Case study of JC Penney Company

Case study of JC Penney Company

J.C. Penny Company (JCP) Inc. is an American department retail store selected for strategic analysis for having faced financial difficulties. The financial difficulties prompted the company to file for bankruptcy. The company has been in operation since 1902. The company operates over 800 stores across 49 U.S. states and Puerto Rico. The company sells general merchandise and Jewelry. JCP filed for bankruptcy protection in May 2020 amid continued poor sales worsened by the negative effects of the COVID-19 pandemic (Hirsch, 2020). The company is suitable for strategic analysis due to its bankruptcy filings and poor financial performance. The analysis assesses the current financial plan and makes recommendations, determines strategies for achieving sustainable competitive advantage in the marketplace and increasing financial performance, and creates a plan for implementing the suggested methods.

Financial plan analysis

JCP recorded a declining financial performance across the two years leading to the bankruptcy filing. In 2018, the company reported total net sales of $11.66 billion, while in the financial period that ended in 2019, the company reported total net sales of $10.72 billion. Notably, this represents a decline of 2.3%. The trend continued into the first quarter of 2020, with the company recording a drop of 5.6% in total net sales, pushing the company into financial difficulties that resulted in bankruptcy filings. Additionally, the period before bankruptcy filings was marked with halted revenue assets, and they could not meet their financial obligations on loans acquired from lenders. The COVID-19 pandemic worsened the situation, with the company failing to strike a deal with its lenders even with a grace period ending in April 2015. The following table shows the company’s financial performance in 2018 and 2019.

2018 and 2019 Full-Year Performance

	2018	2019
Comparable store sales	(3.1%)	(7.7%)
Adjusted Comparable store sales	(2.3%)	(5.6%)
Cost of goods sold (%)	67.5%	65.4%
Adjusted EBITDA (non-GAAP)	$568M	$583M
(Adjusted EPS (non-GAAP)	($0.94)	($0.8)

Financial Performance Improvement Recommendations

JCP requires a strategic plan to ensure its financial performance is restored through improved cash flow and reduced overhead costs. Essentially, the recommendation regarding cash flow improvement is deliberate because it is the only way for the company to improve its liquidity and reduce financial difficulties. Therefore, the company needs to undertake measures to enhance cash flow. The first suggestion entails leasing equipment instead of purchasing. Notably, leasing equipment is advantageous in the short run to help the company save money for other quick cash-generating activities such as inventory (van Loon et al., 2020). Second, it is recommended that the company should focus on better inventory management. The company should focus on fast-moving inventory to raise cash flows before engaging in slow-moving inventories. It is worth noting that fast-moving stocks increase cash faster than their slow-moving counterparts, and since the company needs fast cash to boost its liquidity, fast-moving goods will be a better option.

Third, it is recommended that JCP reduce its operational and overhead costs. Notably, overhead costs significantly negatively impact the company’s profits. Some of the costs that the company should target include utility and maintenance, accounting fees, taxes, legal fees, and rent (Ranieri et al., 2018). One way to reduce overhead costs is by reducing the volume occupied by stores in the short run to reduce rent payments. Additionally, the company should negotiate for further grace periods regarding certain costs such as taxes and accounting fees. This will offer the company sufficient time to generate cash to offset liquidity problems. It is important to note that to reduce overhead costs, the company may compromise the quality of services offered. Therefore, it is recommended that costs should be reduced to the extent that the quality of services offered is not affected negatively. For instance, reducing rental space can reduce customer experience from excellent to premium. However, the company should not reduce the experience below the premium level.

Sustainable Competitive Advantage Strategies

For JCP to recover fully from its financial difficulties, it must overcome competition from other firms. Competition is a solid factor to consider because it can hinder their recovery process, so the company should engage in a sustainable competitive advantage strategy. Considering the financial difficulties faced, the competitive strategy adopted should increase traffic for the company. One way to undertake this strategy is by participating in online platform services. Online platforms are less costly to maintain and can attract traffic from all places in the world (Giurgiu et al., 2018). Online platforms will increase the company’s sales and reduce costs in the rental spaces occupied by the company. Notably, this is so because online stores do not occupy actual space on the ground. Prestigious brands and private labels should be included in this strategic approach to ensure customers continue visiting the stores on the ground. The company will acquire a competitive advantage over most competitors not operating online stores.

Another recommendation to achieve sustainable competitive advantage entails developing a customer loyalty program. A customer loyalty program ensures that even if the company faces difficult times and its quality of services is affected, the customer will remain loyal to the company. The program is operated by many large retail stores, such as Walmart, and has proven effective in maintaining customer loyalty. However, JCP had not yet adopted the program until the filing of bankruptcy in May 2020. The program awards points to customers on purchases made, which can be redeemed later. Customers will keep returning to the business to make purchases to increase points to redeem at a later date and thus remain loyal. The points awarding program is beneficial because it can collect information relating to buyers. The information can be used to study purchasing behavior,, which can help sustain the company’s competitive advantage.

Strategic plan implementation

An implementation plan will ensure the strategic plans developed above are actualized. The top executives of JCP will be responsible for ensuring the program is actualized. Therefore, one way of implementing the plan is ensuring competent personnel are hired to the top positions to oversee the implementation plan. The next step in implementing the plan entails creating a schedule with milestones and timelines to achieve them. Essentially, this will ensure crucial elements are not excluded from the program. Next, clear targets will be created for the business employees, and their performance will be evaluated based on target achievement. The companyand mission ‘s vision and md be reviewed to incorporate the suggested competitive strategies. Finally, the implementation plan will include periodic meetings to evaluate the company’s progress and identify areas where adjustments may be required.

References

Giurgiu, L., Munteanu, I., & Gligorea, I. (2018, June). Traffic Monitoring Tools to the Site.

In International conference KNOWLEDGE-BASED ORGANIZATION (Vol. 24, No. 3, 1.45-52).

Hirsch, L. (2020). Long-struggling JC Penney files for bankruptcy as coronavirus crushes hopes for a quick turnaround. CNBC. https://www.cnbc.com/2020/05/15/jc-penney-bankruptcy-filing.html

Ranieri, L., Digiesi, S., Silvestri, B., & Roccotelli, M. (2018). A review of last mile logistics innovations in an externalities cost reduction vision: sustainability, 10(3), 782.

van Loon, P., Delagarde, C., Van Wassenhove, L. N., & Mihelič, A. (2020). Leasing or buying white goods: Comparing manufacturer profitability versus the cost to the consumer. International Journal of Production Research, 58(4), 1092-1106.

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In Wk 2, you completed a SWOT analysis on a successful company demonstrating a sustainable competitive advantage in the marketplace. Now, you will shift your focus to look at a company that is failing or experiencing challenges in the area of financial performance.

Select and research a company that is having financial difficulties or is on the brink of bankruptcy.

Review “Where Can I Find a Company’s Annual Report and Its SEC Filings?” from Investopedia. (https://www.investopedia.com/ask/answers/119.asp)

Conduct a strategic analysis of the company’s current financial operations. Determine strategies for achieving a sustainable competitive advantage in the marketplace and increasing financial performance.

Write a 1,050- to 1,400-word analysis. When writing your analysis, complete the following:

Evaluate the company’s current financial plan, including charts and graphs showing financial data from the struggling company, and make recommendations for improvement.
Determine strategies for achieving a sustainable competitive advantage in the marketplace and increasing financial performance.
Create a plan to implement the strategies you selected.

Include APA-formatted, in-text citations and a reference page with at least three sources.