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J.C. Penney SWOT & PESTLE Analysis

ID : 52363953 | Mar 2018

COMPANY PROFILE - J.C. Penney

Business Sector : Retail

Operating Geography : North America

About J.C. Penney :

J.C. Penney is an American retail store chain headquartered in Texas, USA. It was founded in 1902 by James Cash Penney and William Henry McManus. J.C. Penney operates at 1095 locations across 49 states in US and Puerto Rico with most stores in suburban shopping malls. Beside some of its iconic in-house brands, the company offers many renowned brands under its roof for products such as clothing, cosmetics, electronics, footwear, furniture, jewellery and appliances. It has around 106,000 employees with Marvin Ellison as the Chairman & CEO.

Its mission statement states "Our customers want the moments in their lives to be more exciting and more meaningful. To address this, our mission will be to make J.C. Penney a source of encouragement and inspiration, offering style and quality at a smart price. We'll show our customers that what matters to them, matters to us."

J.C. Penney Revenue : $12.5 billion – FY ending Dec 2016

Competitive Analysis of J.C. Penney

The SWOT analysis for J.C. Penney is presented below:
Strengths
Weaknesses
1. Legacy of more than 100 years with high brand equity
2. Strong omnichannel presence with seamless integration
3. Diverse product and service line, efficient supply chain
4. Diverse mix of in-house and private brands
1. Dependence on apparel industry amidst weak sales
2. Low productivity per employee, inventory turnover compared to industry standards.
Opportunities
Threats
1. Expansion into the appliance segment with Home Refresh
2. Unparalleled omnichannel experience
1. Competition from e-retailers like Amazon and lack of well-defined presence in the online space
2. Imposition of import tax under Trump administration

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Detailed SWOT Analysis of J.C. Penney

 

Strength

1. Legacy of more than 100 years with high brand equity: JC Penney marked 100-year anniversaries within Texas and Illinois in 2017. The founder James Penney introduced the stores in 1917 just as the US was entering World War I. Many other locations celebrated their 50 and 75-year anniversaries marking a legacy of style and quality.The company enjoys high brand equity among potential customers and maintains it through its focus on customer satisfaction. This is reflected in the company values created by the founder as he stressed upon “complete satisfaction of the public as best can be served”. By carrying this value for such a long time JC Penney has built a good reputation and for itself, esp. in apparel, shoes, home goods and jewellery, which is hard to imitate.

2. Strong Omnichannel presence with seamless integration: In order to strengthen the framework of omnichannel strategy, the physical stores function as a seamless extension of the omnichannel experience besides providing a competitive advantage. A third-party research firm has rated JC Penney’s firm’s e-commerce website the fifth highest for 2016. Nearly half of all J.C. Penney.com traffic is generated from mobile devices. The app users visit the store almost three times more and purchase 3.5 times more than a non-app user. Shoppers get new and exciting features on the app and exclusive app rewards, gifts, coupons and a digital wallet to store them. The app also allows a simple store price check from their phone by scanning the item’s barcode. Physical stores provide inventory for orders from the e-commerce website thus enabling to offset the last-mile delivery cost.Thus JC Penneyhas a strong omnichannel presence seamless integration of digital and in-store businesses and leverage nationwide store footprint.

3. Diverse product and service line, efficient supply chain: J.C. Penney has growth initiatives namely home refresh, beauty, value, special sizes, omnichannel outlined for their three strategic priorities viz omnichannel, private brands, and revenue per customer. The established brands like Sephora and Salon by Instyle in beauty segment have been expanded. The firm is also one of the largest purchasers of shoes, clothing, accessories etc in the US. With approx. 1100 stores and 14 logistics facilities, J.C. Penney have a robust physical footprint. In 2016, approximately three-fourths of all online orders touched a physical store and with the streamlining of the supply chain, it’s expected to become more efficient. The company has set the standard in supply chain collaboration. For instance, the long term-association with TAL Apparel, Hong Kong based manufacturers, led to direct-ship program. The company outsources the sales forecasting and inventory management to TAL and they decide the quantity, size, colour to be made. Logistics has also played a vital role to perform dynamic routing which works with truckers to create better networks.

4. Diverse mix of in-house and private brands: The in-house brands at J.C. Penney have long been generating more than half the revenue ranging from Liz Claiborne to St. John’s Bay to Arizona jeans. Such exclusive brands are profitable to the firm by getting consumers to the stores for them. The first private brand was launched 100 years ago with the Marathon Hats Collection. The founder, James Cash Penney started the brands because some suppliers wouldn’t supply products to his liking. Current CEO Ullman also made it clear that the private brands would be central to the chain’s growth plans.

Weakness

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Opportunity

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Threat

1. Competition from e-retailers like Amazon and lack of well-defined presence in the online space: The highly competitive retail industry has few barriers to entry. With technology disruptions in the online retail market and shopping on the smartphone on the rise, J.C. Penney’s competitors like Macy’s, Kohl’s may leverage their financial resources or leverage their technology to the best of their ability to pose a significant threat to the firm. J.C. Penneyalso faces threat in the online space in the form of major online retail players like Amazon and eBaythat match rivals in competitive pricing and discounts for sale during Black Friday and Cyber Monday. In order to offer the best prices, companies like eBay work closely with suppliers to source top quality and in-demand deals. Although J.C. Penney does have its own e-commerce business, it faces tremendous competition from dominant e-retailers like Amazon which have a large inventory and customer base.

2. Imposition of import tax under Trump administration: Trump administration is contemplating on the imposition of border tax on imports from countries such as Mexico and others which have a trade deficit with the United States. This will increase the cost of the imported goods which will have to be passed on to consumers, which in turn will impact sales. J.C. Penney which is already facing stiff competition and flat sales is likely to get further impacted if the proposal is implemented.

References

1. J.C. Penney Annual Report 2016: http://media.corporate-ir.net/media_files/IROL/70/70528/JCP_SAR16/JCP_SAR16/index.html

2. EBay Is Matching Prices on These Early Black Friday Deals: http://fortune.com/2017/11/13/ebay-is-matching-prices-on-these-early-black-friday-deals/?iid=sr-link1

3. 10 classic J.C. Penney house brands from 1914 to now: http://fortune.com/2014/12/22/J.C. Penney-private-brands/

4. J.C. Penney Looks to Reduce Reliance on Apparel: http://fortune.com/2016/05/13/J.C. Penney-apparel-results/

5. https://csimarket.com/stocks/JCP-Efficiency-Comparisons.html

6. http://ir.J.C. Penney.com/mobile.view?c=70528&v=203&d=1&id=2249169

The PESTLE/PESTEL analysis for J.C. Penney is presented below:
Political
Economical
1. Congress laws against formation of monopolies, proposed minimum wages
2. Business uncertainty to rise due to volatile political climate
1. With retail stores shutting down amidst growing online influence, unemployment may rise
2. Confident consumer spending but unprecedented competition
Social
Technological
1. The importance of a social stand
2. Shift towards online purchasing
1. Analytical insights to help retailers be more efficient
2. The rise of artificial intelligence in retail
Legal
Environmental
1. Highly regulated department store industry
2. Child labour abuse in countries of import
1. Importance of environmental sustainability and sustainable processes
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Detailed PESTLE Analysis of J.C. Penney

 

Political

1. Congress laws against formation of monopolies, proposed minimum wages: The retail industry relies heavily on minimum wage regulation with retail being a major job providing industry in the US and workers requiring minimal skills and training to operate, any rise in state-regulated minimum wage may adversely affect profits. Governors of New York and California have last year voted to approve a legislation that will increase the minimum wages for the two states over the next six years. It’s expected to rise to $15 an hour by 2022. Minimum wage in California for instance will rise from $10 an hour to $15 resulting in salaries of full-time wage workers to rise from $20K to $30K annually.The US Congress has also enacted laws against formulation of monopolies and price discrimination to protect consumers.

2. Business uncertainty to rise due to volatile political climate: Retailers are becoming increasingly political and taking their stand on social issues. Facing volatile political climate both in the US and abroad, retailers have realized that social identity behind their brand matters. Political instability, and issuance of government orders such as travel bans by the Trump administration may set a negative sentiment as government policies and regulation directly affect the profitability by affecting the economic environment of the nation. The Asian economy is expanding at a much faster rate than the American one. But red tape and bureaucracy are a major problem there and so expansion into the Asian countries can be difficult. Although JCPenney doesn’t have any strong political affiliation, it will look to neutralize any negative impact of such regulations or policies. The industry as a whole may unite against any business disruptive policy by the government although Trump administration will look for policies that promote local businesses.

Economic

1. With retail stores shutting down amidst growing online influence, unemployment may rise: The retail industry is a major employer in the United States, contributing to more than five million jobs. The rise of e-commerce has led to more than 22 prominent retailers across the U.S. closing down their physical stores in 2017. JCPenney is fighting to sustain its business amid growing influence of e-retail and on-the-go ease of shopping. The retail chain has decided to shut 138 stores in 2017 in an attempt to restructure its business to meet shifting consumer preferences. On the other hand online retail is more automated and requires lesser number of employees. This will lead to rise in employment in the sector over the next few years.

2. Confident consumer spending but unprecedented competition: Policy changes by the Trump administration such as tax cuts and infrastructure expenditure may eventually boost consumer spending but restrictions on trade is leading to increased cost of imported goods, thereby reducing consumer spending and leading to job cuts in export sector. JCPenney is also struggling to maintain offline stores along with overcapacity of manpower. The consumer shift towards online purchases is forcing job cuts. But this could be a short-term effect.

Social

This section is available only in the 'Complete Report' on purchase.

Technological

This section is available only in the 'Complete Report' on purchase.

Legal

This section is available only in the 'Complete Report' on purchase.

Environmental

1. Importance of environmental sustainability and sustainable processes: Energy and waste management are part of the optimization process of operations undertaken by JCPenney in their goal of reducing the environmental footprint.To involve their suppliers in the environmental sustainability process, there is increased importance on improving their standards by targeted auditing, support and training. Beside this, there is target of reducing water consumption 5% in US operations and recycling 85% of annual domestic waste by 2020. There is need for greater collaboration and partnership with energy efficient transportation carriers to reduce freight related emissions.

References

1. JCPenneyAnnual Report 2016: http://media.corporate-ir.net/media_files/IROL/70/70528/JCP_SAR16/JCP_SAR16/index.html

2. Retail Apocalypse: 21 big retailers closing stores in 2017: http://www.foxbusiness.com/features/2017/12/26/retail-apocalypse-21-big-retailers-closing-stores-in-2017.html

3. Retail, Wholesale, and Distribution Industry Outlook 2017: https://www2.deloitte.com/us/en/pages/consumer-business/articles/retail-distribution-industry-outlook.html

4. Five Predictions for Retail In 2017:https://www.forbes.com/sites/nikkibaird/2017/01/04/five-predictions-for-retail-in-2017/#5296ba814882

5. More Countries Use Child Labor, U.S. Says:http://www.foxbusiness.com/markets/2010/12/16/countries-use-child-labor-says.html

6. JCPenney CSR Report 2017: http://media.corporate-ir.net/media_files/IROL/70/70528/CSR17/JCP_17CSR/index.html

7. J.C. Penney And Macy's Replace Human Merchants with Data Algorithms https://www.forbes.com/sites/barbarathau/2017/11/06/j-c-penney-and-macys-replace-human-merchants-with-data-algorithms/#172062b16c17

8. How will a higher minimum wage affect retailers? http://www.mytotalretail.com/article/how-will-a-higher-minimum-wage-affect-retailers/

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Copyrights and Disclaimer

J.C. Penney SWOT and PESTLE analysis has been conducted by Nalinaksh Kashyap and reviewed by senior analysts from Barakaat Consulting.

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