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MGMT680 - JCPenney

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Hung Son Bui Nguyen

on 8 October 2013

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Transcript of MGMT680 - JCPenney

MGMT680 - Strategic Integration
[O].[U].[T].[L].[I].[N].[E]
About JCPenney and Introduction of Industry
External Assessment and Competitive Analysis
Internal Assessment and SWOT Analysis
Issues in Strategy Implementation and Strategy Evaluation

Conclusion
EXTERNAL ENVIRONMENT
Economic Forces
Social, Cultural, Demographic, and Natural Environment forces

Political, Governmental, and Legal forces

Technological forces

Competitive forces

Forces that Shape Industry Competition
Threat of new entrants
Economies of scale
Demand size benefits of scale
Incumbency advantages independent of size
Legal Barriers
The threat of new entrants
Economies of scale
Demand size benefits of scale
The threat of new entrants
Demand size benefits of scale
Incumbency advantages independent of size
Incumbency advantages independent of size
The threat of new entrants
Legal Barriers
Federal Tax ID
Business License
Resale Certificate
and more...
COMPANY HISTORY
Established in 1902

James Cash Penney is the founder

The company has been an Internet retailer since 1998

The company was struggling in 2012
In 2013, Its CEO Mike Ullman has returned to coupon, promoting, and is returning popular private brands to the stores
COMPANY'S PERFORMANCE
JCPenney is one of the largest retailers in the United States, with 1,106 stores

COMPANY'S PERFORMANCE
COMPANY'S PERFORMANCE
COMPANY'S PERFORMANCE
Sales at the store are down 28 percent since 2012

Share value of J.C. Penney stocks has declined 56 percent
Losses exceeded $427 million
In 2012, J.C. Penney cut 43,000 jobs, 27 percent of its workforce. To become 116,000 employees
Define the relevant industry
Discount stores
Department stores that offer a discount on the goods that are provided and mostly self-service
Department stores
Department stores are retail stores that have higher prices but tend to have better quality products as well as salespeople that can better help you
Define the relevant industry
JCPENNEY'S COMPETITORS
Why they are rivals?
Why they are rivals?
Economic Forces in the Department Store Industry
J.C. Penney’s Summary
“Our Company’s growth and profitability depend on the levels of consumer confidence and spending.”

Economic Forces
Primary Forces
Consumer Level of Disposable Income
Propensity to spend disposable income
Consumer Confidence Level
Consumer Price Index

Secondary Forces
Unemployment/Job Market Trends
Interest and Tax Rates
Inflation/Gross Domestic Product Trends

Economic Forces
Primary Forces
Economic Forces
Disposable Income
The Number
Average increase of 3.8% over past 7 years
Projected increases in 2013 and 2014

What they mean?
Consumers are earning more money, and therefore have more to spend

But will they?

Primary Forces
Disposable Income
The Number
What they mean?
Since 2000, retail sales as a percent of disposable peaked at 40% in 2000 and 2001
-->Decreased every year until 2010

Although they have more, consumers are spending less

Primary Forces
Propensity to Spend
Economic Forces
Economic Forces
Primary Forces
Consumer Confidence Level
“Cautious Conservatism”

Any Reading above 90 is considered strong

Measured monthly

Primary Forces
Economic Forces
Secondary Forces
Economic Forces
Interest Rates
Influence borrowing decisions

Purchasing patterns depend on interest rates

Short term: Three-month treasury bills currently at 0.1%

Long term: 10-year treasury bills at 1.9%

Secondary Forces
Tax Rates
2013 “sticker shock”

Termination of Payroll tax holiday from 2011 and 2012

Secondary Forces
Economic Forces
Unemployment
Employment levels effect
Personal income
Consumer confidence
Consumer confidence
Retail/Department Store Sales

Secondary Forces
Economic Forces
The GDP and Retail
Co-dependence: The economy needs retail, and retail needs the economy

2012 GDP: $15.7 trillion
Retail’s contribution: $3.5 trillion or 22%
Department stores’ contribution: $183 billion

The significance of these numbers
Potential growth vs. actual decline

Social and Cultural Forces
Social and cultural factors that affect the retail business come in a broad range of categories
Department store industry pundits have been predicting the imminent globalization of the industry for the better part of two decades
As success in developed markets becomes more challenging, the emerging world becomes more compelling
Social and Cultural Forces
A century and a half ago, the growth of big cities and the rise of railroad networks made possible the modern department store
Brazil, Russia, India and China are now among the top 10 economies in the world
Social and Cultural Forces
The buying habits of consumers are a quirky thing.

Demographic Force
Department stores, will have to continuously measure the changes - qualitative as well as quantitative - that are taking place in the population structure
Hispanics, the fastest growing segment of the Nation's population, are changing the demographics of this country
Demographic Force
Demographic Force
The age range of buyers helps department store owners determine what kinds of products and services they should offer.

One of the most critical issues facing retailers today, and in the near future, is the 75 million aging baby boomers
Family Size is a key indicator of the kind of pricing owners should carry on their products and services
Natural Environment Force
The natural environment influences business in many different ways
Changing nature forces businesses to adapt to a new condition to continue making a profit
Reducing direct environmental impacts provide opportunities to streamline business operations and save costs
Natural Environment Force
Energy is more than just an operational issue; it is the lifeblood of retail stores and distribution centers
The core of department store’s business is the sale and distribution of physical goods
Natural Environment Force
The key to optimizing land use and development is making new and existed sites
Using green power helps reduce the environmental impacts of electricity use and supports the development of new renewable generation capacity nationwide
Technological Changes
Technology is important for today’s consumers

Next couple years
Pressure
Easier comparison
Adapt to environment

Technological Changes
Internet
Information sharing is much faster
Shop from home or work
Advantages and disadvantages

In 2009, 55 percent of working Americans, or roughly 73 million people did their holiday shopping and research online

Technological Changes
Social Media

Must have- trend
Promote, feedback, news
Staying involved
Technological Changes
Social Media

E-retail spending is expected to increase by 62 percent by 2016 according to Forrester research

Facebook has over 1 billion users
Twitter has over 500 million users
LinkedIn has over 200 million users

Technological Changes
Internet
Social Media
Mobile Technology
Interactive TV's
E-commercials
Technological Changes
Mobile technology

Working people (busy people)
Much easier and saves time
Smartphones are similar to computers
Technological Changes
E-Commercials
Easy access to internet
YouTube (possibly earn money)

Inexpensive

Easy to find target market

Sometimes free of charge (Social Media)

Interactive TV's
Technological Changes
Internet, touchscreen and user-friendly features

Average American watches 34 hours of TV a week

Marketing and promotion
While browsing internet
On TV itself

AD targeting with Twitter
Ad Targeting via Twitter

Forces that Shape Industry Competition
Influence: LOW
Threats of Suppliers
JC Penney was in much better position
Right now not doing so well

Not selling same volume as before, but it is still larger than most competitors

Top retail company

Threats of Suppliers
Large volumes very important

Suppliers willing to work with JC Penney
Working for a long time
Sales used to be $17b, now $13b

Influence: LOW
Bargaining Power of Suppliers
Competition

Very large competition
Everybody wants to sell to JC Penney
In general, suppliers have less power in retail industry

Bargaining Power of Suppliers
Suppliers supply only retail industry

JC Penney sets a lot of standards for it suppliers
Ethics
Working conditions
Safe quality products
Social responsibility
Environmental impact

Bargaining Power of Suppliers
JC Penney is in better position

Need to improve fast
Might lose some suppliers

Suppliers willing to work with them
Good relationship
Still at the top

Bargaining Power of Buyers
Buyers with relative high bargaining power drive companies to compete on price.
-->Companies have to lower their overall cost of production
Influence: HIGH
Bargaining Power of Buyers
Consumer behaviors enhance the power of buyers
Place of purchase, items purchased, time and frequency of purchase, method of purchase, response to sales promotion and services
Bargaining Power of Buyers
Bargaining Power of Buyers
Price Sensitivity
The degree to which the price of a product affects consumer purchasing behaviors
76% of retail survey respondents still continue to increase the number of price changes sent to stores
67% of survey respondents report consumer price sensitivity as a top-three business challenge, up from 46% in 2010
Relatively bargaining power
Relative bargaining power of consumers is determined by the level of switching costs
Nikki Baird and Paula Rosenblum, Managing Partners, Retail System Research, April 2012, Retail Pricing in a Post-Channel World: Benchmark Report 2012
Threat of Substitutes Products
Threat from companies in discount department store industry
Threat of Substitutes Products
Threat from other rivals within the same industry
Political, Governmental, and Legal forces

Changes in duties, tariff, quotas and voluntary export restrictions
Human rights, working conditions and other labor rights
Foreign Policies
Laws and Regulations and ethical business practices
Sino-American relationships
Currency
Changes in duties, tariff, quotas and voluntary export restrictions
Have great impact on the import side.

How can these facts affect the department store industry?

Using tariff as an example, we can find both the positive side and the negative side
Changes in duties, tariff, quotas and voluntary export restrictions
To department store industry, clothes are the major sales. So the tariff for the textile and fabric materials became the decisive factor
American not rely on import of textile and fabric materials

High tariff for the textile and fabric materials, the trend even go higher

Negative effect to the department store
The duties, quotas and voluntary export restrictions play the similar role as tariff

Human rights, working conditions and other labor rights
American still faced a lot of problems
Cases:. In 2011, California cashiers to pursue suits against their employers for not providing seating
Another Example: Foxconn, the world's largest electronics contract manufacturer measured by revenues. The extremely strict policy and the unimaginable workload lead a lot of employees’ suicide
Human rights, working conditions and other labor rights
The individual are increasing their sense of protecting their own rights

The government is intensifying the censorship of violating the rights

Some extremely example arouse the sense in the developing countries and promote the related law being issued

Influence: HIGH
Foreign Policies
The World Factory
Low labor cost
Labor cost in China rising strongly

Factories move from China to some African countries (the labor cost is cheaper than the cost in China)

Inevitable cost rises of the product

Raw materials in American do not rely on import

Raw materials prices are raising quickly, especially the woods prices used for furniture
The department store industry will be definitely suffer the hit
Political, Governmental, and Legal forces

Political, Governmental, and Legal forces

Political, Governmental, and Legal forces

Ethical Business Practices
Illegally recruits of children
Department store industry violate the minimum wage laws($7.25/hour)

J. C. Penney lowest salary is $7/hour

Sears lowest salary is $4/hour

Macy’s lowest salary is $7/hour

Sino-American relationships
The relationships between America and China are developing step by step
Sunnylands Summit with US and China presidents ends on positive note, which reflect that the relationships between the two countries are becoming warmer.

Since Xi is a president focused on economic development, it’s a positive factor for the department store industry.

In the financial crisis, Chinese government does relieve the stress of the American, not only the department store industry, but all the industries.

Currency
Theory is proven that the decreasing of the currency with another country will lead the own country import decrease.

Currency between American and many other countries are decreasing

The bad signal of the import
A negative effect to the department store industry

Political, Governmental, and Legal forces

Political, Governmental and Legal forces have a negative effect for the department store industry.

Rivalry among existing firms
Influence: HIGH
Industry growth rate
Exit barriers
Level of concentration
Rivalry among existing firms
Industry growth rate
Rivalry among existing firms
Industry growth rate
Rivalry among existing firms
Exit barriers
Long-Term Debt
Rivalry among existing firms
Level of concentration
A culture immersed with metropolis culture, a focus on fashion, high-end merchandise

Home appliance and tools
internet shopping
membership shopping

Easy shopping
Moderately priced family oriented merchandise

Merchandise combined with in-store service
A refreshing in-store experience, e.g. the shops

Professor: Hyuk Kim
Full transcript