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26-1
CASE 26
J.C. PENNEY COMPANY INC.: SURVIVING THE RON JOHNSON (CEO) ERA
I. CASE ABSTRACT
Ron Johnson, the architect behind Apple's wildly successful retail
stores and 15-year Target veteran, became American department store chain
J.C. Penney’s new CEO in November 2011. The owner J.C. Penney had high hopes
for Johnson, who proceeded to make drastic changes to the company including a
new logo and a new spokesperson (Ellen DeGeneres). His vision included
transforming 700 of the largest J.C. Penney stores into collections of some
nearly 25 percent.
Decision Date: 2013 FY Sales: $12.9 billion
FY Net Loss: $1.3 billion
II. CASE SUBJECTS AND ISSUES
CEO Transition Competitive Strategy
Strategy Formulation Competitive Advantage
Strategy Implementation Brand Positioning
III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS
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IV. CASE OBJECTIVES
1. To discuss J. C. Penney’s new brand positioning.
2. To discuss J. C. Penney’s business level strategy.
V. SUGGESTED CLASSROOM APPROACHES TO THE CASE
1. This is an excellent case for instructor-led discussion.
2. This is an excellent case for an exam or written case analysis.
VI. DISCUSSION QUESTIONS
1. Who is J.C. Penney’s target market?
2. Why did the three-tier pricing strategy fail?
VII. CASE AUTHOR’S TEACHING NOTE—Not Available
VIII. STUDENT STRATEGIC AUDIT
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I: CURRENT SITUATION
A: Current Performance
1. History
a. The history of JCPenney dates back to 1898 when James Cash Penney
began working for the Golden Rule Stores,a small chain known for
selling quality goods at low prices.
d. Headquarters relocated to NYC in 1914 and again to Plano, Texas
in 1988.
e. By 1922 JCPenney had 371 stores in twenty-seven states
f. In 1929 the Company was listed on the NYSE.
2. Financial Performance (as of FYE 2012)1
a. JCPenney has seen some sales declines in the last couple of
years.
b. Sales were down 24.8 percent for FY 2012 to $12.99 billion.
c. Twenty-four selected private and exclusive brands.
d. 3.47 percent market share at the end of 2011 (Mintel, 2013).
e. 116,000 employees as of FYE 2012.
B: Strategic Posture
1. Mission
a. JCPenney’s guiding philosophy since its founding has been the
Golden Rule: “Do unto others as you would have done unto you.”
b. At the time of this case, its mission statement is “to drive
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their Internet website at jcp.com for the fashion and home goods
market segments.
d. The Company’s mission is consistent with the business JCPenney is
2. Objectives
a. JCPenney’s objective is to be “America’s favorite store” and the
company that treats its customers “fair and square” according to
b. To maintain quality and have all suppliers operate ethically.
c. To meet the needs of families through its private label brands
for all segments of the population.
d. To “give back” to improve relations with local communities.
e. We note here that these objectives lack substance and
3. Strategies
a. Profitability and growth
b. Increased market share
c. Efficiency
4. Policies
a. Differentiation and Location
i. Create a specialty department store experience—“shops
within shop.”
b. Brand Positioning
i. Reinvest in core brand values.
c. Marketing
i. Refocus on women/female and young adult segment.
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iv. Give back to the community—Golden Rule
d. Hire new management
e. Establish ethical supplier relationships
5. International Operations
a. JCPenney does not have international operations. The current
mission, objectives, strategies, and policies are in line with
their domestic operations.
b. We do note, however, that JCPenney has experience in
II: CORPORATE GOVERNANCE
A: Board of Directors1
1. Members
a. JCPenney has a total of eleven board members. Of these, only
Ronald Johnson, CEO of JCPenney, sits on the Board.
2. Stock Ownership
a. While we are not provided with exact figures or numbers,
according to the Company’s Corporate Governance Guidelines, “non-
3. Board Expertise/Tenure
a. JCPenney’s Board has ample expertise in the retailing industry.
Some of the directors have significant experience with retailers
4. Strategic Involvement
a. JCPenney’s Board has been proactive in setting the Company’s
strategic direction. While the extent of their success can be
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potential issues with the Board with regards to executive
compensation being too high in light of the Company’s weak
performance.
c. It is essential to question how vested the Board is in JCPenney’s
long-term success. How can the Company alter their compensation
structure so that pay is more reflective of the Board being able
B: Top Management1
1. Management Structure
a. JCPenney has a total of six executive officers.
i. Chief Executive Officer: Ronald Johnson.
ii. Chief Operating Officer: Michael Kramer.
2. Management Expertise/Performance
a. JCPenney’s executive officers have extensive experience in the
retail industry. The CEO himself was brought specifically to
implement a new strategy.
b. Management has been responsible for JCPenney’s recent financial
performance. Specifically, JCPenney has suffered significant
losses during Ron Johnson’s short tenure.
3. Strategic Management
a. Like the Board, management was a key contributor to the Company’s
strategic direction. Specifically, Ron Johnson was a key player
in establishing a new three-tiered pricing strategy, store layout
and marketing scheme that eventually proved unsuccessful.
b. Important to note is that Ron had all the right intentions. The
4. Stock-Based Compensation
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a. JCPenney uses stock awards and options as executive compensation
for other executives.
b. While we are not provided with exact figures or numbers,
according to the Company’s Corporate Governance Guidelines, the
CEO is expected to own shares equivalent to 5x his annual base
salary; 3x for the President; and 1x for EVPs and SPVs.
c. For fiscal year 2012, the Company paid out a total of $50 million
in stock-based compensation (excluding $11 million of stock-based
performance-based?
III: EXTERNAL ENVIRONMENT (SWOT)
A: Societal Environment
1. Economic Forces
a. US economy beginning to stabilize after 2009 financial crisis
(O).
b. Unemployment rates beginning to recover (O).
2. Technological Forces
a. Innovative technologies for payment processing and inventory
management becoming increasingly important/
i. Potential to increase R&D and find economies of scale (O).
3. Political/Legal Forces
a. Rising labor wages in the US (T).
b. Environmental concerns being reflected in additional regulations
for environmental change (T).
4. Social/Cultural Forces
a. Improving apparel retail market in the US (O).
b. Hispanic target market increasingly spending on fashion (O).
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ii. Potential for reduced revenues or lower margins as these
two markets combine to make up a great proportion of
JCPenney’s sales (T).
e. Social media geared towards younger population.
i. Disconnect from what the actual perception is in the real
B: Task Environment
1. Threat of New Entrants—Medium (T)
a. The threat of new entrants to the industry is moderate. While
competition and concentration are high, the industry is not very
2. Buyer Purchasing Power—High (T)
a. Low switching costs in the industry and plenty of substitutes.
3. Threat of Substitutes—High (T)
a. Substitutes are easy to find in the retailing industry.
i. Possibly mitigating this is JCPenney strong brand portfolio
of private label brands (O).
4. Supplier Purchasing Power—Low (O)
a. Suppliers in the retail industry generally have low buying power.
5. Rivalry/Competition—High (T)
a. Competition in the industry is extremely fierce. There are many
department stores competing in JCPenney’s line of business, and
many others that compete through their retail offerings.
C: Summary of External Factors
1. The factors affecting JCPenney the most are the customer’s high
bargaining power driven by the availability of substitutes. We note all
these forces work together and can indirectly affect each other.
2. Because competition and concentration are high, there are many
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3. The result is that JCPenney must compete heavily on price or
differentiation.
a. While pricing considerations are very important for JCPenney, the
Company has chosen to differentiate itself through its various
IV: INTERNAL ENVIRONMENT (SWOT)
A: Corporate Structure
1. JC Penney is hierarchical, with the CEO and Board of Directors as
top management, followed by Vice Presidents, an ample middle
2. The corporate structure is clearly understood by everyone in the
corporation (S).
3. Due to the change in executives in a short amount of time, many
corporate objectives, strategies, policies, and programs have been
4. JCPenney’s hierarchical corporate structure is similar to its
competitors because of the organization’s size where there needs to be
significant organization of functions in order to ensure all parts of
the businesses are running effectively. Similar to other competitors,
centralized decision-making is the norm (S).
B: Corporate Culture
1. Corporate culture is currently going through many transitions as the
executive has changed and drastic decisions are being made to save the
struggling company. JC Penney traditional maintained a positive work
2. The new culture (post-Johnson) is working to align itself with JC
Penney’s objectives, strategies, policies, and programs (S).
3. Despite recent drop in morale, the culture is aware that the Company is
C: Corporate Resources
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1. Marketing
a. JCPenney’s current marketing objectives aim to reinforce the
company’s traditional values to provide high-quality products at
low prices while treating customers “fair and square.”
i. Marketing objectives and strategies are clearly defined in
b. JCPenney utilizes numerous types of methodologies to gain
customer insights, specifically about products, price, place, and
promotion in the domestic market. No percent of sales come from
foreign markets. The majority of the products are in the mature
life cycle phase.
i. The change in management and numerous business decisions
have fractured JCPenney’s customer base. Many customers
remain confused about whether JCPenney is in the high-end
or low-end market. Three-tier pricing has jeopardized the
technology-based reward system for customers.
ii. These trends have had a rollercoaster effect on
performance, but primarily JCPenney has lost substantial
amount of profits because of the recent overhaul (and the
numerous marketing failures).
iii. This analysis demonstrates that the corporation needs to
focus on thE customers and begin to adapt the business
c. JCPenney’s has more marketing failures than that of its
competitors
d. Marketing managers struggle to change the market segments it is
becoming because of the change in management. Marketing managers
are working to reiterate the new JCPenney that has returned to
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e. JCPenney operates solely in the U.S. and adjusts marketing to
different market segments.
i. Marketing managers work closely with Ullman to refocus the
company back to its traditional values and consumer base.
2. Finance
a. JCPenney does not clearly state its financial objectives,
strategies, and programs which have contributed to the lack of
financial strategy (W).
b. Significant deterioration in financial performance (W).
c. Revenues down 24.8 percent YoY from 2011 to 2012 (comparable
store sales down 25.2 percent) (W).
d. Gross profit margins saw a 1000 bps decrease YoY to 29 percent
(W).
3. Research & Development
a. JCPenney uses surveys and market search companies to help align
its product development with customer tastes.
i. Implied from performance and budget.
ii. They are fairly consistent with the organization’s mission,
objectives, strategies, policies, and with the internal and
b. It is unclear of the amount of return JCPenney’s investments in
R&D are making.
c. JCPenney recognizes the need for better technology (RFID) but the
upfront costs are too big of an investment with falling profits.
The use of concurrent engineering and cross-functional work teams
in product and process design was not identified in the case.
d. A new RFID system would cause a slight discontinuity.
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4. Operations & Logistics
a. JCPenney uses foreign manufacturers to provide quality goods at
low prices.
i. They are implied from performance and budget.
ii. They are consistent with the corporation’s mission,
objectives, strategies, policies, and with the internal and
external environments.
b. The majority of the product manufacturing is done in sub-
contracted foreign facilities. The level of outsourcing is
i. JCPenney contracts out to foreign facilities with mass
production machinery. The degree of automation, plant
capacity and utilization, productivity ratings,
availability, and type of transportation was not identified
in the case.
c. It is not known if the manufacturing or service facilities are
vulnerable to natural disasters, strikes, resource shortages,
increase of material costs, or nationalization by governments.
e. It is not identified in the case how manufacturing costs compare
to other competitors. JCPenney struggles to manage its inventory
during the transition to the new business model. The company lost
substantial funds because of inventory mismanagement.
i. Not identified
ii. Not identified
iii. Not identified
iv. The competitive advantage is the low cost of goods and the
efficiency of mass production.
5. Human Resource Management (HRM)
a. JC Penney strives to cultivate a positive work environment for
employees. In the Johnson era, the working environment led to the
dehumanization of employees, identifying them by colors that
corresponded with their level of importance (based on
performance). Direction was completely lost during the management
transition.
i. It is clearly stated in the case that human resources were
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b. HRM is not performing well, former CEO Johnson lead a series of
layoffs totaling around 19,000 individuals filled with company
knowledge in order to save costs. Employees’ ability to
communicate with management decreased, processes were long
forgotten, and employee morale was low.
i. Inexperienced associates were placed on the floor, dress
codes were loosened which resulted in customer confusion
(were unable to identify employees on the floor for help).
v. Former employees provided the company with competitive
advantage. Following the layoffs, JCPenney lost a
considerable amount of intellectual property. Newer
employees are learning the strategies and skills to help
create the competitive advantage the company needs.
c. The new HRM approach to performance competes with other
department stores.
d. The company recognizes the importance of having diversity
throughout the company. And when possible to fill roles with an
6. Information Systems
a. It is unclear what JC Penney’s IS objectives, policies, and
programs are. However, they recognized the need to upgrade their
transaction system.
i. They are not clearly stated in the case.
ii. JCPenney’s ability to act on its IS objectives is
constrained due to the lack of disposable funds to invest
in new IT infrastructure.
b. It is not clear if the information system is providing the
necessary databases. It does provide Internet web page for
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iii. This analysis does support the corporations past and
pending decisions.
iv. IS does not provide the company with a competitive
advantage.
c. JCPenney’s information system is lagging behind its competitors
for business processes. It does utilize a website to give
customers another way to procure goods. However, the website
remains fragmented from the numerous changes in names/logos.
d. It is not clear if IS managers are using appropriate concepts and
techniques to evaluate and improve corporate performances. The
D: Summary of Internal Factors
1. There is no doubt that JCPenney’s core competencies lay in its
long history, known brand, and key private labels and brands. Points of
differentiations through branding and product offerings are key for
future success for companies in this industry. While some other players
will focus on cost leadership strategies, such as Walmart, Target, and
V: ANALYSIS OF STRATEGIC FACTORS (SWOT)
A: Situation Analysis (See Appendix C)
1. Below we list JCPenney’s most important internal and external
strategic factors:
a. Increase in online and mobile shopping (O)
b. Improving US economy (O)
c. Consumer buying power (T)
d. Competitive industry (T)
B: Review of Mission and Objectives
