming increasingly from online retailing.

To be specific, the department stores became under increased pressure due to new

retail formats which include big box retailers such as Wal-mart that operated free standing supercenters in selling mass merchandise and small specialty stores such as Gap and J. Crew which offered specialized merchandise and were located in shopping malls and were squeezing department stores out of the market. An international clothing retailers, such as H&M and ZARA

were aggressively venturing the U.S. market and even posed a greater emerging challenge and even relied on shorter product life cycles and partnerships from top designers that could offer fast-fashion merchandise a relatively lower prices. Johnson as a CEO took his new roles stepped in to explained the challenge which he gave as below:

Johnson states that over the past 30 years, the department store has been a less relevant part of the retail infrastructure, majorly due to decisions that have been made in the stores. As the big box and specialty stores and new shopping formats explode America, department stores renounce their unique roles rather than engaging themselves in the competition. Moreover, they retreated from categories and

assortments that made them to be distinctive. The total number of Department stores that were once seen as the most popular places for Americans to shop, offering distinctive

merchandise in elegant settings that provided special services, such as tearooms, salons, and on-site

tailoring, and served as social hubs were 8 in number. Johnson remembered that in the in the golden age of department stores,

America's families could come for other activities besides just shopping. They were therefore able to have fun experiences and they were even offered a wide range of useful services.

recommendation

As a remedy to this problem, the department store, John suggested that the company should first comprehend what transpired to these stores since  they were the pillars of the community. Unlike other CEOs, Johnson was optimistic and believed that the department stores going be revived and he did not see any reason why the department stores could not flourish. The department stores were able to become people's favorite place of shopping. He said that these had got all these above strategic advantages, which included the lowest cost of real estate, exceptional access to merchandise, scale to create enormous marketing power, and collocation with specialty stores. He also said that there should be huge assortments in these stores that could make people to visit since huge stores assortments endowed with one-stop shopping attract customers.

b) J.C. Penney's performance had been lackluster for quite some time, and the retailer was losing market share even within the shrinking department store channel.

Over quit period of time, J.C. Penney's performance has been lackluster, and hence making the retailer to lose its market share despite the availability of the shrinking department store channel. This was escalated by competitors such as Macy's and Kohl's who were nipping at J.C. Penney's business from both the high and low ends. Averagely, J.C. Penney customer could only visit a store four times annually and sales per square foot was estimated to be ($156) which was much lower as compared to the one of its competitors and the specialty stores that Johnson hoped to emulate (Gap $30011, Apple $5,626 in sales per square foot).12 The promotional budget increased among the department stores and big box stores and since the infamous outbreak of the Great Recession in 2007, J. C. Penney mostly used blockbuster sales, coupons, and even frequent prices promotion in order to drive purchases. A consulting

firm A.T. Kearney, reveals that more than 40% of the items Americans bought in 2011 were bought had been on sale, from 10% in 1990. There was eagerness to wean shoppers off of their big discounts that was now becoming commonplace for 13 many retailers.

Despite the increasing competition from online retailing, Johnson had a believe that brick and mortar stores still retained their relevance, hence physical stores still remain as the primary way in which people could acquire merchandise and according to Johnson, he thought that they as a company would be true in the next 50 years.

recommendation

In order to correct this problem that faces the J.C. Penney's performance, it is recommended that a store should be made to be much more than a place to acquire merchandise.

People should be helped to enrich their lives.

The store should offer a wide variety of products in order to create new value for the consumers since if it lack of this will not create new types of value for the consumer.

Analysis of the company (J. C. Penney Company, Inc. (NYSE:JCP)

Due to the above problems, the Company dropped down to -1.86% and completed at $8.42. After measuring the daily volume, it was found that its total shares were 13.69 million. The high share of the 52-week stood at $11.99 per share while the low share price of the 52-week low was $6. During this time, the market cap of the company was $2.59 billion, with the latest closing price having a distance of 6.88% from SMA20 and goes down to -6.25 which is lower than SMA50. The current stock stands at a Price to Sales (P/S) with a value of 0.21 where Price to Book (P/B) stands at a value of 2.07. J. C. Penney is at present showing the value of its ROA, Return on Assets at -4.2% while ROE , Return on Equity is found to be -28.7%.

The J. C. Penney\'s Return on equity, ROE was applied in measuring the rate of return on the ownership interest also referred to as shareholders' equity of all the common stock owners. It therefore measures the efficiency of the firm at a generating profits from every unit of shareholders' equity.

J. C. Penney company is at present showing its outstanding shares to be 307.44 million shares in comparison with the 302.29 million total shares float.

The Beta Value of the Stock stands at 0.93 and a ATR, Average True Range of 0.34. The volatility of the stock when viewed on a Weekly and Monthly basis are found to 3.09% and 4.15% respectively. The weekly performance of the J. C. Penney company stands at 0.72% while that of its 1st-month and 3rd-month returns are 4.08 percent and -27.1 percent.

Having looked at J. C. Penney Company, Inc. (JCP) YTD (year to date) performance, we see that the stock showing a Positive value of 26.4 percent. If the Year To Date value becomes Negative, this will interpret the stock to be trading poorly. If the Year To Date value is found to be Positive, this means the stock is appreciating in value.

The J. C. Penney\'s high price target of the company's Share stands at $19 and is based on the calculations and the analysis of 25 brokers. J. C. Penney company, according to the analysts, realizes the Low Price target of $5 while the broker estimates its Mean Target to be estimated $10.84.

As required by recommendation trends of an overview, 3 Analysts considered assigning the stock as a Strong Buy. While 8 said it is a Buy, 11 assigned Hold rating where they said 4 stated the stock to be an Underperform and 0 marked the stock as Sell.

As we are looking at the Earnings Estimates of the company, according to analysts, they said that The Average Earnings Estimated according to 22 analysts for the Current Fiscal quarter, it was measured found as -$0.15. These analysts also projected the Low Earning Per Share estimate to be -$0.33 as compared to the Higher Earning Price Share which was estimated at -$0.05.

Lastly, when talking about the existing Revenue Estimate for that particular  Fiscal Quarter, the J. C. Penney, Inc. (JCP) estimated its own Average Revenue Estimate Inc. and was projected to stand at $2.92 Billion where Low Revenue was estimated and High Revenue Estimated to be  $2.85 Billion and $2.99 Billion respectively according to 21 analysts.

SWOT ANALYSIS OF THE J. C. PENNEY

The SWOT analysis of J. C. Penney company can be given in terms of it Strength, its Weaknesses, its Opportunities, and its Threats.

Strengths

Being a well established retailer with a large supply chain network and distribution channels, J.C. Penney got an opportunity to create the potential of once again becoming a strong company. From (J.C. Penney Company, Inc. 2012) it is documented that J. C. Penney has 1104 stores in all 50 states and Puerto Rico. The J.  C. Penney\'s supply network comprised of 24 facilities in its 15 locations. The company\'s online presence is found on its website together with the social networks, such as Facebook, Twitter, among other social media sites. J. C. Penney is known as a household name holding a brand and history. Furthermore, J.C. Penney enjoys an operating income of $2 million with $11.4 billion of total assets, and this means that the company can afford to conduct a costly promotional campaign or even an advertising campaign under all circumstance including when it is going through financial constraints.

Opportunities

Due to its existence in the millennial generation which is more financially strapped and also has a higher population, there is a wider market of potential consumers than the company, J. C. Penney can bug on compared to brands that are more expensive. Due to the U.S. economy which is getting stronger, the stock market steadily rise and this can instill the hopes that J. C. Penney's stock price will equally rise as well. According to Kapner (2013), If J. C. Penney acts immediately, there is a possibility of the company regaining its old customers together with new potential consumers who are gaining consumer\'s confidence and hence, buying more.

Weaknesses

J. C. Penney is solely dependent on customer jam and of late has not been attracting customers compared to past days. (J. C. Penney Company, Inc. 2012) In particular under everyday low strategy that is supervised by Johnson, consumers did not realize the feeling of getting a deal as that of promotional initial events on products, hence, lacking the initiative of buy. J. C. Penney therefore needs to have a promotional events and merchandise assortments that is appealing in a way that it can attract the influx of consumers otherwise consumers will take their money to other retailers based such as Macy's, Wall-mart, Costco, Kohl's, Sears, and Target, which are all J. C. Penney\'s competitors and therefore deal in a similar products. J. C. Penney has been transforming itself to many changes including the stock price that has been going down over the past years making the consumers to be less dependent of the company as they used to be in the. Lastly, J. C. Penney is gradually moving towards becoming bankrupt as was recorded to $586 million loss in the most recent quarter.

Threats

Outside influences and many competitors pose a big threat to J. C. Penney. This is because the competitors have embarked on producing similar products as that J. C. Penney in today's market, leading to a lot of competition at J. C. Penney's price which has been left point in physical retailers and online. Other competition have been availed by other physical retailers like Macy's and Target which offer some less expensive designer lines, and this makes the prestige of their brand to be higher as compared to J. C. Penney's and Wall-mart and Costco which successfully use everyday low pricing to offer even prices even to lower points on products unlike in the case of J. C. Penney; both the two strategies complicates make it difficult for J. C. Penney to take competition and sustain its market position. J. C. Penney has received a stiff competition from companies like Amazon.com and Bluefly.com and other click-and-mortar company in terms of online sales. Furthermore, being in the fashion industry, sales and operating results depend in part on the ability of predicting and responding to alterations in regards to fashion trends and customer preferences in a timely manner by persistently offering stylish, quality merchandise assortments (J. C. Penney Company, Inc. 2012) and if J. C. Penney does not normally offer a good assortment as compared to what is currently trending since they run a risk of lacking many sales. J. C. Penney greatly depends on consumer\'s confidence and spending. This means that if there is an economic downturn as a result of other market elements, J. C. Penney will lose its potential customers. Due to being a seasonal business, during warm weather, that is one winter J. C. Penney will suffer a reduction in the purchases of cold weather accessories and coats.

References

Saban, K., & Rau, S. (January 01, 2016). The State of E-Compliance for U.S. Retailers in Global Markets.

Restrepo, James Price. (n.d.). J.C. Penney Company, Inc. (J.C. Penney Company, Inc.)

Spector, B. (November 01, 2013). The evolution of a private-label brand strategy at J.C. Penney, 1902–33. Management & Organizational History, 8, 4, 387-399.

Insider, M. (May 02, 2016). Why J C Penney, American International Group & Others Are Trending on Monday?. Insider Monkey, 2016-5.

Penney, J. C. (1950). Fifty years with the Golden Rule. New York: Harper.

Penney, J. C. (1956). Lines of a layman. Great Neck, N.Y: Channel Press.

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