J. C. Penney Company Restore America's Favorite Store - Team BioBizHoos Kazusa Edamura
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J. C. Penney Company
Restore America’s Favorite Store
Team BioBizHoos
Kazusa Edamura
Margaret Fish
Hsien-Ting Kuo
Jianyi Lee
Nhat Nguyen
Executive Summary
JCP has faced declining revenue growth and eroding profits for the past 4 years
A new long-term strategy aimed to attract a younger customer base but instead turned
core customer segments away.
Recommendations
Short-term: turnarounds the sharp decline in sales and profitability
Integrate discounts, e-commerce, and new store-experience to drive sales
Implement cost control and better inventory management
Long-term
Consolidate and reposition private brands
Focus on growing e-commerce sales and integration of online, mobile and in-store
shopping to improve customer experience
-2- BioBizHoos – GSCB Case Competition
Contents
Diagnosis
Strategic Overview
Short-term Solutions
Long-term Strategies
-3- BioBizHoos – GSCB Case Competition
JCP has faced declining revenue growth and eroding profits
Performance plummeted in 2012
4000 10%
3000
0%
2000
USD mil.
1000 -10%
389 -152 -985
251
0
2009 2010 2011 2012
-20%
-24.8%
-1000
-2000 -30%
Net Income Cash Revenue growth
Source: Company
o Sales have been steadily declining over recent years
o Profit margins are on the downtrend
o CEO Ron Johnson was brought in during the later part of 2011 in an attempt to revive the ailing
business
-4- BioBizHoos – GSCB Case Competition
Missteps in untested strategy seriously worsened JCP’s already
weak performance
New Pricing National brands to New in-store Experience
replace private brands
Town Square, “Main Street of shops”,
Home Department
o Abrupt pricing changes created confusion and drove traffic away to competitors’ stores
o Losing loyal customer base: customers couldn’t find preferred private brands
o Unclear impacts of Home department and other new in-store experiences failed to attract new
customers
Source: Company
-5- BioBizHoos – GSCB Case Competition
This is not a short-term issue: JCP has underperformed peers for
a long period
Revenue growth Operating Income Margin
50% 20%
40% 15% JCP
30% 10%
20% JCP
5% Kohl's
Kohl's
10%
Macy's 0%
2005
2006
2007
2008
2009
2010
2011
2012
0% Nordstrom Macy's
-5%
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10%
-10%
-20% Nordstrom
-15%
-30%
-20%
Source: Hoover’s, Mergent
JCP has trailed competitors for the past 10 years
o Revenue growth has been below peers’ growth for a long period and started declining in 2007
o JCP also trailed competitors in key metrics: sales/employee, cost control, and margins
-6- BioBizHoos – GSCB Case Competition
JCP customer base has been shrinking
High
Income
Middle
Lower
Millennials Middle-aged Baby boomers
Age
SOURCE: BloombergBusinessweek
-7- BioBizHoos – GSCB Case Competition
Attempt to reposition failed to consider retaining the still significant
traditional customer base
JCP under CEO Ron Johnson attempted to drastically and abruptly change their
customer base, resulting in alienating existing customers, while failing to attract a
new base.
High
Income
Middle
?
Lower
Millennials Middle-aged Baby boomers
SOURCE: BloombergBusinessweek Age
-8- BioBizHoos – GSCB Case Competition
Diagnosis
Strategic Overview
Short-term Solutions
Long-term Strategies
-9- BioBizHoos – GSCB Case Competition
Gradual repositioning could recapture old customers while
attracting the new middle-aged customer base
Maintain limited
millennial appeal,
but without
alienating families
High
Focus: Middle-aged
women and family
shopping
Income
Middle
Why? Typical dept.
store customers
are women aged
34-55.
Lower
Millennials Middle-aged Baby boomers
SOURCE: BloombergBusinessweek Age
- 10 - BioBizHoos – GSCB Case CompetitionAlign product portfolio with JCP’s core values and leverage
infrastructure for E-commerce to achieve sustained growth
Customer Trust
JCP’s Great Shopping Experience at JCP
Mission
JCP’s
Competitive Best Value Quality Family-friendly
Advantages Casualwear
JCP’s Vertically Integrated Value Chain
Capabilities Private Labels
Product Portfolio Improvement
Coupons/ Affordable
Our Size Variation “Mom-centric”
Discounts High Quality
Recommended
Strategies
Enhanced E-commerce Technology
- 11 - BioBizHoos – GSCB Case CompetitionCapabilities – Highly vertical integration and wide distribution
coverage
Service
Private
Distribution Retail and
Brands
support
JCP
• 53% of sales • 11 Distribution Centers • 1,104 stores • Mobile device, app and
• 5 Regional Warehouses • Online platform IT system
• 4 Fulfillment Centers
TJ Maxx
• No private brand • No Fulfillment Centers • 1036 stores
• No online business
Macy's
• 20% of sales • Outsourced Distribution Channel • 841 Stores
• Online platform
Nordstrom
• 25% of sales • 1 Fulfillment Centers • 242 U.S. stores • Private label card and
• Online platform loyalty program
Kohl’s
• 52% of sales • 9 Distribution Centers • 1,146 stores
• 3 Fulfillment Centers • Online platform
JCP has strong capabilities for implementing the recommended strategy
- 12 - BioBizHoos – GSCB Case CompetitionStablize the business with short-term turnarounds and identify
strategic focus for long-term sustained growth
1- 2 years
6 months – 18 months
STRENGTHEN BRAND
REVIVE PROFITABILITY IMAGE & CAPTURE NEW
GROWTH OPPORTUNITIES
1 4
KEY Regain customer Align product portfolios with
OBJECTIVES trust key customer segments
2 5
Reverse revenues Strengthen the brand image of
decline trend quality, and value store
3 6
Improve margins and Leverage existing capabilities
liquidity position to capture e-commerce trend
- 13 - BioBizHoos – GSCB Case CompetitionContent
Diagnosis
Strategic Overview
Short-term Solutions
Long-term Strategies
- 14 - BioBizHoos – GSCB Case CompetitionTurnarounds - regain customer trust and reverse revenue decline
trend
• Leverage social media and customer survey to gain trust and feedback
• Revise product portfolio based on customer research and past sales data analysis
o Bring back the assortment appealing to the traditional older customer base to drive more traffic
o Focus on volume-driving brands
- 15 - BioBizHoos – GSCB Case CompetitionTurnarounds - regain customer trust and reverse revenue decline
trend
• Integrate direct sales (e-commerce), traditional coupons, and new store
experiences to increase store traffic
Coupons,
email offers
SEARCH IN STORE
Mobile app,
Store display
• Design marketing and promotion campaigns to capture major sales events
- 16 - BioBizHoos – GSCB Case CompetitionTurnarounds - examine product portfolio and stores for profit
margin improvement
JCP has rising COGS/Sales
Revenue/store under performed versus
70% competitors (2012)
JCP
60
65% 50
Kohl's
USD millions
40
30
60% Macy's
20
10
Nordstrom
55% 0
JCP Kohl's Macy's Nordstrom Target Walmart
2005
2006
2007
2008
2009
2010
2011
2012
Source: Hoover’s, Mergent
o Rationalize product portfolios: eliminate non-performing product lines & brands
o Benchmark individual store performance (internally and vs. industry): close stores below
benchmarks (ex: sales/store, sales growth), assign accountability
- 17 - BioBizHoos – GSCB Case CompetitionTurnarounds - Improve cost control for better margins
SG&A/Sales Sales/Employee
40% 250,000
JCP
35% 200,000
USD/employee
30% Kohl's 150,000 JCP
Kohl's
25% 100,000
Macy's
Macy's
Nordstrom
20% 50,000
15% Nordstrom 0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2005
2006
2007
2008
2009
2010
2011
2012
Source: Hoover’s, Mergent
Review cost control
o JCP’s SG&A is the highest among peers, partially due to sharp revenue drop
o Review marketing & advertisement budgets to focus only on efficient projects
o Perform cost analysis to identify areas of improvement
Initiate efficiency improvement programs
o Sales/employee is low, contributing to low revenues/store
o Consider initiatives to improve: employee training, KPI & incentive implementation
- 18 - BioBizHoos – GSCB Case CompetitionTurnarounds - work on inventory management system
improvement
Days in Inventory
135
125
JCP
115
105
95 Kohl's
85
75
65 Macy's
55
45
Nordstrom
35
2005
2006
2007
2008
2009
2010
2011
2012
Source: Hoover’s, Mergent
Improve margin and liquidity
o JCP days in inventory is in the high range. JCP should adopt a leaner inventory approach and better
forecast system, benchmarked with competitors (Nordstrom).
o High inventory hurts margins via clearance sales, lower prices and inventory markdowns
o Better integration of POS system, data analytics, and inventory management
Contribute to better customer experiences
o Quick turnover for new designs will better meet customer demands
- 19 - BioBizHoos – GSCB Case CompetitionContent
Diagnosis
Strategic Overview
Short-term Solutions
Long-term Strategies
- 20 - BioBizHoos – GSCB Case CompetitionOverlapping Brands and Unclear Image
High
Income
Low
Income
Age - Low Age - High
- 21 - BioBizHoos – GSCB Case CompetitionConsolidation and Flagship Brand Creation
…..
10 votes 0.14%
Consolidate private brands Reposition JCP brand to be the
that are not popular flagship brand by incorporating
crossover design with famous
designers and using high quality
material.
- 22 - BioBizHoos – GSCB Case CompetitionOverlapping Brands and Unclear Image
High
Income
Low
Income
Age - Low Age - High
- 23 - BioBizHoos – GSCB Case CompetitionE-commerce is an ongoing retail trend
Online retailers grow faster than traditional
departmental stores
20
Annual Sales Growth (%)
15
10
5
0
-5
-10
2009 2010 2011 2012 2013 2014 2015
Dept Stores Online Retailers
SOURCE: Census Bureau and IERF
E-commerce is the future of the retail industry
o Department store growth is stagnant, but e-commerce continues to grow
o Improves customer convenience
o Attracts more young customers
- 24 - BioBizHoos – GSCB Case CompetitionJCP needs to catch up with competitors on e-commerce growth
Online Sales Growth
60
50
40
30
20
10
0
-10
-20
-30
JCP Kohl's Macy's Nordstrom's
2010 2011 2012
Competitors are increasing their sales growth, but JCP’s has declined.
Long Term Solutions:
o Integration of in-store, online and mobile functionality will improve customer experience, loyalty
o Data Analytics creates a personalized shopping experience and increases sales
o Online-only sales of categories with poor sales performance
o JCP’s advantage in wide distribution and retail network can better serve customers
- 25 - BioBizHoos – GSCB Case CompetitionJCP: Value and Convenience for Families
Women’s and family apparel
and accessories make up
over 50% of sales
Integrated in-store, online
and mobile shopping
Great Sales and Values
attract price-sensitive
customers
JCP private brands deliver
quality and variety at
affordable prices
More diverse
plus-size options
create inclusivity
- 26 - BioBizHoos – GSCB Case CompetitionAppendix
- 27 - BioBizHoos – GSCB Case CompetitionJCP’s performance has declined over the past four years
Serious Decline in JCP's Performance
20,000 50%
40%
15,000
30%
USD millions
10,000 20%
10%
5,000
0%
0 -10%
2009 2010 2011 2012
Revenue Gross margin EBITDA/Sales Net Profit Margin
- 28 - BioBizHoos – GSCB Case CompetitionBenchmarking with major competitors
JCP has rising COGS/Sales SG&A/Sales
80% 40%
JCP -4.7% JCP
75% 35%
Kohl's Everyday Kohl's
value -3.6%
70% Macy's 30% Macy's
New pricing
Sears Clearance strategy
Sears
65% 25%
sales Promotion
Nordstrom Nordstrom
Vendor support
60% 20% Delivery cost
Target Target
Low margin
55% Walmart 15% services Walmart
2005
2006
2007
2008
2009
2010
2011
2012
2005
2006
2007
2008
2009
2010
2011
2012
Inventory markdown
Vendor cost
Days in Inventory
2012 vs. 2011 2011 vs. 2010
135
125 JCP
115
Kohl's
105
95 Macy's
85
Sears
75
65 Nordstrom
55
Target
45
35 Walmart
2005
2006
2007
2008
2009
2010
2011
2012
- 29 - BioBizHoos – GSCB Case CompetitionBenchmarking with major competitors
Revenue growth Operating Income Margin
50% 20%
JCP
40% 15%
30% JCP Kohl's
10%
20% Kohl's Macy's
5%
Macy's
10% Sears
Nordstrom 0%
2005
2006
2007
2008
2009
2010
2011
2012
0% Target -5% Nordstrom
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10% Walmart
-10% Target
-20%
-15% Walmart
-30%
-20%
Sales/Employee
250,000
200,000
USD/employee
JCP
150,000 Kohl's
Macy's
100,000
Nordstrom
Target
50,000
Walmart
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
- 30 - BioBizHoos – GSCB Case CompetitionFactors affecting gross margin
Breakdown of gross margin changes
4%
-4.7%
2% Everyday
2.40% value -3.6%
0% New pricing
-1.20% strategy
Clearance
-2% sales -1% Promotion
-4.60% Vendor support
-0.80%
-0.20% Delivery cost
-4%
Low margin
-1.30% services
-6% -0.70% Inventory markdown
-0.50% Vendor cost
-8%
2012 vs. 2011 2011 vs. 2010
- 31 - BioBizHoos – GSCB Case CompetitionJC Penney’s changes in product mix
Product Type (% sales) 2009 2010 2011 2012
Women's apparel 24 24 25 23
Men's apparel and accessories 19 20 20 21
Home 19 18 15 12
Women's accessories, including Sephora 11 12 12 13
Children's apparel 11 11 12 12
Family footwear 7 7 7 7
Fine jewelry 4 4 4 7
Services and other 5 4 5 5
Total 100 100 100 100
Home category is shrinking
o Home category traditionally occupies more store space
o Some sub-categories such as electronic appliances face fear competition, especially from e-
commerce (Amazon)
- 32 - BioBizHoos – GSCB Case CompetitionHighest-ranked Online Coupon Sites
shopathome.com
US rank 68
Based on internet averages, shopathome.com is visited more
frequently by females who are over 65 years old,
received some college education and browse this site from school.
*but also more women over 45 than the general internet population as well
#1 for traffic among coupon sites
slickdeals.net
US rank 170
Based on internet averages, slickdeals.net is visited more frequently by females
who are in the age range 25-34, received some college education
and browse this site from school.
coupons.com
US rank 196
Based on internet averages, coupons.com is visited more frequently
by females who have children, received some college education
and browse this site from school.
SOURCE: Alexa
- 33 - BioBizHoos – GSCB Case CompetitionYou can also read
