Top Retail Employers: JC Penny Company - Case Study Example

Top Retail Employers: JC Penny Company JC Penney is one of the ancient American companies based on retailing. The company has shown a declining trend for a consecutive nine quarter of operations. The Company has shown a deceasing trend resulting from an attempt by Johnson to rebrand the Company by removal of promotions and sales and being replaced by a three-tied pricing mechanism, creation of new logo, redesigning stores aimed at a year attainment of 100 mini-stores at each J.C Penney (Gilbertson, Mark & Daniel 127). This never yielded any benefits but followed by immediate loss of 25% leading to firing of Ron Johnson, CEO within the first 17 months of operation the company is disturbed by trying to reorganize as it strives to remain relevant which has not been very easy. The company has been in operational for over 100 years. Its YOY revenues showed a 12% decline from USD 3.02 billion in 2012 to USD 2.66 billion in 2Q2013. The reason behind the declining trend is pegged on an unsuccessful strategy to change the business model. The company attempted to replace frequent discounts and promotions that were being offered and this was immediately followed by sharp lower sales, job cuts and high cash burns (Gilbertson, Mark & Daniel 142). The company default probability has sharply risen based on its weaker operating performance. The year probability of default rose to 8.5% from 0.4% in October 2012 showing a 2000% rise. JC Penny is ranked top as the riskiest Company based on the comparison of its 8.5% EDF measure that is calculated to be 101 times the median of the USD department Stores industry sector. This increase in the Company’s one year EDF is attached to the increases in financial risk or market leverage and its business risks also referred to as asset volatility (Gilbertson, Mark & Daniel 156). Its market leverage is analyzed to have more than doubled in the previous years with current figure estimated to be 69.2% which further affirms its riskiness. The failed attempted transformation of the model by the then company CEO, Johnson resulted into a sudden rise in business risks. The firm’s asset volatility rose to 24.4% from 19.5% between 2013 April and July 2012. Section 2: IFE charts Internal Factor Evaluation Matrix (IFE)       Strengths Weight Rating Weighted Score reinstatement of former CEO 9.00 4 36.00 carrying 590 promotions 8.00 4 32.00 hiring spokesperson 9.00 3 27.00 starting online selling 3.00 3 9.00 development of strategic plan by Johnson 5.00 3 15.00 hiring of new CEO 3.00 3 9.00 opening of a company website 7.00 4 28.00 establishing 100 specialist stores 3.00 3 9.00 formation of fair and square pricing strategy 3.00 3 9.00 mailing of company changes to customers 7.00 3 21.00 Weaknesses Weight Rating Weighted Score 12 percent decline in sales revenue 8.00 1 8.00 resignation of president 7.00 2 14.00 increased default rates 5.00 1 5.00 scarcity of the merchandise 7.00 1 7.00 loss of many customers 3.00 1 3.00 total company overhaul 3.00 1 3.00 inaccessible of premises by customers 4.00 2 8.00 removal of promotions 3.00 1 3.00 hurried execution of Johnson plan 3.00 2 6.00 retention of rejected spokesperson 0.00 2 0.00 TOTALS 100.00   252.00 From the IFE chart above we realize that the company scores about 2.52 which is almost the normal average requirement of 2.50. This means that the company is internal position is not good because it ought to have above the average (Gilbertson, Claudia, Mark, and Daniel 91). This further retaliate the earlier revelation by the growth ratios that the J.C Company is heading for bad financial positions. The mass retrenchment of the Company workforce and the scarcity of its merchandise were contributing factors towards this lower international position. Based on the results from the table, conclusion is that, the J.C Penney Company has a weak internal structure. Section 3: EFE chart External Factor Evaluation Matrix (EFE)       Opportunities Weight Rating Weighted Score Lots kind of vehicles 9.00 4 36.00 long history 8.00 4 32.00 Professional employees 7.00 3 21.00 Nice customers service 7.00 3 21.00 Benefits, feedback 6.00 3 18.00 In the event of a GM or Chrysler bankruptcy 5.00 2 10.00 High technology 5.00 2 10.00 Nice labor contract 3.00 1 3.00 0 0.00 0 0.00 0 0.00 0 0.00 Threats Weight Rating Weighted Score Too many competitors 9.00 4 36.00 Poor profitability 8.00 4 32.00 Importance of single component source 8.00 3 24.00 Lack of supply of supply base 7.00 3 21.00 Poor financial results 6.00 3 18.00 Low sale for ford trucks 5.00 2 10.00 One Ford Strategy may fail 4.00 2 8.00 3.00 1 3.00 0 0.00 0 0.00 0 0.00 0 0.00 TOTALS 100.00   303.00 From the chart of EFE, J.C Penny Company scored 3.03 above the average figure of 2.5. This indicates that the company had a lower response to the external factors that bars it from achieving its potential opportunities based on threats. Section 4 – Growth Ratio Explain the purpose of the ratio The growth ratio also called Year over Year is used to show how much firm has performed in relation to the previous years. This helps the Company identifies areas of opportunity, strengths and weakness. Based on the analysis of such ratios, the Company top management are able to make policies that are geared at goal achievement. Adjustment is made resulting from the report of the auditors of such analysis. Any profit oriented Company aims at attainment of a positive growth in its operation and this is a motivating factor to; shareholders, employees, managers and all the Company stakeholders (Gilbertson, Claudia, Mark, and Daniel 101). Declining growth ratios will demoralize employees who would want increases in their wages and salaries, shareholders who would want increase in dividend payout rates as well as those junior employees who wish to be promoted based on their lucrative achievements. It therefore determines the kind of investment a Company will put more effort on so as to maximize its revenue base. Place the numbers into the equation and show the mathematical result, Growth ratio= Current Year’s Revenue Less Previous Year’s Revenue/ Previous Year’s Revenue 2013 revenue= 2.66 billion dollars 2012 revenue= 3.02 billion dollars YOY= (2.66-3.02/2.66)x100= -12% Table of Averages Revenue% 2010 2011 2012 2013 2014 YOY -5.03 1.16 -2.81 -24.77 -8.67 3-year av. -4.10 -3.66 -2.26 -9.56 -12.59 5-year av. -0.96 -1.11 -2.81 -8.15 -8.50 10-year av. -5.98 -5-67 -5.99 -8.72 -3.97 Compare to industry/non-industry averages From the table of average, comparison of the computed figure of -12% growth ratios, we compare this to the 10- year average of -8.72%, 5-year average of -8.15% and 3-year average of -9.56% ,we realize that computed figure is above all the three kinds of average. This means that the company performance is worsening in terms a reduction in sales. There is a revealed diminishing growth trend in J.C Penney Company. This is attached to the over utilization of the Company’s funds by Johnson on his rebranding constructions (Plunkett 98). This is further attributed to failed attempt of replacing the old merchandise with new ones which led to a reduction of merchandise and making customers who were used to the eliminated brands losing loyalty and quitting to other Companies offering their preferred goods. This has caused the Company by demoralizing its workers as well as shareholders who cannot benefit any further as the company heads towards being declared bankrupt. Growth ratios for the 3 most current years of J.C Penney Company 2012= 3.02-11.75/3.02x100= -2.89% 2013= 2.66-3.02/2.66x100= -12% 2014 latest qtr= 2.76-3.02/3.02x100= -8.67% Ratios for 2 top competitors for the most recent year The two top competitors of the J.C Penney Companies are; (i) Hutchison Whampoa Ltd ADR 2012 revenue= 243,089 2013 revenue= 256,234 Growth in revenue= 256,234-243089/243,089x100= 5.4% The company financial ratios are strong shown by a positive value on revenue growth rate of 5.4% (ii) Macy’s Inc 2012 revenue= 26405 million dollars 2013 revenue= 27,686 million dollars Revenue growth= 27,686-26405/26405x100= 4.9% The Company financial position is strong as indicated by a positive revenue growth rate of positive 4.9% Table showing the Financial Health of the J.C Penney Company Financial health/liquidity 2010-01 2011-01 2012-01 2013-01 2014-01 Latest Qtr Current ratio 2.05 2.41 1.84 1.43 1.70 1.58 Quick ratio 1.05 1.12 0.70 0.38 0.53 0.36 Leverage 2.63 2.39 2.85 3.08 3.82 4.49 Debt/equity 0.63 0.57 0.72 0.93 1.59 1.86 From the above table showing the financial health of the J.C Penney Company for the period between years 2010 and 2014 latest quarter, based on the current ratio analysis, we see a decreasing trend from 2.05 in 2010 to 1.58 in latest quarter of year 2014. This shows how the liability of the company is rising and the company will be unable to pay for its daily operations should the trend continue. Increased current liabilities which cannot be accounted for by current Company assets calls for immediate assessment of the company daily operations to check the reasons behind this threat as this will make the Company to fail in its carrying out its daily operation and this cares away customers. Analysis of the leverage employs an increasing trend which is posing greater threats to the continuity of this particular firm in the future. We have a greater figure of 4.49 at the close of the latest quarter in 2014 (Gilbertson, Claudia, Mark, and Daniel 111). Analysis of the debt equity ratio shows an increasing trend with the latest quarter having a figure of 1.86. This means that the financial health of the company is under risk. More funds are borrowed than can be supported by the equity of the shareholders. This makes the company heads towards insolvency should the trend be continued. To this trend, the researcher’s firm position based on the evaluations discussed is that the company has a weaker financial health or liquidity and would be unable to pay its suppliers, employees and even the shareholders (Plunkett 243). The firm should thus look for alternatives measures in funding its operations in order to remain relevant within the industry, otherwise many competitors will take this advantage and pin the company down resulting to mass customer loyalty withdrawals which further leads to loss of sales and its subsequent closure. Section Five – Problem Statement Flow chart for the symptoms problem based on mental map J.C Penney’s 590 promotions per year Ulla replaced by Johnson as CEO Johnson rebranding plans Johnson hurried plan execution and implementation Hiring Ellen as brand spokesperson and her public rejection Resignation of the J.C Penney President Financial losses (root central problem) Company moving towards bankruptcy Despite the lucrative plan that Johnson drawn to ensure the rebranding of the company was successful, Johnson failed in every step. His speed with the execution and Implementation were driven not by himself but with imitation from what had worked for the Apple Company. Johnson never understood that the two firms had a different operational culture and could lot employ the same strategy to another. His intentional failure to do lay off Ellen despite being rejected by the public further complicated things (Pasiuk 122). Total overhaul could not be executed at once and Johnson intentional elimination of the old merchandise without the immediate replacement by new ones was miss-informed strategy. The company thus ended up losing much of its customers based on the scarcity of the products as they walk in to these stores. What translated from this situation of lack of merchandise was the reduction in the company sales by almost 8 billion from the previous years. Another problem that John foolishly did was investing most of its revenues or cash to construction work with little cash inflow to offset such cost. The company was thus very insolvent with over 13% reduction in its traffic. Many people that were initially loyal to the company had no option but to shift their loyalty to other competitive firms within the same industry as consumers always targets at utility maximization based on their post purchase evaluation and the resultant satisfaction. Section Six - Alternative Solutions Continuous Training of Associates and Penney’s Stakeholders for Intelligently Performed Service Delivery Advantage: This will ensure that each and every stakeholder understands the whole project first before execution and implementation. Disadvantage: Might require much cost to undertake. To Ensure Maximum Revenue through every Effort and Customers Satisfaction Based on Quality Products. Pros: increased sales leads to increased company internal position. Cons: Might be associated with work-life imbalance for employees attached family neglect. Re-introduction of the eliminated brands as well as new brands Pros: Cater for both new and old customers by prioritizing public satisfaction and via making the company’s products easily accessible. Cons: May lead to inventory accumulation leading to with-holding of funds. Conducting a thorough company audit to reveal the exact financial status of the firm. Pros: reveals the internal position of the business hence policy formulation. Cons: Expensive in terms of both time costs and direct labor cost for independent auditors. External borrowing from financial institutions Pros: Increased capital base leading to increased investment hence increased revenue Cons: Increased liability of the company which may lead to insolvency Work Cited Beasley, Norman. Main Street Merchant: The Story of the J.c. Penny Co. New York: Whittlesey House, 1948. Print. Plunkett, Jack W. The Almanac of American Employers 2009: The Only Guide to America's Hottest, Fastest Growing Major Corporations. Houston, Tex: Plunkett Research Ltd, 2008. Print. Gilbertson, Claudia B, Mark W. Lehman, and Daniel H. Passalacqua. Century 21 Accounting: Advanced. Mason, OH: South-Western Cengage Learning, 2009. Print. Plunkett, Jack W. Plunkett's Apparel & Textiles Industry Almanac 2008: The Only Comprehensive Guide to Apparel Companies and Trends. Houston, Tex: Plunkett Research, 2008. Print. Pasiuk, Laurie. Vault Guide to the Top Retail Employers. New York: Vault Inc, 2005. Print. Read More