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JC Penney & Joe Fresh Strategic Alliance: A good fit?

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1 JC Penney & Joe Fresh Strategic Alliance: A good fit?
G.W SHWARTZ CONSULTING GROUP: Donisha Young, Kent Nunn, Ryan Sloan, Caroline Gilbert G.W SHWARTZ CONSULTING – Strategic alliance –Donisha, Kent, Ryan, Caroline JCP – WE FOCUSED OUR ANALYSIS ON JC PENNEY and the Joe Fresh strategic alliance

2 Agenda Description of Article Internal Analysis: J.C. Penney
Company overview Target market analysis Financial analysis Retail strategy mix analysis Strengths and weaknesses External Analysis: J.C. Penney Positioning analysis Competitive positioning map Gross profit comparison vs. competitors Porter’s Five Forces Analysis Analysis of New Retail Strategy Analysis of Partnership with Joe Fresh Pros and cons Implications of partnership Expected results Conclusions MEEEE G>W SHWARTZ CONSULTING – Strategic alliance –Donisha, Kent, Ryan, Caroline - SAY EVERYTHING IN BLACK JCP – WE FOCUSED OUR ANALYSIS ON JC PENNEY and the Joe Fresh strategic alliance

3 Analysis of Article Partnership with Joe Fresh 700 stores 4-year deal
March 2013: Store openings J.C. Penney announces partnership with affordable Canadian brand Joe Fresh Joe Fresh known for offering “affordable luxury with a modern sensibility,” Joe Fresh designs will be featured in about 700 J.C. Penney retail stores across the country Four-year deal Mimran founded Joe Fresh as a more affordable brand that would be sold in Canadian supermarkets. It was formed under Loblaw Companies Limited as a way to compete with Wal-Mart’s increasing Canadian presence. And essentially, Joe Fresh was selling its frocks next to food (Dursin, 2013) Within a few years, Joe Fresh had multiplied into 330 locations throughout Canada and featured men’s and women’s clothing items from pants to purses. The brand is named after the designer himself. And the Fresh is “a nod to groceries.” The company’s price point is a rival to mass brands like H&M and UNIQLO. They keep prices low by eliminating wholesale costs maintaining a strong relationship with factories. (Dursin, 2013) JCP announced collaboration with the Canada-based brand Joe Fresh. The shop installation will give JCP a bigger and potentially more successful footprint in the “fast fashion” world than Mango/MNG has provided so far. The brand is featured at 681 JCP stores nationwide. Joe Fresh’s JCP’s line has already been available online for a week and reportedly saw seven times the traffic as JCP’s former top brand. (Bell, 2013) References: Bell, D. R. (2013). Joe fresh boosts j.c. penney — but will it last?. (Master's thesis, University of Pennsylvania)Retrieved from Durisin, M. (2013, March 16). Can canada’s joe fresh save jcpenney?. . Retrieved from MEEEEEEE

4 J.C. Penney Company Overview
Mission statement: "To be our customer's first choice for affordable fashion and quality as we enhance the quality of her life by being Bigger, and Bolder.“ Core Values: Associates - We value, develop and reward the contributions and talents of all associates. Integrity - We act only with the highest ethical standards. Performance - We provide coaching and feedback to perform at the highest level. Recognition - We celebrate the achievements of others. Teamwork - We win together through leadership, collaboration, open and honest communication, and respect. Quality - We strive for excellence in our work, products, and services. Innovation - We encourage creative thinking and intelligent risk taking. Community - We care about and are involved in our communities. JCPenney’s goal for customer satisfaction is to remain first and continually grow as a customer oriented retailer to ultimately become America’s favorite store.

5 J.C. Penney Company Overview
Mass merchandiser Operates 1,104 department stores in 49 states and Puerto Rico. Sells variety of products and product lines Owns over 100 private brands Objective: Continue to focus on customer satisfaction and gaining customer loyalty by remaining first in its class in terms of customer service. Biggest objective is to continue to focus on customer satisfaction and loyalty by remaining first in customer service as ranked by the NRF Foundation/American Express for department stores.

6 J.C. Penney Target Market
Middle class/middle income Women (age 30-50) with dependents Visit store about once every 2-3 weeks Savvy shoppers 30-50 is roughly the age in which the customers that are targeted as these women have children who are still living at home. This population would visit a JC Penny store about once every 2-3 weeks as a lot of the products that JC Penny offers are items that are not bought daily but more of a occasion related purchase (clothes, shoes, and etc.). Middle class is the targeted market because JC Penny offers great quality and trusted brands in their store yet not premium brands. Lower class would should at a store with more no-name and lower quality products such as Wal-Mart. These customers are intelligent and know a good deal from not. They will spend their money on products that are the “best bang for the buck.”

7 J.C. Penney Strengths/Weaknesses
Well diversified supplier base Falling sales Compelling private and national brands Losing market share to competing customers Successful marketing campaigns; high brand awareness Old/dreary image Innovative point-of-sale initiatives Old customer base; perceived to be old ladies Positive in-store experience Lack of real brand identity Effective cost and inventory management; terminates unprofitable areas of company Variable assortment - inconsistent throughout stores Successful new online store Rising costs put pressure on store economics basics Moving into food offerings Weak perishable offerings We believe J. C. Penney’s well diversified supplier base, compelling private and national brands, marketing campaigns, point-of-sale technology initiatives as well as effective cost and inventory management should augur well over the long term. The company is leaving no stone unturned to become cost resilient, and is focusing on closing underperforming stores and exiting its catalog business. In order to enhance customers’ shopping experience, J. C. Penney is also focusing on remodeling, renovating and refurbishing stores as well as refreshing its website functionality, considering the steady migration to online shopping. The launch of compelling new merchandise and the JCP Rewards program should also bode well. “SWOT ANALYSIS ON J. C. Penney Company.” Management Paradise. Retrieved: March 28, 2013.

8 Financial Analysis Once the go-to place for home products 13% drop in customer traffic in fiscal year 2012 25% fall in revenues in fiscal year 2012 Fewer customers are coming into stores and when they come purchases are smaller Has not participated in the economic recovery as well competitors The financial position of JC Penney shows the urgency to incorporate Joe Fresh in their company. They need to move forward , and Joe fresh is a good fit. In the last few years JC Penney has been changing from old stores to new stores, in turn, sales have taken a hit. In the fourth quarter of fiscal 2012 JC Penney recorded a net loss of $552 million (2.51 per share). Restructuring and management charges excluded, it was adjusted $427 million (1.95 per share). “Key Statistics - J.C. Penney Company, Inc. (JCP).” Yahoo! Finance. Retrieved: March 28, <> "2010 Form 10-K, J. C. Penney Company, Inc.". United States Securities and Exchange Commission. Retrieved April 4,

9 Retail Strategy Mix Location: Urban shopping centres
Merchandise: Extensive width and depth of assortment Competitive Pricing: JC Penney is price oriented, and working toward attracting cost-efficient customers New pricing strategy, consisting of "fair and square” pricing. It includes three types: everyday, regular prices; month long values Atmosphere: Good to excellent Promotion: Heavy ad commercials, also using catalog use; direct mail, personal selling. Customer Service: medium levels Location: Strictly urban shopping centres in the US, or isolated. The popularity of malls builds traffic for JC Penney. JCP locates itself in downtown urban centers, near the business/shopping district where they are sure to have lots of traffic. High traffic areas are an ideal choice for a JCP location. JCP has 1,110 stores in the US and an online store. Merchandise: Extensive width and depth of assortment, Average to good quality. JC Penney has a store within a store concept with different variety of products. In addition to selling conventional merchandise, JCPenney stores often house several leased departments such as Sephora, Seattle's Best Coffee, optical centers, portrait studios, and jewelry repair. Competitive Pricing: JC Penney is in competition with Target and Wal-mart and Kohl’s. Therefore, they are price oriented and are trying to attract cost-efficient customers. Some of the prices included this spring with Joe Fresh featured in JCP, women’s shorts are going for $29 and men’s tees are running for $12. Joe Fresh currently offers men’s slim jeans and chinos for $39. Classic polo shirts in bright spring colors are going for $12. (Dursin, 2013) The retail industry is highly competitive, with few barriers to entry. We compete with many other local, regional and national retailers for customers, employees, locations, merchandise, services and other important aspects of our business. Those competitors include other department stores, discounters, home furnishing stores, specialty retailers, wholesale clubs, direct-to-consumer businesses, including the Internet, and other forms of retail commerce. Some competitors are larger than JCPenney, and/or have greater financial resources available to them, and, as a result, may be able to devote greater resources to sourcing, promoting and selling their products. Competition is characterized by many factors, including merchandise assortment, advertising, price, quality, service, location, reputation and credit availability. (J.C Penney) Price tactic implementation: New pricing strategy, consisting of "fair and square" pricing. It includes three types: everyday, regular prices; month long values; and best prices, on the first and third Fridays of every month. JCP looked at what it was charging and what customers most often paid after numerous discounts. He found that only one in 500 items sold at full price, while 72% of revenue was derived from selling products at 50% off or more. (Zmuda, 2012) For example, a T-shirt that had retailed for $14 but typically sold for closer to $6 will now be priced at $7. In a month when it's a featured product, it will cost $6. When it's time to clear it out and change colors, it will cost $4. The retailer is also embracing flat prices, no more 50- or 99-cent add-ons. The strategy will trim JC Penney's promotions to 12 a year from 590. (Zmuda, 2012) Atmosphere: Good to excellent, renovations currently under way to create a more vibrant atmosphere for customers to shop in. The new “mini-stores” for the Canadian brand reflect the style of its standalone locations: white walls, flooring and fixtures, and strong lighting that offset the brightly-colored clothing and accessories. Customer traffic depends upon our ability to successfully market compelling merchandise assortments as well as present an appealing shopping environment and experience to existing customers and new customers. In the first year of our transformation, our store customer traffic significantly decreased compared to the prior year. As part of the re-imagination of our stores, we are changing our merchandise assortment, building new Shops and creating the Street in our largest stores. These changes are designed to increase customer traffic and the amount of time that our customers spend in our stores. (J.C Penney) Promotion: Heavy ad commercials during the Oscars aired the new JC Penney look. Joe Fresh for JCP Sunday night, during the award ceremony's telecast, our favourite fashion line premiered a new ad to showcase their first U.S. collection. The commercial shows models in an empty room smiling and showing off the clothing, with the text: "Dear America, Tired of the same old, same old. Get fresh style and fresh prices. Yours Truly, JCP.” (Forster, 2013) They are also using catalog use; direct mail; personal selling. Also JCP recently announced a couple of tweaks to its “Fair & Square” pricing policy. First, JCP plans to re-ticket merchandise throughout the store with EDLP comparisons to manufacturers’ suggested retails. Second, JC plans to add more targeted sale events in Instead of spending $2 million per promotion, Mr. Johnson said, JC Penney will spend $80 million a month promoting all its products. (Zmuda,2012)  Customer Service: medium levels, In regard store JC Penney the customer service has deteriorated. Store personal are not as helpful or knowledgeable according to customer reviews. But JCPenney’s only hope is improving customer service by investing in employee training, compensation, and culture. (Lutz,2013) References: Durisin, M. (2013, March 16). Can canada’s joe fresh save jcpenney?. . Retrieved from Forster, S. (2013, 02 25). Joe fresh for jcpenney ad premieres during the 2013 oscars . Huffington Post Canada. Retrieved from J.c.penney . (n.d.). Retrieved from Lutz, A. (2013, February 27). Jcpenne'ys turnaround strategy leaves out its only hope for success . Business Insider. Retrieved from Zmuda, N. (2012, January 25). Jc penney reinvents department-store retailing. Retrieved from

10 J.C. Penney’s Position in the Marketplace
Indistinct middle-American value-priced merchandise Neglected building a brand Focused on pricing strategies to drive traffic Perceived as value retailer offering mid-quality products and product lines Before introducing Ron Johnson, formally of Apple, as CEO of JCP in 2012, the retailer positioned itself as “a store for all Americans— rich and poor, young and old, rural and suburban.” Offering indistinct middle-American value-priced merchandise J.C. Penney neglected building a brand in favor of compelling shoppers to come in through superior pricing strategies The strategies J.C. Penney employed included: pushing discounts, sales and using coupon Johnson has said the average Penney home shopper is older than her counterpart at other department stores Increased competition from big box retailers like Wal-Mart, Target and Kohl’s have forced JCPenney to focus attracting a new breed of shoppers, specifically younger shoppers. J.C. Penney is attempting to lure these shoppers in by incorporating fresh and hipper brands at their stores, including: Joe Fresh, as well as Sephora, and focusing on private brands, such as St. John's Bay, Worthington, and Arizona Jean Company. “J.C. Penney Pursues Re-positioning.” Ramcrao. Retrieved: March 31, <>

11 J.C. Penney’s Position in the Marketplace
A competitive positioning map provides a valuable tool in helping retailers understand their position in the marketplace by graphically illustrating consumers’ perceptions of competing retailers within an industry. This map was created from information solicited from consumers in regards to two different characteristics pertinent to department stores – consumer perceptions of the price of their offerings and consumers’ perceptions of the quality of their offerings. This map shows how consumers view JC Penney’s perceived price and quality of offerings relative to its 7 major competitors: Wal-Mart, Target, Kohls, Neiman Marcus, and Nordstrom. J.C. Penney is slightly below the industry average in terms of consumers’ perceived price J.C. Penney is below the industry average in terms of consumers’ perceived quality Increased competition from big box retailers like Wal-Mart, Target and Kohl’s have forced J.C. Penney to consider repositioning and creating value proposition unique from their competitors Why J.C. Penney Will Be the Most Interesting Retailer of Forbes, January 26, < J.C. Penney announced new CEO. J.C Penney press office. June <>

12 J.C. Penney’s Competitors
J.C. Penney’s gross profit in 2012 compared to major competitors. Once the go-to place for home products like window treatments and bath towels, Penney's customer traffic fell 13% in fiscal year 2012 while revenues plummeted 25%. J.C. Penney’s gross profit is only 28.8% of Target’s J.C. Penney’s gross profit is only 5.6% of Wal-Mart’s These poor results can be attributed to fewer customers coming to stores, and smaller purchases per visit. Although this is the story of many retailers during the recession and now slow economic recovery, JCP has not participated in the recovery as well as some of its competitors. When current CEO, Ron Johnson, was hired in February 2012 he was charged with putting the company back on track and recapturing market share from competitors. Johnson identified the average J.C. Penney shopper to be older than his or her counterpart at major competing locations. This explains why J.C. Penney is focusing on luring younger shoppers into their retail locations, by incorporating fresh and hipper brands, like Joe Fresh “Key Statistics - J.C. Penney Company, Inc. (JCP).” Yahoo! Finance. March 28, <> J.C PENNEY’S MAJOR COMPETITORS GROSS PROFIT (2012) (*USD in Millions)

13 Porter’s Five Forces Analysis
Porter’s Force Rating Threat of Substitutes High Buyer Power Supplier Power Medium Rivalry Among Existing Firms Threat of New Entrants Low Rivalry- Department store are extremely competitive in the United States as companies such as Wal-Mart and Target enforce low pricing strategies making it a vicious market to compete in. Because the Growth of the Department and discount retailers slow top companies are continuously wrestling back and forth for market share. Threat of New Entrants- It is low because the department store industry is a highly concentrated market at the top. The majority of these companies have been around for many years and have efficiently maximized their supply chain and focus aggressively on merchandising. JC Penney has been around for over 100 years and their strategic positioning as well as other top companies makes it difficult for new entrants Threat of Substitutes – Substitutes are easy to find in the retailing industry and this poses the largest threat for JC Penney. Companies have a constant concern with creating an environment focused on customer satisfaction. With low switching costs in the industry, firms must focus on maintaining their customer base while trying to steal new customers from their competitors. Retailers are able to do this in many ways, like creating a friendly environment where product pricing is relative to the experience, or like JC Penney/ Joe fresh is attempting to accomplish with their new line. Buyer Power- This is high because the market is so concentrated JC Penney has to compete in pricing. This means price sensitivity is part of the consumers purchasing decision. Switching costs are extremely low in this industry and if a customer can find a similar product cheaper somewhere else , there is nothing stopping them from going there. Supplier Power- It is low when based on things such as price sensitivity because competition is so fierce, promotions and sales are used to attract customers. This is hard to sustain and prices will rise, losing the advantage of low pricing that brings traffic. However, JC Penney is attempting to differentiate the entire department retailing business concept so in this sense the supplier power is moderate to high. By carrying and differentiating products in their store such as incorporating the Joe Fresh brand they create a uniqueness in the market that can only be found at their stores.

14 New Retail Strategy Improve declining sales
Salvage a brand that has flopped Three elements: Pricing changes New logo/spokesperson/marketing Reinvented shopping experience New Retail Strategy On Jan. 25, 2012 J.C. Penney, under the leadership of new CEO Ron Johnson, unveiled its new long-term strategy to improve declining sales revenues and profits salvage a brand that has largely flopped. Three elements of repositioning: Price, Brand/Brand spokesperson/Brand Marketing, “Reinvented” its shopping experience. “J.C. Penney Pursues Re-positioning.” Ramcrao. January 31, <> “Key Statistics - J.C. Penney Company, Inc. (JCP).” Yahoo! Finance. March 28, <> “Can J.C Penney Become America’s Favorite Store?” Forbes. February 27, <>

15 1. Pricing changes Moving away from frequent and deep discounts
Three tiered pricing structure: 1. Everyday prices 2 . Month long value 3. Best prices Pricing changes: Key element is revamped pricing, which involves moving away from its frequent and deep promotional discounts to everyday low pricing and a three tiered pricing structure Three tiered pricing structure: Everyday prices a. General everyday low pricing will be otherwise known as “Fair and Square Pricing” (evokes logo). b. Commitment to prices 40% lower than what “regular” prices were in the past: Month long value a. Month-long special prices, slightly discounted promotional prices on certain items Best prices: a. Indicates items marked for clearance on the first and third Fridays of the month (conveniently matched with "payday“ for many in the American workforce). “J.C. Penney Pursues Re-positioning.” Ramcrao. January 31, <> “Can J.C Penney Become America’s Favorite Store?” Forbes. February 27, <>

16 Analysis of Partnership
Pros Cons Attracts new shoppers Losing key customers Potential sales increase Changing brand image Highly unique; inimitability High cost Increase store volume High risk Pros: Volume allows the firm to pay very low costs for the space when compared to other retailers and if it were to remove all J.C. Penney branding from about 300 of the most strategically located stores and sublet them to other retailers, the Texas-based department store company could clear $1.2 billion annually in rental income, the report states. If JC Penney can penetrate the market and get customer loyalty for this new product than there is potential for an increase in sales. Though this may take some time. This whole business strategy is unique and brand new so it is difficult to say how it will turn out. But, Joe Fresh is a Canadian clothes retailer and it is not very common for these stores to export to the United States. It can be seen as a step in the right direction for globalization. If the idea is successful then they will be a market leader. This strategy is in attempt to differentiate itself in the marketplace by offering a unique shopping experience and a boutique that appeals to every single shopper. Hopes strategy will attract customers beyond frumpy moms on a budget, its long-time demographic. Leverages uniqueness as competitors can’t match quickly or completely. Cons: Trying to reach younger customers by introducing Joe fresh brand, while also trying to convert old JCP shoppers to the new style. J.C. Penney’s desire to be “America’s favorite store” and serve all customer segments is understandable because focusing on a particular customer segment means not serving another segment. Yet, in most cases, choosing a segment that is aligned with the company’s core competencies and strategic assets, and for which the company can create superior value relative to the competition, is the right business decision. By trying to appeal to diverse set of consumers J.C. Penney may end up only appealing to few. If Joe Fresh doesn’t work out it could severely impact JCPenneys brand image as they are currently recovering from a brutal couple of quarters. In the fourth quarter of fiscal 2012 JC Penney recorded a net loss of $552 million (2.51 per share). Restructuring and management charges excluded, it was adjusted $427 million (1.95 per share). It also may take longer and cost more money than investor’s hope as it is difficult to get brand loyalty with such a new brand. It was mentioned that the customer transition is taking a little longer than expected. ( ( /MONEY/ /1697). (2013, 29th Jan). Retrieved from A. (2013, March 15). JC Penney Places a Bet on Joe fresh [Online forum comment]. Retrieved from

17 Implications of Partnership
Overlapping Target Market JC Penney financial record is risky Could revamp entire department store business model

18 Expected Results Other fashion boutiques report promising early results Industry experts expects Partnership won’t gain traction until the second half of the year

19 Conclusions Action was necessary ( history, declining market share)
Fits well with marketing strategy Gives the company a unique position Overall it is a good idea for JC Penney to partner with Joe Fresh. Though there is a great deal of risk involved, JC Penney has to do something major in order to compete in the concentrated market. A new fresh brand in a new business model is a great way to start the process of building brand loyalty and trust. Joe Fresh is Canadian which makes JCP one of the only retailers to import those types of products to America. Also, renting space to retailers is a good way for JCP to make profit through rent fees.

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