Strategic Management Case Study Assignment - J. C. Penney Is Changing Its Competitive Strategy

Strategic Management Case Study Assignment

Questions:- Identify issues in the case that affect J.C. Penney. Based on your identification, interpretation, evaluation, and analysis of presented issues, develop a response to the case, to include addressing each of the six (6) “For Discussion” items located on pages 184 – 185 in your textbook. Think of yourself as the “CEO”. You will need to evaluate the organization’s situation and weigh your options as you make decisions and determine the best strategy to change the direction of the company. Use outside resources to assist and support your decision making. Your goal is to make sound decisions that are supported by quality research. Case Study:- J. C. Penney Is Changing Its Competitive Strategy Shortly after taking the top job at J. C. Penney Co. last fall, chief executive Ron Johnson signed up for the company’s e-mail alerts. He was shocked by what landed in his inbox. The former Apple Inc. retail executive was deluged by sales announcements, sometimes two a day. He and his team counted 590 separate sales last year. They didn’t bring in shoppers—Mr. Johnson’s team found the average customer purchased only four times a year—but they did crush prices. Alarmingly, he learned nearly three-quarters of Penney’s products sold at discounts of 50% or more. “I thought to myself, ‘This is desperation,’” Mr. Johnson said. A few months into his job, the new chief executive is hoping to turn things around with a far-reaching but risky overhaul of the department store format in an effort to lure consumers back to a chain that’s often criticized as dowdy. Mr. Johnson, who won plaudits for reinventing the retail experience with Apple store’s clean lines and empty space, laid out an ambitious plan Wednesday that involves carving stores into a warren of specialty shops, turning the high-traffic center selling space into an entertainment and hang-out area, and eschewing constant “sales” in favor of lower prices every day. The idea is to make stores more inviting, highlight brand names, and gain more control over pricing. “Some may call it crazy, but I don’t think there is an alternative,” Mr. Johnson said in an interview. “In an Internet age where you can have exactly what you want with one keyword, people won’t tolerate big stores. You have to break it down for them.” But overhauling the chain’s fleet of 1,100 stores will pose costly challenges, and consumers have been reluctant to spend without the incentive of big markdowns. Penney has been battered in recent years by competition from rivals like Macy’s Inc. and Kohl’s Corp. Under former chief executive Myron Ullman, Penney shed its catalog business and invested in exclusive brands and partnerships with hot sellers like fast-fashion line Mango and Sephora cosmetics. But it continued to struggle with lackluster sales and the need to discount heavily to clear merchandise. At an interview at the Plano, Texas, headquarters last week, Mr. Johnson said he determined that the store’s initial prices needed to be realigned with what consumers feel comfortable paying. Beginning in February, Penney will lower the initial price for items by about 40% from where they start now. He also plans to sharply reduce the number of promotions. Penney will pick a number of in- season items that will be on sale for an entire month. It will have two clearance sales, on the first and third Fridays of the month, called “Best Price Friday’s,” an idea he picked up while working at Mervyn’s, a now defunct regional department store. Prices will be expressed in flat dollar amounts without cents. Penney plans to spend $80 million a month on the program. The move is risky, as shoppers have become rabid bargain hunters. But the old strategy wasn’t working. Sales at stores open at least a year, a key measure of a retailer’s strength, rose a thin 0.7% in the 11 months through December, down from a 2.7% increase the year before and well below Macy’s 5.4% gain. . . . The new CEO also plans to replace the “center core”—the highest traffic middle area where stores typically concentrate cosmetics, accessories and other high-margin impulse buys—with what he calls “Town Square.” The section will be a minimum of 10,000 square feet and rotate monthly attractions and services, such as free back-to- school haircuts or free hot dogs and ice cream in July. Mr. Johnson equates Town Square with Apple’s “Genius Bar,” where customers have their products serviced. “Just like in the Apple store, you have to walk through the products to get to the Town Square,” he says. Two things Mr. Johnson isn’t interested in are celebrity lines and private-label apparel. Mr. Johnson, a believer in brands, says in-house labels lack distinctiveness and pricing power. As a result, Penney is slashing the number of private label lines it has from hundreds to a few strong ones, chief operating officer Mike Kramer said. The company acknowledges that the changes will require investments, but Mr. Johnson says cost cutting and the elimination of sales have been “engineered to pay for it.”