CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–15
1. We don’t believe that JCPenney needs to necessarily change their
mission statement and objectives. One of the driving philosophies
2. We do note that the mission—“to drive sales and profit growth by
ensuring our customers and our associates always know they’re first in
our Stores by what we do!”—should be modified to specify what line of
4.
VI: STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY
A: Strategic Alternatives
1. While the current revised objectives are prudent for the business
JCPenney is in, the speed with which they were implemented during Ron’s
tenure came at a cost to the Company’s profitability. The objectives
2. Alternative Strategies
a. Growth—through introduction of private brands, exclusive national
brands, and select locations.
i. PROS: point of differentiation; potential growth in
profits and revenues; company better competes against
competitors; better employee morale (company performing
b. Cost Leadership—RFID technology implementation will automate
transactions and enhance its inventory and supply chain network.
RFID will replace bar coding system and support customer self–
checkout.
i. PROS: save expense of running cash registers and increase
profits; gain advantage over competitors by reducing
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–16
ii. CONS: large initial outlay for tags and the installation of
readers throughout the stores; currently JCPenney doesn’t
prices.
c. Points of Differentiation—(private brands, exclusive rights to
national brands, store layouts, and celebrity spokespeople)
i. PROS: unique and exclusive products mean JCPenney can
charge higher prices; differentiation makes JCPenney
significantly different from competitors; unique shopping
ii. CONS: consumers might not like the brand selection (fear
of the unknown); consumers are not familiar with the store
layout; costs associated with developing private brands as
well as acquiring exclusive rights for national brands;
often have to move up or down for growth.
d. Stability Strategies—pause/proceed with caution strategy
i. PROS: stable business; no additional investments and
expenses; doesn’t have to reinvent the wheel strategically;
slow growth through small improvements.
ii. CONS: no substantive growth; business may stagnate;
competitors might crush JCPenney by innovating their
e. Retrenchment Strategies—turnaround strategy (cut costs and
expenses by closing the stores; potential layoffs; divest
unprofitable brands).
i. PROS: costs saving; cutback in size and costs to “stop the
bleeding” and improve bottom line; allows management to
reevaluate strategies and objectives; improves
productivity.
B: Recommended Strategy
1. Given JCPenney’s precarious situation we believe the Company needs to
implement a hybrid strategy in order to be able to come out of its
current state.
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–17
a. Here we argue for an overarching Pause/Proceed Strategy guided by
the Point of Differentiation Strategy.
i. JCPenney needs to change slowly over time, respond to
market trends and test the waters for new setups. The
ii. They also need to continue investing in key private brands
and labels and fostering ethical supplier relationships.
This will differentiate them from their rivals, and allow
JCPenney to potentially charge higher prices, thus
increasing revenues. This is the Point of Differentiation
aspect.
b. JCPenney should continue to maintain appropriate levels of
quality and having all of its suppliers operate ethically (social
responsibility).
c. The full–scale implementation of RFID technology for inventory
management should be a medium to long–term goal.
d. JCPenney should grow through introduction of private brands,
which creates point of distinction. They should also acquire
exclusive rights for national brands.
e. JCPenney should continue to explore new media for advertising
2. Going Forward
a. This strategy will help the Company to return to simpler times
when customers had JCPenney’s brand loyalty. The Company needs to
regain the trust of both its customers and Wall Street. JCPenney
already changed its logo back to the pre–2011 original logo. The
Company is trying to recover from identity loss and financial
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–18
i. JCPenney can vertically integrate with some suppliers to
reduce costs and gain access to those resources through
long–term contracts.
ii. The Company can also integrate horizontally to other
geographies.
1. Mexico is a key potential given previous experience
3. No major policies need to be created in order to implement this
strategy. We do believe that current policies, however, need to be
updated to reflect any changes in strategy. More importantly, the
setting of the environment will prove to be a key driver in employee
4. This strategy shouldn’t have a material impact on the Company’s core or
distinctive qualities. The strategy will take the Company back to the
simpler times and its core values.
VII: IMPLEMENTATION
A: Organizational Structure
1. Restructuring is not necessary.
2. The company is able to support the recommended strategy from
section VI.
B: Programs
1. R&D—JCPenney needs to do a better research, so they can better
understand their customer and respond to market changes. Some R&D
dollars should definitely be spent in analyzing buyer behavior and
their responses to different pricing strategies.
2. Marketing—JCPenney should continue to explore new media for advertising
C: Feasibility and Timeliness
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–19
changes management began to take at the end of this case. If
implemented carefully and for the right reason, these recommendations
should bring JCPenney back to profitability for the long–term. We note
that there will have to be significant short–term sacrifices to be
made, but these are essential for long–term survival.
D: Necessary Standard Operating Procedures
1. Current operating procedures need to be slightly altered. First,
RFID technology must be implemented so that a checkout process is more
efficient and effective and inventory management is improved. Logos
VIII: EVALUATION AND CONTROL
A: Current Information Systems
1. The results can be pinpointed to business unit, area, and
function. At least in the previous pricing system, the information was
B: Control Measures
1. The case makes no mention of the controls in place.
2. There is no mention of any incentives to reward or recognize good
performance. We do discuss the stock options available to some
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–20
Exhibit A: External Factor Analysis
External Factor Analysis Summary (EFAS)
External Strategic Factors
Weight
Rating
Weighted
Score
Comment
Opportunities
expansion.
* Increase in Online and
Mobile Shopping
0.15
2
0.30
Move towards
online retailing;
opportunity to
expand customer
base and same
customer revenues;
replaces catalogs.
experience in
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–21
Marketing Initiatives
media to outreach
all markets.
* Improving US economy
0.15
5
0.75
Higher consumer
confidence will
drive traffic.
0.10
1
0.10
May put a strain
on operating
* Competitive Industry
0.10
1
0.10
Strong US
competition; with
many established
competitors.
* Consumer Buying Power
0.10
2
0.20
No barrier to
customer shopping
elsewhere; many
substitutes.
forecast fashion
trends and
customer
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–22
Exhibit B: Internal Factor Analysis
Internal Factor Analysis Summary (IFAS)
Internal Strategic Factors
Rating
Weighted
Score
Comment
Strengths
* Long History and Brand
0.05
5
0.25
* Strong Portfolio of Private
0.15
5
0.75
* Key Ethical Supplier
Relationships
0.10
4
0.40
Essential for proper inventory management
and ethical operations.
* Shops Within Shop Experience
(“Shop, Street Square”)
0.05
3
0.15
Attracts foot traffic and keeps customers
in stores longer; must learn to leverage.
* RFID Inventory Management
System
0.10
1
0.10
Opportunity to streamline inventory
management and save on register expenses.
* Shopkick/Consumer Data
0.05
2
0.10
Additional floor traffic and opportunity
Can’t take advantage of growth
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–23
* Weaker Corporate Governance
and Internal Turmoil
1
0.05
High management turnover and lawsuits on
executive compensation.
* Brand Positioning/Pricing
Strategy
1
0.15
Lower price positioning vs. high price
perception; several logo versions.
* Low Employee Morale
1
0.10
Morale is low after previous HRM methods
and looming layoffs; contributes to high
turnover.
26–30
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–33
Exhibit D: Financial Ratio Analysis
FY12 Liquidity Ratios
Current Ratio
1.43
Quick (Acid Test)
Ratio
0.52
Cash Ratio
0.36
FY12 Profitability Ratios
Net Profit
Margin
–7.6%
Gross Profit
Margin
31.3%
ROA/ROI
ROE
FY12 Activity Ratios
Inventory Turnover
Days of Inventory
NWC Turnover
Asset Turnover
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–33
Turnover
Average Collection
Period
A/R Turnover
A/P Period
Days of Cash
FY12 Leverage Ratios
Debt to Asset
30.5%
Debt to Equity
94.0%
LTD to Capital
90.4%
Times Interest
Earned
CL to Equity
81.0%
FY12 Other Ratios
Price to Earnings
(4.43)
Dividend Payout Ratio
Dividend Yield on Common
Stock
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
26–33
References
“JcPenney Company, Inc. Form 10–K.” S&P Capital IQ. McGraw Hill Financial.