The real competition for J.C. Penney Company, Inc. (NYSE:JCP) comes from companies that are only a couple of notches above it in merchandise quality, such as Macy’s, Inc. (NYSE:M) and Target. If some customers become dissatisfied with product offerings at J.C. Penney, there may be just better deals for them to shop around, given that Target Corporation (NYSE:TGT) intends to keep its hard-earned cheap-chic image and Macy’s regularly doles out certain price promotions.
If Target and Macy’s can offer better products at comparable prices compared to what is from J.C. Penney Company, Inc. (NYSE:JCP), and all the while earn a profit, they have certainly demonstrated a superior operating efficiency. This is better illustrated by the respective operating margins of 6.56% and 9.12% for Target Corporation (NYSE:TGT) and Macy’s, which contrasts to the negative margin of 10.09% for J.C. Penney Company, Inc. (NYSE:JCP).
One thing that Target has been successful about its modestly trend-setting effort is that it keeps a focus on product affordability. Meanwhile, J.C. Penney floundered with its recent stores-in-store strategy, also aimed at brightening the company’s image and elevating its status, partly because the new policy required moving away from enticing customers with discounts.
What has also made Macy’s, Inc. (NYSE:M) successful is that while holding onto its premium image, Macy’s frequently comes down the price ladder to incentivize customers looking for above-average quality but also on a budget. Price promotions often are the essence for many department store operators, and surprisingly, a pervasive element in the American consumer culture.
Companies in this retail business always have to defend their pricing. Considering that J.C. Penney is applauded as a family friendly store, it’s hard to imagine that it could just suddenly change customers’ perception and wish they would accept its premium pricing.
Speaking of pricing, J.C. Penney also has to work against companies below its rank, the likes of Ross and TJX, off-price retailers of apparels. Here, J.C. Penney must maintain a level of product quality with its apparel offerings to prevent its customers from potentially defecting for certain clothing items offered by cheap competitors. To make it worse, giant discounter Wal-Mart Stores, Inc. (NYSE:WMT) is also a source of competition, given the company’s ability to source its apparel merchandise from willing clothing makers around the world, often at competitive price with comparable quality.
In a nutshell, J.C. Penney Company, Inc. (NYSE:JCP) is pressured on merchandise quality from premium brands above it, also promotional pricing from cheap shops below it. The company may even see a twist in such competition whereby higher quality products from Macy’s or Target are advertised at better prices, and attractive pricing by Ross, TJX, or Wal-Mart Stores, Inc. (NYSE:WMT) is made to products of comparable quality.
It can be difficult to operate from such a position that J.C. Penney has found itself in — as neither a deep discounter nor a highly prized brand. Business management 101 teaches that companies should try to either become a cost leader or differentiate themselves with quality. So, is there still a way to remedy J.C. Penney’s situation?
While J.C. Penney Company, Inc. (NYSE:JCP) should continue to defend itself on both better quality and competitive pricing, it may also want to look to somewhere else, for example, sales channels to try to gain a competitive advantage. After all, distributing goods to consumers is what being a retailer is all about. It was ironic that when former CEO Ron Johnson came over from Apple Inc. (NASDAQ:AAPL), he did not bring any of Apple Inc. (NASDAQ:AAPL)’s tech know-how with him, which could have been put in good use as to, say, powering a J.C. Penney’s mobile selling platform by making it the best among retailers.
Now, J.C. Penney should still take on that task without the Apple Inc. (NASDAQ:AAPL) retail guy to compensate for any potential weaknesses in its merchandising and pricing strategies. A stronger distribution strategy can be a better third leg to help balance total operations.
The concept of retail distribution today obviously goes beyond physical retail outlets and includes online and mobile shopping. But, it should also incorporate the use of mobile applications to assist in-store shopping experience. Mobile apps can help shoppers better navigate through a store, find promotions on particular items, or get information on product replenishment of popular items, all without having to consult a store clerk who can be nowhere to be found oftentimes and may not know all the answers.
Conversely, online purchases are not complete without the eventual physical delivery to customers, which may require a new kind of distribution effort by retailers. Anyone who has shopped at J.C. Penney Company, Inc. (NYSE:JCP) online knows how non-competitive its shipping charges are. Why not build an in-house delivery work force to add shipping value to customers to increase sales? It could be a real boost for J.C. Penney, now having a difficult time to compete on both merchandising and pricing.
As we now know, J.C. Penney wasted much of shareholders’ money on hiring a management team that didn’t deliver. Investors once again learned that they must watch closely over management moves and business strategy formulation. Earnings reports are not all that is; they are only the expected results from the management already put in place.
The article How Can J.C. Penney Stack Up to Its Competitors? originally appeared on Fool.com and is written by Jay Wei.
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