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| ==Business Overview== | ==Business Overview== | ||
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| J.C. Penney is a leading [[Department Store Consolidation|department store]] retailer with 1,093 stores in the United States and Puerto Rico.<ref name=JCP1>{{cite 10k| ticker=JCP| year=2009| form=Annual Report| link=http://idea.sec.gov/Archives/edgar/data/1166126/000119312508072384/d10k.htm| pg=8}}</ref> The company divides its merchandise into several categories which include: men's, women's and children's apparel, accessories and cosmetics; footwear; home furnishings; leisure and recreational equipment; jewelry and watches.<ref name=JCP2>{{cite 10k| ticker=JCP| year=2009| form=Annual Report| link=http://idea.sec.gov/Archives/edgar/data/1166126/000119312508072384/d10k.htm| pg=2}}</ref> | J.C. Penney is a leading [[Department Store Consolidation|department store]] retailer with 1,093 stores in the United States and Puerto Rico.<ref name=JCP1>{{cite 10k| ticker=JCP| year=2009| form=Annual Report| link=http://idea.sec.gov/Archives/edgar/data/1166126/000119312508072384/d10k.htm| pg=8}}</ref> The company divides its merchandise into several categories which include: men's, women's and children's apparel, accessories and cosmetics; footwear; home furnishings; leisure and recreational equipment; jewelry and watches.<ref name=JCP2>{{cite 10k| ticker=JCP| year=2009| form=Annual Report| link=http://idea.sec.gov/Archives/edgar/data/1166126/000119312508072384/d10k.htm| pg=2}}</ref> | ||
Revision as of 16:25, June 19, 2009
Business Overview
J.C. Penney is a leading department store retailer with 1,093 stores in the United States and Puerto Rico.[1] The company divides its merchandise into several categories which include: men's, women's and children's apparel, accessories and cosmetics; footwear; home furnishings; leisure and recreational equipment; jewelry and watches.[2]
Business and Financials
Sales at J.C. Penney increased each year from 2004 until 2007. The 2007 Credit Crunch as well as the recession in the American economy have led to decreasing sales in 2008. Consumers who are unsure of their futures or their financial security have cut back on their spending, especially on nonessential items such as clothing and accessories. The holiday season, which is a time when many retailers make the majority of their sales, did not provide any relief from decreasing sales during the rest of the year. Same-store sales for December 2008 decreased by 8.1%.[5] The company's financials did not improve in 2009. February same-store sales decreased by 8.8%.[6] However, this was less than Wall Street predictions of a 12.9% decline and the company's own estimate of a mid-teens decline.
Trends and Forces
Amount of Consumer Spending at Department Stores Continues to Decrease
According to a nine-year study conducted by Cavallino Capital LLC, the amount of money consumers spent at department stores as a fraction of total spending during the holiday season from 2002 to 2008 decreased from 11 to 6%.[7] Also, in the above graph the percentage of survey participants who visited department stores decreased from 2005 to 2008, whereas the percentage of participants who visited discount stores such as Wal-Mart (WMT) and Kohl's (KSS) increased each year.[7]
Consumers consider everyday low prices (similar to what one would find in Wal-Mart) as much more important than discounts and well-advertised sales (similar to what one would find in J.C. Penney). What this means is J.C. Penney's decreasing sales are partly a result of the U.S.'s economic downturn and partly a result of changing consumer buying patterns, which has been moving away from department stores for at least four years. The big name discount retailers such as Wal-Mart (WMT) and Target (TGT) show no signs of shrinking. This means that even when the American economy rebounds J.C. Penney and other department stores will face decreasing sales due to changing consumer tastes.
J.C. Penney Responds to Slowdown in Consumer Spending
| Company | Percentage of Holiday Season 2008 Shoppers |
| Wal-Mart | 69% |
| Target | 21% |
| Sears | 17% |
| J.C. Penney | 15% |
| Best Buy | 14% |
| Toys R' Us | 13% |
Retail sales in 2008 have decreased greatly from previous years. The 2007 Credit Crunch made it more difficult for consumers to secure a line of credit. In addition, large numbers of layoffs have made consumers uncertain of their financial security. Therefore, consumers are not spending as much in stores as they did when the economy was in better shape. Compared to other retailers such as Wal-Mart and Target, J.C. Penney has performed poorly in attracting holiday consumers, hardly attracting more than more specialized stores such as Best Buy and Toys R' Us. Although all stores have similar product offerings (except Best Buy and Toys R' Us), Wal-Mart and Target offer a lower price point, which is increasingly important to consumers wishing to save money. J.C. Penney has responded to this trend by keeping tight control over its inventory (ordering fewer products) and making discounts. J.C. Penney is one of the few retailers to report that women's apparel was one of its top-selling categories for the 2008 holiday season. In addition, same-store sales for the 2008 holiday season decreased 8.1% from the same period in 2007, beating the company's expectations of a low double-digit decline. J.C. Penney is working to weather the economic turmoil by discounting its products and purchasing fewer products.[8]
Private Brands Not Unique Enough to Differentiate from Cheaper Alternatives
Private label brands are produced exclusively for a particular store. For example, J.C. Penney has a number of private label brands including Arizona Jeans Co. and Stafford.[9] Retailers such as Macy's and J.C. Penney find private labels very attractive because the pieces often had higher margins than branded merchandise from other companies. However, the economic crisis of 2008-2009 has made people more reluctant to spend. When consumers have less money to spend, they will be more inclined to spend it on something that excites them. Private label brands, in an effort to appeal to as many consumers as possible, are less likely to spur a person to buy them when disposable income is already scarce.[10] Also, the proliferation of discount retailers such as Wal-Mart, Target and Kohl's (some with their own exclusive brands) means that consumers can trade down to another store if they can no longer afford prices at J.C. Penney. Private label merchandise, by its nature, is not differentiated enough to keep consumers purchasing them in lieu of lower-priced alternatives. Since 52% of J.C. Penney's 2008 sales came from private labels[4] a decrease in sales of private brands will have a large adverse effect on its income.
Competition
| Company | 2008 Sales ($millions) | 2008 Comp Store Sales Change |
| J.C. Penney | 18,486[3] | (8.5%)[3] |
| Macy's | 24,892[11] | (4.6%)[12] |
| Kohl's | 16,389[13] | (6.9%)[13] |
| Sears | 46,770[14] | (8.0%)[14] |
J.C. Penney's main competition is mid-tier department stores such as Macy's Inc. (M) and Sears Holdings (SHLD) in addition to Kohl's (KSS).
- Macy's Inc. (M) has 847 stores to J.C. Penney's 1,093. Also, its 2008 sales were $6,406 million higher than J.C. Penney's. Macy's has a higher price point than J.C. Penney and sells more exclusive brands. Although both companies produce private labels, they make less of a contribution to Macy's total sales than they do J.C. Penney. 19% of Macy's 2008 sales came from private brands[12] whereas private brands constituted 52% of J.C. Penney's 2008 sales.[4]
- Kohl's (KSS) is slightly smaller than J.C. Penney, both in terms of sales and locations (Kohl's made $16,389 in revenue and has 1,004 stores). Kohl's also operates at a slightly lower price point. The economic crisis has made Kohl's a more attractive option for consumers--December 2008 sales rose 11% from December 2007. Other discount retailers experienced similar increases in sales whereas department stores such as J.C. Penney and Macy's saw decreasing sales.[15]
- Sears Holdings (SHLD) is the largest department store company in North America. It owns both Sears and K-Mart stores. It made $46,770 billion in sales in 2008. Both Sears and K-Mart focus more on home furnishings and appliances than J.C. Penney, Macy's or Kohl's, which are more focused on apparel.
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References
- ↑ JCP 2009 Annual Report pg. 8
- ↑ JCP 2009 Annual Report pg. 2
- ↑ 3.0 3.1 3.2 JCP 2009 Annual Report pg. 11
- ↑ 4.0 4.1 4.2 JCP 2009 Annual Report pg. 19
- ↑ J.C. Penney's holiday sales down, jewelry 'soft'.
- ↑ "J.C. Penney same-store sales fall 8.8 percent"
- ↑ 7.0 7.1 7.2 7.3 Cause of Department Stores' Decline: Changing Spending Habits.
- ↑ J.C. Penney Co.’s comp sales fall 8.1%.
- ↑ JCP 2008 Annual Report pg. 2
- ↑ Alexandria Sage. ANALYSIS - Private label eclipsed by brands in US retail slump.
- ↑ M 2009 Annual Report pg. 15
- ↑ 12.0 12.1 M 2009 Annual Report pg. 18
- ↑ 13.0 13.1 KSS 2009 Annual Report pg. 18
- ↑ 14.0 14.1 JCP 2009 Annual Report pg. 19
- ↑ Discount Retailers Thriving in Recession.
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