J.C. Penney is a retail outlet that operates in many locations globally. It deals with product lines such as clothing, footwear, beauty products, electronics, and jewelry. There are several changes that have taken place in the macro environment that promises to increase the fortunes of the company. The advertisement in technology is one single important factor that has increased the performance of the business (Ali, 2007). The company has an elaborate website through which it uses to tap the online market. In fact, thirty percent of the company’s revenue comes from the website. The overall threat of new entrants in the retail market is a high level threat as it is relatively easy and inexpensive to enter the market. Entering the retail market as a competitor of J.C. Penney however, is a low-level threat. The initial investment and capital requirement to enter the retail industry at such a high level is so great that it would be near impossible to compete with J.C. Penney. J.C. Penney has product differentiation by supplying the store's own brand. They also have a long history and reputation of supplying quality products. J.C. Penney has the advantage of buying in large quantities at lower costs, and an established supply chain reducing costs of procurement of goods. J.C. Penney has established large retail space which would be extremely costly to imitate. If internet retail stores are considered a substitute, the threat is massive. J.C. Penney has joined the online retail market and offers most of its products on their website in order to compete in this market. There are many online retailers out there that are making a strong push in the market with very similar product lines that J.C. Penney offers. Such players include Woolworths, Kohl’s Inc., Macy’s Inc., and Wal-Mart. The products include clothing, footwear, beauty products, electronics, and jewelry. J.C. Penney is a powerful buyer with bargaining power. There are many wholesale suppliers. This creates price competition causing the price to come down. In addition, J.C. Penney buys in large volumes creating a big impact on revenue of the suppliers if they were to switch to another one. Switching costs are low for the large retailers and prime shelf space is costly to the suppliers and manufacturers of retail goods. If the price of the merchandise goes up to J.C. Penney, the profit margin goes down causing them to prefer to sell another brand with a higher profit margin. The prime shelf space goes to the merchandise that provides the largest returns. Suppliers of J.C. Penney have low bargaining power. They depend on the large retailers for the bulk of their profit and if they lose a client like J.C. Penney because of high prices, they could kill their own business. Suppliers are at the mercy of the competition. The fact that the company enjoys economies of scale enables them to engage effectively in competitive pricing. They must keep the prices low and the quality high or they will lose business. Retail merchandise is not very differentiated and most shoppers in today’s economy are looking for bargains. The main competitors of J.C. Penney are Kohls, Sears, Target, Macy’s (Bergner's) and even Wal-Mart for some products. There exists much competition among these rivals. There is very little differentiation in merchandise, and there are little to no switching costs for buyers. The time and gas to get from one store to another is really the extent of the switching costs. With the internet, comparing prices is as easy as checking on your smart phone while in the store. There are high exit barriers for these companies because most are involved in long term leases and have large amounts of capital wrapped up in inventory.
Most J.C. Penney stores are located as a hub store for a mall. The mall is a complement for J.C. Penney because many people that use the mall walk through J.C. Penney to get to the mall. If...
References: Ali, K. (2007). Commercial Business Organization. New York: Routledge-Cavendish.
Britton A. & Jorissen A. (2007). International Financial Reporting and Analysis. Boston, Massachussetts: Cengage Learning EMEA.
Please join StudyMode to read the full document