JC Penney is one of the largest retail stores in the world. It has a century long history of success. JC Penney has seen many big changes over the last 100 years in its product portfolio. However, the last effort to change it brand image went horribly wrong. It lost almost 33% of its customer base within a year, biggest in the history of retail industry. However, it has now realized that it needs to stick to its tried and tested brand image and also the operational tactics that have succeeded for the last 4 decades. Once those are in place, it can think of creating new differentiations for further growth. As JC Penney has lost a substantial customer base, it needs to come up with a strong strategy to win them back. A combination of brand image restoration, focus on higher growth segments and everyday promotion strategy may help JC Penney grow at a rate faster than the market rate.
In the retail industry, it is difficult for any company to completely change its brand image. There are companies driving sales successfully decade after decade with a single brand image. However, JC Penney stands as an exception in that regard. In its more than 100 years of history, it has changed its brand image more than once. Having started as a small store in Wyoming, JC Penney within 100 years established itself as one of the largest retail stores in the World. It has successfully introduced new product lines, expanded into new territories and changed its strategy of owning stores from every downtown to the city suburb malls. The company has also changed its logo 4 times (Ostlund, 2012). However, the recent change in logo between 2011 to 2013 was not a successful one. In 2011, JC Penney hired Ron Johnson, a former Apple employee, as the CEO of the company to revolutionize the brand. Till that time, JC Penney was reputed as a discount retailer that provides hundreds of deep discounts on many of its products almost every day (Ostlund, 2012). However, JC Penney under the leadership Ron Johnson started a new pricing and branding strategy that failed miserably. It lost a good chunk of its loyal customers and failed to attract new set of customers from its competitors with the renewed brand image. Resultantly, the company sustained huge losses in the consecutive 2011, 2012 and 2013 financial years. Mike Ullman, who was the CEO before Ron Johnson, came back to JC Penney after Ron Johnson was forced to resign in 2013 (Morran, 2013). Since then JC penny has been trying to regain the lost customer base. From the completely new brand building exercise between 2012 and 2013, JC Penney is coming back to its old strategy. However, it is easier said than done. Having lost almost 33% of its customer base within a year, it will take years for JC Penney to bring the company back to the level where it was previously in 2011 and 2012 (Marketwatch, 2014).
Currently, the company has changed its logo back to the one it used between 1971 and 2011. It is also planning to go back to its tried and tested “one price promotion daily” strategy to win back its loyal customer base that it lost in 2012 and 2013. This essay will discuss the external and internal environment of JC Penney, its new future strategies and how those strategies can be successfully implemented in the future.
Porter’s Five Forces Model
The major competitors of JC Penney are Kohl’s, Macy’s, Dillard’s and Sears Roebuck. All these major retailers are struggling in the retail segment. The industry average growth rate is 0% mainly due to the continued effect of the 2008 recession. Macy’s and Kohl’s are facing a slight negative growth. JC Penney, on the other hand, has seen a significant negative growth rate (-33%) in the last 2 years (Marketwatch, 2014). Macy’s is the strongest competitor in the market, and it has a very strong product offering and robust supply chain to support that (Ostlund, 2012). However, the price point of Macy’s is slightly higher than that of JC Penney. Kohl’s is in many ways similar to JC Penney (Ostlund, 2012). Both Kohl’s and JC penny offer similar types of products at similar prices. Macy’s successfully utilizes its strong historical image for the promotion and branding. JC penny is also a very old retailer, but it does not have the historic reputation and brand image as that of Macy’s. Macy does also have the advantage of stores in premium locations. JC Penney is, however, better in terms of customer service than its competitors. Kohl’s and Macy’s offer occasional promotional sales but not anywhere close to what JC penny offers at promotional sales events. Macy’s has a higher price point than its competitors and also projects the image of higher quality products. On the other hand, Kohl’s has a lower price point than its competitors and also carries the image of decent quality products. JC Penney has lower price point, but the image of its products projected is that of ordinary quality.
It is extremely difficult to penetrate the retail market in a big way. The chances of new entrants making an entry in the retail market are less as there is a big entry barrier of cost involved. The initial investment required to enter the market is exorbitantly high, and it also requires a robust investment in the supply chain in order to import most of the clothes from foreign countries (Morran, 2013). There is a possibility for boutique stores offering only a particular type of products in some locations, but entering into the whole departmental store business in a big way is difficult. Also, the current players are big and already established. The market demand is not growing, and hence, there are little opportunities for the new entrants to make profit from the very beginning.
There is no barrier for a customer to switch brand. It is not uncommon for a customer to change brand in the retail industry. However, all the three big players in the market have their loyal customer base (Ostlund, 2012). The loyalty quotient for Macy’s customers is highest and that of JC Penney is lowest among the three. Especially, due to a confusing pricing and marketing strategy in last few years, many customers shifted to other departmental stores. In apparel, footwear and other fashion accessories’ departmental stores, it is essential that a store keeps it basic competencies intact and then add other competencies to grow its customer base. Complete revamping or sudden rebuilding of image can create confusion in the minds of the customers.
There is no threat from the suppliers. Most of the designs sold by JC Penney or the other large departmental stores are owned by individual brands, and some of the brands are owned by the departmental stores (Morran, 2013). The supply of the products is made mostly by suppliers from the foreign countries. All the big players have long term partnerships with the suppliers, and in case of any problem with the suppliers, there are substitute suppliers available. The bargaining powers of the suppliers are not high, and in most of the cases JC Penney, Macy’s and Kohl’s dictate the cost terms with the suppliers (Ostlund, 2012).
Departmental stores are not going to disappear very soon. Till date, people like visiting a departmental store physically. They like to touch and feel the clothes before making a purchasing decision. However, there is an increasing trend seen among people to buy products online at the press of a button in their mobile and laptops. However, it should not be taken as a threat to the current brick and mortar model. In fact, JC Penney and others can revamp their product offerings through the online channels to boost their figures of sale (Ostlund, 2012).
The overall economy remains sluggish. The retail apparel and other fashion accessories, home and furnishings are an industry that gets affected badly by any recession. The segment is yet to recover from the effects of recession. The market is not growing at all as people are struggling with unemployment, home mortgage payment and other issues. However, the forecast for the economy looks bright from 2014 onwards with most of the pundits predicting that the worst is over and that the US economy will see a significant growth in the coming years (Morran, 2013). This implies that some positive growth patterns are on way for the retail industry.
Also, there is a change visible in the social pattern. Due to the lack of good job opportunities in the job market, many people are opting for higher studies. This means that there are a lot of students in the economy with substantial loans on their heads. A majority of the customers of JC Penney are students who are going through struggles due to the new socioeconomic pattern.
Corporate Structure and Culture
Ron Johnson during his tenure as the CEO of JC Penney tried to shake the age old management structure of the company. Many executives left the company while many were resistant to the change. When Ron Johnson first came into JC Penney, he saw a culture of complacency (Ostlund, 2012). He tried to make it more professional and job oriented. He created vice presidents and top management posts for almost all the crucial verticals. There was a very high regard for the JC Penney top management before Ron Johnson came in, but with his changes the frontline workers lost faith in the management. Designers and sales people, who were previously given a free hand in making many day to day decisions, were dictated by a person higher in the ladder and with no knowledge of the field in the last two years after the arrival of Ron Johnson (Ostlund, 2012). This slowly destroyed the corporate culture of JC Penney. In fact, many top executives now admit of not having any distinct JC Penney culture. The culture remains in chaos as the company is trying to get back its lost market position. Probably with the rebranding exercise and the new CEO at the helm, JC Penney will slowly build a new corporate culture. The employee morale for JC employees are also at all-time low.
Operations and Logistics:
Operations and logistics focus on both exclusive in-house distribution as well as selective distribution. Exclusive distributions imply the JC Penney in-house brands. The national brands are distributed using selective distribution. JC Penney uses its own logistics system for distribution. It has its own distribution centers from which it distributes its products to more than 1,000 stores nationwide. JC Penney uses SupplierNet software to connect its suppliers and national brands with its supply network (Lewitinn, 2014). They can get information about demand, delivery status and payment status on a real time basis. JC Penney’s distribution system is its strength and is better than most of its main competitors.
JC Penney has a strong internal design team. It used to have a strong JC Penney labeled product line designed by its in-house designers. It also used to introduce changes in designs more frequently than its competitors. However, with the joining of Ron Johnson as the CEO of the company, the focus changed, and the company parted away with some of its internal brands during 2012 and 2013. However, since 2013, it has started again to revive the JC Penney brand. The expertise is already there, and hence it won’t be a problem for the R&D process to capture the new trend and change the design accordingly. JC Penney can easily get back to its expertise of internal design and delivery of the JC Penney brand (Lewitinn, 2014).
Marketing has been a poor story for JC Penney in the last few years. Ron Howard wanted to oversimplify the branding and operations. He changed the brand image to give it a more simplified and modern look. He also tried to change the brand image of JC Penney from a discount retailer to a retailer of choice. However, in that process, so many branding exercises and so many changes in the product decisions happened that the sales of the company dropped drastically (Lewitinn, 2014). The loyal customers of JC Penney felt cheated and switched to other brands. However, JC Penney realized the mistake and now has been trying to bring back the marketing strategy of daily sales event and price drops. However, it is not easy to get the lost customer base back. So, JC Penney has now concentrated on two segments that have less brand loyalty to attract new customers. Kids merchandise and apparels and home furnishing are the two sections witnessing major marketing promotions in JC Penney. The company expects to grow at a rate of 20% in those segments, and that will probably bring back the overall growth to a positive value after 3 years (Lewitinn, 2014).
JC Penney has two major advantages over its competitors. Firstly, it has a great logistics and supply chain process. The overall cost of the logistics for JC Penney is one of the lowest in the retail industry. Also, JC Penney has an internal design team that can create the trend of the season very quickly and bring that to the shelves faster than its competitors. This helps the company acquire new customers. These two strengths help JC Penney sell products at a low cost and still make money. If the company wants to make profits again, it should not forget the two strengths it has over its competitors.
JC Penney is currently facing financial hardships. Upon reaching the high revenue figures of over $17 billion in 2011, the company has only seen downward movement in revenue generation (Marketwatch, 2014). The current revenue for 2014 is a little over $12 billion. For the last three years, the company is posting losses. The retained earning has gone down from $2.22 billion to $380 million in 2014 (Marketwatch, 2014). Its share price has reduced by almost 78% between 2011 and 2014 (Marketwatch, 2014). It really needs some revenue boost to do well financially. If the company cannot turn around its revenue figures and profit figures soon, then it may not even survive in the market after few years.
It is not going to be easy for JC Penney to restore the lost ground. However, an old player like JC Penney cannot sit and lament on the past mistake. There can be various ways it can strategize to get back some of the market share it lost.
First of all, JC Penney should try to clear the clutter it created in the minds of its customers by doing multiple rounds of brand building exercises (Taibi, 2013). It can get back to its tried and tested branding exercise that paid dividends for more than 3 decades. Then probably some of the loyal customers can shift to JC Penney again.
Secondly, JC Penney needs to differentiate itself substantially from its competitors. Macy’s has a high price point and high quality. Kohl’s has a very low price point. JC Penney used to have an everyday promotion image that it lost. However, it can again start the same kind of promotion in its stores to gain back the customers looking for discounted products on sale.
Finally, JC Penney should not be only focused on the apparel business. Though it is the biggest revenue earner for the company, the growth of the segment is 0% (Lewitinn, 2014). On the other hand, kid’s products and apparels and home furnishing products are seeing a little more growth. As these segments have less loyalty towards a departmental store, JC Penney can hope to gain revenue in these segments. It can focus its marketing efforts in these segments to gain the market share.
Implementation Plan and Conclusion
First, it needs to launch a marketing campaign targeted at family buyers. JC Penney was historically a strong brand for the family buyers, and therefore, a strong and clear advertising campaign targeted at family buyers will help win back some of the lost customers and attract some new customers too (Taibi, 2013).
Secondly, JC Penney should also start its focus on kids and home furnishing business. It should start a marketing and promotion campaign in those segments. It should organize events for kids and their families and also sponsor other events related to home furnishing and promotions.
Thirdly, JC Penney should bring back its own label in a big way. JC Penney in-house brand was very popular among the economy buyers, and if it makes a comeback, it may attract more customers to JC Penney stores. Also, by bringing back that brand, the profitability of the company will increase.
Finally, JC Penney needs to differentiate itself from others. The strategy of everyday promotion was a unique aspect of JC Penney for decades. It can bring back that strategy to its stores once again. This provides a feeling of saving in the minds of the buyers while purchasing products.
If the management agrees, aligns itself with all the future strategies and fully supports the strategies, then JC Penney has all the potential to come back to profitability and then challenge the other big retail players of the market.
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