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COMPANY PROFILE

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J. C. Penney Company,
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Inc.
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REFERENCE CODE: 8D63C639-0BB1-44C9-9FBC-4F41627CACD3

PUBLICATION DATE: 27 Mar 2019
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 J. C. Penney Company, Inc.
TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview ........................................................................................................3

Key Facts ......................................................................................................................... 3
SWOT Analysis ...............................................................................................................4

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J. C. Penney Company, Inc. Page 2

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 J. C. Penney Company, Inc.
Company Overview

Company Overview

COMPANY OVERVIEW
J. C. Penney Company, Inc. (J. C. Penney) is a holding company, which operates a chain of department
stores in the US and Puerto Rico. The company offers a comprehensive range of apparel, home
furnishings, accessories, footwear, hand bags, jewelry, shoes, watches, beauty products, and bed and
bath products. It provides services such as salons, optical centers, portrait studios, jewelry repair, custom
decoration, flower bouquet shops, and gift cards. The company operates an international purchasing
subsidiary, which maintains purchase and quality assurance offices in foreign countries. It also offers
merchandise through online websites including www.jcpenney.com and www.jcpenney.net. J. C. Penney
is headquartered in Plano, Texas, the US.

The company reported revenues of (US Dollars) US$12,019 million for the fiscal year ended February

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2019 (FY2019), a decrease of 6.6% over FY2018. The operating loss of the company was US$29 million

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in FY2019, compared to an operating profit of US$179 million in FY2018. The net loss of the company

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was US$255 million in FY2019, compared to a net loss of US$118 million in FY2018.

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Key Facts

KEY FACTS rs e
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Head Office J. C. Penney Company, Inc.
6501 Legacy Dr
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PLANO
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Texas
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PLANO
Texas
USA
Phone 1 972 2431100
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Fax 1 302 6555049

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Web Address ir.jcpenney.com

Revenue / turnover (USD Mn) 12,019.0
Financial Year End February
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Employees 95,000
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New York Stock Exchange Ticker JCP

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 J. C. Penney Company, Inc.
SWOT Analysis

SWOT Analysis

SWOT ANALYSIS
J. C. Penney Company, Inc. (J.C. Penney) is one of the leading retailers in the US. Efficient supply chain,
omni-channel presence of the company and diversified product mix are the company’s main strengths,
whereas lower inventory turnover ratio remains areas of concern. In the future, Expansion by rising labor
wages in the US, regulations and intense competition could affect its growth. However, growing online
retailing, strategic initiatives and private labels gaining momentum are likely to provide growth
opportunities to the company.

Strength Weakness

Efficient Supply Chain Lower Inventory Turnover Ratio

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Diversified Product Mix

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Omni-channel presence of the company

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Opportunity Threat

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Growing Apparel Market in the US Intense competition
Growing Online Retailing
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Strategic Initiatives Rising labor wages in the US
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Strength
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Efficient Supply Chain

J C Penney has a well-diversified supplier base, which helps it control its dependence on suppliers. The
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suppliers of the company comprise numerous domestic and foreign vendors with none accounting for
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more than 5% of its net purchases. As of February 2018, the company had approximately 3,100 domestic
and foreign suppliers. J C Penney has 13 distribution centers, one each in the states of Connecticut,
Kansas, Ohio, Wisconsin, Georgia, Nevada, North Carolina, Utah, and Florida; and two each in California
and Texas. These distribution centers are responsible for a substantial part of J C Penney merchandise
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supply to the stores. The company operated 872 department stores in 49 states and Puerto Rico as of
February, 2018. Strategic placement of these stores ensures quick merchandise delivery and low
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transportation costs.

Diversified Product Mix

J C Penney offers a diversified product portfolio, which gives it a wide customer base. The company’s
merchandise mix includes women’s apparel, men’s apparel and accessories, home, women’s
accessories, including Sephora, children’s apparel, footwear and handbags, jewelry and services and
other. In FY2018, the contribution by these categories to the total revenue of the company has been 22%,
21%, 15%, 13%, 9%, 8%, 6% and 6%, respectively. The company is an exclusive retailer of brands such
as JCPenney , JCP, Liz Claiborne, Claiborne, Okie Dokie, Worthington, a.n.a, St. John's Bay, The

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 J. C. Penney Company, Inc.
SWOT Analysis

Original Arizona Jean Company, Ambrielle, Decree, Stafford, J. Ferrar, Xersion , monet, Disney, MSX,
Eva Longoria Home, jeans by Buffalo, Black Label by Evan Picone and nicole by Nicole Miller among
others. A strong product portfolio with a balanced mix of national and private brands gives J C Penney an
edge over its competitors.

Omni-channel presence of the company

In order to meet the growing needs of customers, the company follows an omni-channel approach, which
helps in driving growth. JC Penney focuses on improving the shopping experience for its customers by
investing in technology and resources to support various channels of shopping, including in-store,
smartphone, desktop and tablet. For instance, in response to growing usage of mobile devices for
shopping, the company developed a new JCPenney application for iPhone. Nearly half of all
jcpenney.com traffic comes from the mobile channel, hence this new application further enabled the
company to drive growth. This new application help customers shopping inside a JC Penney store find

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coupons and apply them at the register. The new application also allows users to scan an item's barcode
to access product information and customer reviews, as well as determine its availability online or at

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nearby stores. Furthermore, the company offers various delivery options to its customers. JC Penney

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ships online orders to over 1,000 locations for free pickup in store. The company is also focusing on

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providing a same-day pickup option to its customers, which builds on the existing pickup in store
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capability. The company offers free same-day pickup in most of its JCPenney stores in the US and most
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orders can be shipped to any JCPenney store in the country. The company also offers same-day delivery
option in selected markets. With a strong focus on providing an enhanced shopping experience to its
customers across all its channels, the company is well-positioned to attract a larger base of customers,
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which, in turn, helps in increasing product sales.

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Weakness
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Lower Inventory Turnover Ratio

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J.C. Penney reported weak inventory turnover ratio during the review year. The decline in the turnover
ratio and higher inventory turnover days signify that the company incurs high inventory carrying costs,
which affect its operating performance. In FY2018, J.C. Penney reported inventory turnover ratio of 2.9. It
reported lower inventory turnover ratio compared to two of its major competitors, Sears Holdings
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Corporation (Sears Holdings) and Target Corporation (Target) which reported inventory turnover ratio of
4.6 and 5.9 in FY2018. Lower inventory turnover than competitors indicates that the company takes more
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days to clear its inventory in comparison with its competitors. With the given turnover ratio, J.C. Penney
takes 126 days to sale its inventory compared to 79 days by Sears Holdings and 62 days by Target.

Opportunity

Growing Apparel Market in the US

The company could benefit from the growing apparel market in the US. According to in-house research
report, the US apparel industry grew by 1.2% in 2017 to reach a value of $327.2 billion and it is further

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 J. C. Penney Company, Inc.
SWOT Analysis

expected to reach US$351.5 billion in 2022, growing at a CAGR of 7.4% during 2017-2022. The
womenswear category generated US$170.9 billion, accounting for 52.2%, the menswear generated
US$101 billion, accounting for 30.9% and childrenswear category generated US$55.3 billion, accounting
for 16.9% to the total apparel industry in the US. The growth was essentially the result of purchasing
power of young middle class people, technological advancements and increasing popularity of online
shopping.

Growing Online Retailing

With the increase in interactive methods and limitless content, the retail e-commerce is growing at a faster
rate. According to in-house research, the online retail market in the US was valued at US$297.8 billion in
2017, where electrical and electronics products accounted for 35.7% of the total sales, followed by
apparel (22.6%), home and garden products (12.1%), food and grocery items (11.6%), furniture and floor
coverings (4.2%), footwear (10.5%) and others (10.3%). The market is further expected grow at a CAGR

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of 8.5% during 2017-2022 and reach US$447.4 billion by the end of 2022. The company merchandises its
products online through www.jcpenney.com. The use of smart phones, tablets and other internet enabled

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devices contributed to growing E-commerce market.

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Strategic Initiatives
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The company implemented certain strategic initiatives that are aimed at enhancing its business and
existing product line. In February 2018, the company launched its new brand Obsess, a stylish tween
brand which features trendy tops, rompers, dresses and jeans designed for all body types. In In October
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2017, J C Penney introduced a comprehensive range of Frigidaire kitchen appliances including

refrigerators, freezers, ranges and dishwashers in nearly 600 JCPenney appliance showrooms and
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JCPenney.com. In August 2017, the company launched Frank + Lulu, a new brand of bedding and decor
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for kids. In July 2017, J C Penney opened toy shops in all of its brick-and-mortar locations. In March
2017, the company launched JC Penney Home Services, which offers professionally installed home
improvements by local, certified contractors.
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Threat
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Intense competition
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The retail industry in the US is highly competitive. J.C. Penney competes with traditional department
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stores, upscale mass merchandisers, internet and specialty stores and other forms of retail commerce.
The major competitive factors include style, quality, price, merchandise mix, brands, service, customer
experience and convenience. The company competes directly with larger retail players such as Kohl's
Corporation, Nordstrom, Inc., Sears Holdings Corporation, Macy's, Belk Inc and Neiman Marcus Group
Inc., among others in many of the markets it operates. These retailers have large market presence and
larger economies of scale, which provide greater power to negotiate for better margins with vendors.
Therefore, the company will have to constantly differentiate itself from its competitors through efficient
and in trend merchandising, and attractive promotional programs in order to retain its market share.
Otherwise, intense competition could drive away its potential and existing customers which could result in
drop in revenues and profit margins.

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 J. C. Penney Company, Inc.
SWOT Analysis

Regulations

The company is subject to various regulations governing the internet, e-commerce and electronic devices
in addition to general business regulations and laws. These include regulations are related to taxation,
privacy, data protection, pricing, content, copyrights, electronic device certification, electronic waste,
consumer protection, the provision of online payment services, the design and operation of websites, and
the characteristics and quality of products and services. Currently, the US Supreme Court decisions
restrict the collection of state and local taxes for Internet sales. But, a number of states and the US
Congress have been considering initiatives, which could limit the Supreme Court’s position regarding
sales and use taxes related to Internet sales. If these initiatives are successful, the company could be
required to collect sales and use taxes in additional states or change its business practices. The
imposition of taxes by state and local governments could create administrative burden on the company.

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Rising labor wages in the US

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Increasing manpower costs could have an adverse effect on the company’s margins. In FY 2018, J.C.

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Penney employed more than 98,000 associates for conducting its business operations. Increasing

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manpower costs could impact its stability and operational efficiency. The tight labor markets, government
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mandated increases in minimum wages and a higher proportion of full-time employees could result in an
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increase in labor costs. The federal minimum wage rate in the US, which remained at US$5.15 per hour
since 1998, increased to US$5.85 per hour in 2008. It further increased to US$6.55 per hour in 2009 and
to US$7.25 per hour in 2010. Though the average minimum labor wages remained same in 2018, many
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states and municipalities in the country increased minimum wage rates even higher than the federal
minimum wage rate due to the higher cost of living. The federal minimum wage provisions are contained
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in the Fair Labor Standards Act (FLSA). As of January 2018, the minimum wage rate in the US was
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US$7.5 per hour. The minimum wage rate in 29 states and the District of Columbia is more than the
federal rate. These wages range from US$11 in Massachusetts, US$8.25 in Florida, US$8.25 per hour in
Illinois, US$9.25 per hour in Michigan, US$9.25 per hour in Maryland, US$10.1 per hour in Hawaii and
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Connecticut and US$10.5 in California. The minimum wage in the District of Columbia reached US$12.5
per hour.
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