Analysis of Business Problems of JC Penney - Research Paper Example

Other 20 May Research and Analysis Business Problems Executive summary: The problem in the functioning of JC Penney (JCP) is related to poor mercantile mix, branding and organizational culture. “JCP started a ceremony for loyal employees who embodied JCP's core values. At this ceremony, Penney had emphasized 'The Penney Idea' - the motto of JCP also known as HCSC, which stood for Honor, Confidence, Service, Cooperation” (Remaking JC Penny’s Organizational Culture par 4). As a result of recession, over-dispersion has occurred in the market leading to a decrease in the assumed quality of merchandise. JC Penney’s accomplishment is seen to be less in comparison with its competitors. At present, JCP is functioning to discard this previous image and is trying to concentrate instead on reasonable pricing, attractive marketing and highlighting the exclusive brands that are offered. By analyzing the stimulating plans revealed by JCP, it is found that there are enduring areas the company has not concentrated on. These gaps may cause problems in the long run and have a negative effect on innovation that the company is trying to accomplish. To sufficiently address and recognize the possible issues still prevailing within the new strategy for JCP, it is very important to understand the current position of the company. So as to recognize the newly projected changes and how they will really impact the company, it is important to acknowledge from where the company started, where it is at present and also where it is going. The analysis will connect jointly both periods of JCP and depict the four major environments (PEST) of the company. By analyzing the strategies of the company, any gaps within the plan are assessed and solutions are presented from an outside point of view. Going back to the original format of the department store is one of the recommendations, which would provide JCP with an opportunity of formulating a store separately. The area needs to consider properly before going ahead with this recommendation. Discussions must be done with suppliers to decide the sensibleness of introducing new store areas. Moreover, the company must consider performing a wide market study to scan if consumers are attracted in a central point ground one stop shop or not. It is also recommended to create partnerships between JC Penney and other trendy or customer preferred brands within the new areas of market. This is a modest risk recommendation as it engages integrating a second company into the variety mix for merely an imperfect time period. The retailer has proven they can provide good value and pricing, but they have also ignored the more obvious problems of poor merchandise mix and styles.  While JC Penny can compete on traditional and formal clothing, an understanding of newer styles seems to escape the company’s fashion buyers (Lee par 6). The company’s current triumphant partnership with Sephora, a cosmetic chain, has paved way for JCP to partner with stylish and popular brands. It challenges the ability to assign and stock products within the suitable time as well as budget that have already been set. It is also recommended to focus on implementing new product changes to fit into the existing image that JCP has shaped. This alteration to choose merchandise and separating merchandise could result in creating various challenges for JCP.  “It is also found that low inventory levels can adversely affect the fulfillment of customer demand and diminish sales and brand loyalty” (Item 1A. Risk Factors pg 5). Position: JC Penney Company, Inc. (JCP) is one of the main top department store retailers in America. James Cash Penney started the first JC Penney department store in 1902, initially named ‘The Golden Rule.’ Ever since, with “1033 JC Penney department stores in 49 states and Puerto Rico” (JC Penny 2006 web Pages and Annual Report par 3), it has turned out to be one of the leading retailers in the discount segment and department of the retail industry. Additionally, JC Penney functions as one of the leading apparel and home furnishing websites on the Internet viz. jcp.com, and the country’s prevalent general products catalog business. At present, the headquarters of JC Penney is situated in Texas. JC Penney sells products and services to consumers through its department stores, Internet channels and catalogs. Through these incorporated channels, JC Penney proposes a wide selection of private national and elite brands, which replicate the commitment of the company to offer its customers with quality and style at reasonable prices. Some of the products sold by JC Penney comprises of jewelry, family apparel, shoes, home furnishings and accessories. The services offered by JC Penney consist of optical, salon, custom decorating and portrait photography. There are more than 10,000 companies in the discount segment and department of the retail industry. Conversely, JC Penney’s chief competitors are Dillard’s (DDS), Kohl’s (KSS), Stein Mart (SMRT) and Stage Stores Inc (SSI). The mission statement is still a significant division of the JC Penney philosophy, even though its employees have further definite guiding principles, which best describe how they are required to work and win jointly to accomplish better quality performance. Following are the eight "Winning Together Principles" that are the mission for JC Penney employees today: (JC Penny Mission Statement para 1). Company value, develops and remunerates the contributions and talents of all the associates. In the integrity principle, company acts with utmost moral standards. Performance principle says that company provides coaching and response in order to generate performances at the highest standard. Recognition principle says that they commemorate the achievements of others. According to the teamwork principle, company wins collectively through leadership, cooperation, open and sincere communication as well as admiration. Company should strive for superiority in the quality of work, products and services. Company has to encourage intelligent risk taking and creative thinking. The community principle states that the company cares for and is concerned about the respective communities. Vision Statement: JC Penney’s vision statement is stated below "JC Penney is executing a strategic Long Range Plan that consists of four integrated strategies aimed at building a deeper, more enduring relationship with our customers, increasing the engagement and retention of our Associates, and delivering industry leading financial performance to our shareholders" (JC Penny para 7).  Corporate values of JC Penney: The core values of JC Penney are confidence, honor, cooperation and service. Key Shareholders: The main five shareholders of JC Penney are Pershing Square Capital Management, L.p., State Street Corp, Fidelity Management and Research Company, Penney J C Co Inc Sps & So Plan, Evercore Trust Company, N.A. PEST and SWOT analysis PEST analysis Political analysis: The national and international political condition also influences consumer’s expenditure. Further events that might impact company’s performance consist of terrorist activities, threats, pandemics, domestic, global military disturbances, conflicts and political instability. Economic analysis: Complexity in establishing various latest technologies. JC Penney (JCP) faces product and economic uncertainty in the form of increasing interest rates and gas prices affecting consumer expenditure and might be under stress as department stores offer considerable discounts. Retail merge may negatively influence JCP’s prospects by considerably favoring merged players. Worldwide economic conditions and consumer spending have declined drastically over the past years, which have resulted in the overall decline of sales and have led to a sustained store traffic decline. Social analysis: JC Penney realizes that in the present global market, there is rising focus on environmental and social issues. Being a leading retailer in America, with the largest home furnishings and apparel on the Internet (jcp.com), and the country’s largest products catalog business, JCP makes it a main concern to deal with suppliers that function with high moral standards. JCP “will continue working cooperatively with our suppliers to address any potential labor, health and/or safety issues,” (JC Penny’s Proactive Approach to Sustaining Business para 1) while also expanding supplier compliance program in order to identify and respond to key environmental issues.  Technology analysis: Operations of JCP depend upon the security integrity and consistency function of different systems and data centers, together with point-of-sale systems in the stores, data centers facilitating process transactions, communication systems and different software applications to track inventory flow as well as produce performance and financial reports. These however, face complexity in developing, maintaining and upgrading existing systems. This may lead to considerable expenses or losses caused by disruption in business functions. SWOT analysis: Internal Strength Weakness Wide product and service offerings through multiple channel Appeals to a wide consumer economic segment  Not the best merchandising standards Variable assortment - inconsistent throughout stores External Opportunities Threats Services to leverage real estate Investment in online format Moderate new store openings Weak branding Decision making model: Rational model is used to explain and direct decision-making. “It is based around a cognitive judgment of the pros and cons of various options” (An overview of Decision of Making Models para 5). PEST analysis and SWOT analysis are used in order to make decisions. The main problems taken into consideration for the analysis are poor merchandise mix and style, branding and organization culture. Less concentration on these issues may result in the failure of the JCP’s business operations. These are the major issues faced by JC Penny in today’s competitive world, which has resulted in deterioration of customer confidence and thus, affects their growth and profitability. 2) Sense: JC Penny, like every other company, faces a lot of challenges. In this article, the three main problems faced by JC Penny have been discussed. They are as follows: Poor merchandise mix and style Organizational culture Poor branding. In addition to the above problems, JC Penny faces several other problems like poor quality of materials, not paying much attention to the demands of customers, poor technology infrastructure etc. The SWOT analysis of JC Penny tells about other threats and weaknesses of the company. These threats and weakness also create problems for JC Penny. 3) Uncover: Poor merchandise mix and style: Merchandising Mix - indicates the most frequent type of retail shopping pattern, which may range from serious comparison shopping (i.e., typically done in major regional centers) and impulse shopping (i.e., typically done in specialty stores) to convenience goods shopping (i.e., typically done in local, neighborhood centers.) (Portland Development Commission Association for Portland Progress pg 6). Retailers should prove that they can provide good value and pricing, however, they may forget about more obvious problems of poor merchandise mix and styles. JC Penny competes with its traditional dressing and formal clothing. When new styles and trends emerge in the market, JC Penny’s regular customers may opt for the brand with the new items, as JC Penny always follows the traditional and formal clothing style. In case of men’s clothing, JC Penny adopts the mass market Dockers brand instead of slim dress pants in order to fulfill the needs of customers. The retailer forgoes fashionable traits like pocket less, slim fit dress shirts for the traditional dress apparel from their older, private-label Stafford brand. Through a renewed focus on basic clothing, the retailer has a major opportunity to attract shoppers back to their stores. Within the mid-market, competitors such as Gap have failed to keep pace. JC Penny has an opportunity to get shoppers back into their stores under the guise of “quality basics for less money” and keep them there with a better, more appealing merchandise mix. Merchandise planning is an important alternative for the problem of poor merchandise. It has an important role in the successful Product Lifecycle Management (PLM), as it helps the management to identify which product categories or collections are more beneficial and which ones need to be developed to achieve the specific targets. It is also helpful to identify and analyze the best performing products and attributes. Merchandise Planning is an important process for businesses that look forward to increasing their profitability. With so many fixed costs and a lot of upfront investment, companies use merchandise planning as an important tool to target margins and product mix. Companies can find optimal balance between sales and inventory by adopting an effective merchandise plan. Good merchandise plans increase the sales opportunities, thereby, minimizing losses from excessive markdowns and out of stocks. Organization Culture: The culture of the organization will affect the business as a whole. The effects of organizational culture are many and vary depending on whether the company has a strong culture or a weak one. A strong and positive organizational culture will help make everyone more efficient and successful. From the lowest mailroom worker to the highest CEO, a strong culture helps everyone (What are Some Effects of Organizational Culture para 10). The organization culture of JCP was very formal. JC Penny did not change their organizational culture and followed the same one, which they were following since the time of establishment. The employees are referred to by the people of management and store managers as 'Mr,' 'Ms,' etc and their surnames are addressed to rather than first names. Casual wear is not acceptable in the company and the employees have to wear only formal dresses. Even on Fridays (generally accepted as 'casual wear day') JCP employees are expected to come to office in formal wear. The organizational culture in JC Penny thus remains the same even now. Poor organizational culture produces low job satisfaction for the workers. If the employee’s satisfaction is less, it will result in high employee turnover and also absenteeism. It will adversely affect the operations of the organization. Good workforce leads the firm to achieve its objectives. In order to maintain good workforce, the firm should maintain a strong organizational culture. Good and positive organizational culture of the company is closely related with staff satisfaction, employee turnover, absenteeism and customer service. JC Penny maintains the same culture as the one they were following earlier. By adopting positive organizational culture, JC Penny can make its operation effective and efficient. A strong organizational culture enables to procure high-level talent. This high level talent in turn increases the workers’ efficiency and effectiveness. It assists the company to achieve its organizational goals, and makes the company much better. A positive culture reduces employee turnover, as workers will get good satisfaction and a good working atmosphere. A strong organization gives more importance to the environment it creates for its workers because that will help in encouraging the efficiency and productivity of the business. By providing a good environment to the workers, the company can create a feeling in the minds of the workers that they are an important part of the company. JC Penny achieves its organizational goals by ensuring good and positive organizational culture. Because a strong culture increases the talent of its workers and, therefore the company can easily achieve its target. Workers are the most important assets of a company. By adopting and maintaining a good culture, the organization can acquire good human resources. Branding: The JC Penney company focuses currently on power brands. It mostly provides private branded products as well as few national brands. The most important brands for JC Penney are: St. John’s Bay, A.N.A, Bisou Bisou by Michele Bohbot, Stafford, MNG by Mango, Liz Claiborn, Allen B. by Allen Schwartz, Decree, Arizona, Linden Street, Cindy Crawford, Cooks, American Living by Ralph Lauren, Studio, Ambrielle, Worthington, Olsenboye by the Olsen twins, Super Girl by Nastia Liukin, Sephora, Okie Dokie, J. Ferrar, JOE by Joseph Abbot, I Heart Ronson by Charlotte Ronson. JC Penny does not pay much attention on proper branding. This results in decreasing brand loyalty in the minds of the customers. Proper branding helps the organization to procure more market share. JC Penny is more concentrated on the private brand, if any decline happens in the sales of these private branded products, it result in a decline in the income of the company. American Living and Studio Brands are the two brands of JC Penny. These brands have not proved to be successful and are hindering the company rather than helping it. Expanding the store’s products with new brands and new merchandise in areas such as outdoors and home furnishings, electronics, and cosmetics could elevate JCP into a position where their stores could provide more for their customers. Most of its brands are private brands. In 2009, 54% of its income came from these private brands. A decrease in sales of these private brands will create an adverse affect on JC Penny’s income. 4) Solve: Solution and Recommendation: 1) This recommendation is formatted to the model of fast fashion. This is a sensible risk recommendation because it involves incorporation with a second company into the variety mix for only a limited period of time. Fast fashion partnerships have been extremely successful for many retailers and brands, however, it is still important to research the top brands and to make it worth their time to work with JCP. 2) The company should be ready to change its organizational culture. Since the foundation of JC Penny, same culture is being followed. Strong culture will help the company to increase its efficiency. Good organizational culture helps the company to create and maintain a good workforce. It will help the company to achieve its targets easily. 3) The employees should encourage addressing the superiors and co-workers by their first name. There should also be a relaxation in dress code, a more democratic climate should be setup and more training and development activities should be initiated. 4) Company should make arrangements for timely shipment of merchandise to customers in order to maintain their brand loyalty. 5) Build: Ethical Screening Ethical Screening’s services enable individuals, charities and trusts with concerns about the sort of activities their investments are funding and profiting from, to invest their money according to their principles (Responsible Investment Research and Analysis para1). Cost/ Benefit Analysis: Current product strategy of JC Penny is potentially at a high risk because of its estimated cost, timeline and the interest level of the target market. The company spends almost thousand dollars as turnover cost for every employee. During implementation of its turnaround plan, JC Penny realized that something had to be done regarding its cost control system in order to reach the target customer. The company adopted a decentralized system with branch managers in charge of displays and available inventory. This has altered to a standard floor design and product layout for reliability across many stores and has helped to reduce costs in the long run. Now JC Penny has thirteen key distribution centers, which play a major role in lowering the cost of distribution and also increase accessibility. These centers have the ability to switch orders and deliveries. A cost benefit analysis is done to determine how well, or how poorly, a planned action will turn out (Reh para 1). Feasibility analysis: Feasibility analysis contains four constrains, such as cost, quality, time and scope. In this type of analysis, each variable is evaluated separately and collectively in order to determine the correct strategy for the project. Feasibility study involves an examination of the operations, financial, HR and marketing aspects of a business on ex ante (Before the venture comes into existence) basis (Saxena & Sodhi pg 65). Achieve: To implement the recommendations into the strategies of JC Penney, several alterations will be required. First of all, preliminary research is necessary because it is important to acknowledge what products will be mainly employed by consumers, particularly seasonally affected products, and to which brands the consumers are most attracted. This is the most essential part of implementation as it may lay the foundation for contributing the right products and timing at which the merchandise will reach in stores. The next step is to associate with the mainly attractive brands and concur upon contracts between JCP and newly obtained temporary brands. Then, allocation centers and distribution of products have to be taken care of. Once these are finalized, the store environment team will require establishing specific locations, pricing, marketing and signage for these products. The marketing departments need to adjust the advertisement catalog on a monthly basis and other media advertisement to spread awareness of new joint products. The process of store selection must consider which stores can penetrate effectively into the competitive walls of the market. Time Assumptions & Budget Requirements: Tactical Implementation Activities. Specific Tactical Activities Person/Department Responsible Required Budget $154.5M Completion Date 4/2012-2/2013 Product Activities 1. Research trends and consumer needs for outdoor activities, electronics, and prestige cosmetics. JCPenney legal department, Marketing, Buying team, Customer Insights team, Selected store managers, Distribution sites, and Supply Chain leader/team 1. $2M 2. $100M 3. $25M 4. $500,000 5. $25M 6. $500,000 7. $2.5M 1. 1 Month 2. 4 Months 3. 4 Months 4. 1 Month 5. 2-3 Months 6. 1 Month 7. 1 Month 2. Start the negotiation process with desired brands. 3. Negotiate distribution costs, allocation, and availability of merchandise. 4. Store environment team will design in store set up/plan-ogram for new products. 5. Marketing departments now need to integrate new partnerships into aggressive advertising and media marketing tools. 6. Store selection process will begin to decide which locations will best suit the new product assortments. 7. In store roll out and merchandising can begin. (Ostlund pg 34). Measures to evaluate the solutions: By the use of effective and continuous situational analysis and by collecting proper feedback from customer and employees, company can evaluate the effectiveness of the solutions provided for poor performance in terms of merchandising mix, branding and culture within the organization. Proper education and training for the employees will be provided and their efficiency should also be measured. Proper track records for each and every activity within the business should be maintained. This will enable to understand whether the company is making progress or regress. If at all, the results prove to have negative impacts, then they can be analyzed in detail and corrective measures can be taken. Utmost care should be taken in order to make sure that all the activities comply with the mission statement of the business and it should also be seen to that the core value of the business remains protected. Works Cited An overview of Decision of Making Models. Decision Making Confidence. 2006. Web. 24 May 2012. Item 1A. Risk Factors. Wikinvest.2009.Web. 24 May 2012. < http://www.wikinvest.com/stock/JC_Penney%20%28JCP%29/Risk_Factors> JC Penny’s Proactive Approach to Sustaining Business. n.d. Web. 24 May 2012. JC Penny Mission Statement. Retail Industry. 2012. Web. 24 May 2012. JC Penny 2006 Web Pages and Annual Report. Roberts Environmental Center at Claremont McKenna College. n.d. Web. 24 May 2012. Lee, Bobby. JC Penny’s Problem Are Larger than Just Pricing. 2Minutes Finance. 2008. Web. 24 May 2012. Ostulnd, Liane, Alisha. JC Penny Strategic Marketing Plan 2012. North Dakota State University. Web. 24 May 2012. Portland Development Commission Association for Portland Progress. Retail Merchandising Mix Plan. 2000. Web. 24 May 2012. Remaking JC Penny’s Organizational Culture. n.d. Web. 24 May 2012. Reh, John. Cost Benefits Analysis. Business and Finance Management. 2012. Web. 24 May 2012. Responsible Investment Research And Analysis. Ethical Screening. n.d. Web. 24 May 2012. Saxena, Anand & Sodhi, Seema. Lesson-5 Feasibility Analysis, Project Report & Business Plan. n.d. Web. 24 May 2012. What are Some Effects of Organizational Culture? Effects of Organizational Culture. 2007. Web. 24 May 2012. Read More