Strategic Marketing Plan - Section Three

Integrated Strategic Marketing Plan: Section Three

Diana Gilbert, TaShannah Crippen, Trevor Bremer, and Marla Bernal

Marketing Strategy and Design

Baker College Online

Professor Harry Derderian

4/19/2017

The Industry

The retail industry is interweaved into every part of our daily life.  Anything that can be considered a retail sale which is a measure of broad consumer spending is considered a part of the retail industry.  The United States in fact has a very well established set up of distribution to all types of retail companies.  This industry is a very competitive environment that creates healthy business operations and increases efficiency and reliability ("Retail Trade Industry Spotlight | SelectUSA.gov," n.d.).  Within the retail industry there are sub levels which consist of retailers and franchisers. 

Companies within the industry compete for market share based on the economies of scale, the tight cost controls, and the investment of the brand image itself. This type of competition pretty much eliminates any new possibility of new competitors coming into the marketplace.  Many products within the industry are similar, there is a lower threat of substitute products is high and switching costs for buyers is very low ("J.C. PENNEY CORPORATION, INC. Names of Competitors," n.d.).  These companies try to compete on pricing but maintain the quality of their products. 

Definition of the Industry

The proper definition of the word “Industry” is the economic activity concerned with the processing of raw materials and manufacture of goods in a factory ("Industry | Definition of Industry by Merriam-Webster," n.d.). 

Retail companies try to differentiate their product lines.  J.C. Penney is a very big example of how marketing strategy can help to increase a company’s market share within that certain retail industry.  To explain differentiation does not come without a price.  With many contracts and patents created in this process, the bargaining power of the company’s supplier base jumps from a low to a moderate level ("J C Penney Co Inc Comparisons to its Competitors, Market share and Competitiveness by Segment - CSIMarket," n.d.).   

Key factors that come into play within this industry are the important roles outlines by gaining a competitive advantage.  These key factors are within the department store retail industry and the scale of the economy.  There are other factors like lower input costs, and an increased investment in brand image.  To stay on top of this industry these key success factors allows the company itself to stay one step of the competition, maintaining and even possibly gaining more market share ("J C Penney Co Inc Comparisons to its Competitors, Market share and Competitiveness by Segment - CSIMarket," n.d.). 

With J.C. Penney’s it is very well known that their market share has fallen and with the rebranding our image we are hoping to use the success factors above to increase our profitability and consumer base.  

Shape of the Industry

In 2016, several of the retail chains, including JCPenny, closed the doors on hundreds of their retail stores.  Despite this fact, the overall worldwide retail sales totaled $22 billion in 2016 and the current gross domestic product (GDP) average is 30% of income spent on retail (Farfan, 2016).  Employment in this industry has been on the rise and as of May 2015, 15.7 million were employed by some type of retail company.  These numbers indicate a growth in the retail industry which outweighs the downsizing of physical stores and company bankruptcies (Farfan, 2016).  Perhaps the store closings are less an indication of a decline in the economy and more of a sign that the industry is changing and evolving.

Development of the Industry

The industry has been in a state of transition for the last twenty or so years.  People used to go to malls to hang out and shop around and buy or just see the latest fashions and trends.  This was the hobby but now online shopping has become so popular that former brick and mortar stores which used to easily lead in sales are closing their doors.  The modern shopper is savvy on the internet and can always find a better price.  They love the instant satisfaction of getting and item online instead of going store to store and the opportunity to check and compare prices and keep up with the fashion trends in an instant online.  The market has gone full circle from, catalog sales, to department store and mall shopping and now leaning more and more toward online sales. 

The Marketplace

The fashion industry is a very focused, rapidly changing, and unpredictable marketplace. There are thousands of brands and stores that are selling clothes every day, and not just in store but online retailers as well. Whether it is physically sold or not, there are fashion trends that seem unpredictable in this world, and all it could take is a certain celebrity to wear a piece of clothing to open up a whole new set of doors. Fashion United claims that there are 3.2 trillion dollars focused into the fashion and clothing industry. This represents roughly 2 percent of the gross GDP for the entire world.

Condition of the Marketplace

The condition of the marketplace in the fashion industry has definitely seen better days. With thousands of brands and locations, with online retailing as an additional option, the competition is at an all-time high. (Fashionating World, 2017) Research states that “A report by McKinsey and London-based publication Business of Fashion last month revealed, nearly 70 percent of surveyed fashion executives, investors and industry observers believe conditions for the industry have become worse.” 2016 had been a horrible year for the industry, and because of it new technologies and methods are emerging by retailers. Many retailers have noticed customers want to see the instant gratification of shopping, and online shopping is creating the scene for the industry. An additional report has suspected that online sales for fashion luxury will see a 12 percent increase by 2020. Customers are definitely changing their old ways by now opting to shop by the click instead of browsing in stores.

Changes in the Marketplace

In conclusion, the biggest changes in the marketplace are both in the methods of selling, and the products themselves. As states previously, the customers are leaning towards an online shopping experience, which is no surprise for some tech savvy followers of these brands. It has been observed by marketing teams themselves that products are selling better online, and getting different ideas in front of the consumer is just simply easier and more successful. These changes will reflect on many stores including the future of JC Penney, who have also focused on digital sales in the recent months.

Competitive Situation

Having a clear understanding of competition, or the competitive situation of a company, is vital to the success of any business. Learning what influences the consumer to choose one product over another is the key when thinking about competition (Oman, 2015). J.C. Penney is considered part of the department stores or retail industry and has many competitors (Yahoo! Finance, 2017). In the department store industry, J.C. Penney currently has a market share of 7.8% (Thongkham, 2015). Two types of competition exist; direct and indirect. Direct competition competes by selling the same products or services and indirect competition competes for the same market (Oman, 2015). J.C. Penney has both direct and indirect competitors.

Direct Competitors

Direct competition is when similar products are offered by multiple businesses (Oman, 2015). Direct competitors of J.C. Penney include Khols, Macy’s, and Sears; all of which are considered part of the department stores industry and sell similar products (D&B Hoovers, 2017). Each direct competitor should be thoroughly evaluated to properly understand their position in the market and the ways which J.C. Penney can best compete.

Kohls

Kohls is considered a major discounter and since they sell similar products to J.C. Penney; clothing, cookware, jewelry, etc. they are a direct competitor (D&B Hoovers, 2017). Like J.C. Penney, Kohls is facing struggle from recent new competition of other industries; such as, the catalog and mail order industry that Amazon resides in (Bowman, 2017). Unlike J.C. Penney, Kohls has remained consistently profitable and is in a stronger position than J.C. Penney but still experiences issues (Bowman, 2017). For 2016, Kohl’s adjusted earnings per share dropped six percent to $3.76 and comparable sales fell 2.2% in the fourth quarter (Bowman, 2017). Over the last five years Kohl’s stock, revenue, and earnings per share have been flat and the pattern appears to be continuing (Bowman, 2017). Kevin Mansell, CEO of Kohls, has noted intentions to close brick-and-mortar locations and has closed nineteen already last year because of similar decline in revenues that J.C. Penney is experiencing (Bowman, 2017). However, Kohls now offers a handsome five percent dividend yield and has raised its dividend to ten percent according to a recent report (Bowman, 2017). In order to increase sales, Mansell touted about an upcoming partnership with Under Armour that specializes in activewear and wellness (Bowman, 2017). A great indicator that J.C. Penney is on the right track by considering partnership with a brand like Ivy Park, who specializes in active wear. Another main direct competitor that J.C. Penney needs to consider is Macy’s.

Macy’s

Similar to Kohls, Macy’s is considered a direct competitor of J.C. Penney since they sell similar products but Macy’s targets a more upscale consumer base (D&B Hoovers, 2017). E-commerce competitors and slowed mall traffic over the past few years have hit both department stores hard (Sun, 2017). A decline of nearly thirty percent was experienced by Macy’s stock (Sun, 2017). Providing credit marketing services and financial services, Macy’s has a bank subsidiary, FDS Bank, for Citigroup’s Department Stores National Bank (Sun, 2017). Luxury beauty retailer Bluemercury and the Bloomingdale’s chain of department stores are also owned by Macy’s (Sun, 2017). Compared to eight hundred sixty eight locations at the end of 2015, Macy’s finished last year with eight hundred twenty nine stores under its three brands (Sun, 2017). For eight straight quarters, Macy’s revenue has declined year-over-year; expecting another four percent slide this year, after falling three and a half percent in 2016 (Sun, 2017). Aggressive cost-cutting strategies are expected to lift earnings by eleven percent this year despite Macy’s earnings having declined to $3.11 per share last year, eighteen percent (Sun, 2017). Margins have been falling for Macy’s while margins for J.C. Penney have been improving, if comparing operating margins over the past five years (Sun, 2017). Tapping into higher growth markets, athletic apparel and home improvement, is lacking in Macy’s turnaround strategy (Sun, 2017). In addition to Kohls and Macy’s, another direct competitor of J.C. Penney is Sears.

Sears

Another main competitor of J.C. Penney in the department stores industry is its mall arch-rival, Sears (Wahba, 2016). Continuing the recent revival of its appliance business, J.C. Penney began expanding appliance sales to hundreds of stores after a successful pilot (Wahba, 2016). Seeking to protect its position as the U.S. number one seller of appliances, Sears met the challenge of J.C. Penney with its own deals (Wahba, 2016). Thirty percent off appliances, free delivery on orders over $399, and special financing for a year were offered by Sears, whose parent company Sears Holdings has closed many stores as sales at Kmart and Sears keep decreasing and lost eight billion dollars over the last five fiscal years (Wahba, 2016). An estimate of being a thirty eight billion dollar industry by 2020 is predicted by Euromonitor International for the U.S. home appliance industry after having twenty nine billion dollars in revenue for 2015 (Wahba, 2016). Sears recently said it was testing a small-format chain of stores that focuses solely on appliances but may find some other alternatives to make more money and sell its Kenmore appliance brands (Wahba, 2016). Identifying gaps that a business can fill is made possible by understanding where competitors are positioned (Oman, 2015). Another type of competition that needs addressing is indirect competition.

Indirect Competitors

Indirect competition is when slightly differing products or services are offered with the goal of satisfying the same need by multiple businesses that target the same group of customers (Oman, 2015). Indirect competitors can often be considered substitutes (Oman, 2015). Indirect competitors of J.C. Penney include Walmart, Target, Amazon, Body Paint Services, and more. Each indirect competitor should be thoroughly evaluated to properly understand their position in the market and the ways which J.C. Penney can best compete.

Walmart and Target

Similar to Kohls, Walmart is considered a major discounter but since Walmart belongs to another industry, discount and variety stores, they are considered more indirect competition of J.C. Penney (Thongkham, 2015). Like Walmart, Target is considered a major discounter and belongs to the discount and variety stores industry; making them an indirect competitor of J.C. Penney (Thongkham, 2015). Walmart offers a wide variety of products and services in its stores for discount prices that are difficult to beat. J.C. Penney is susceptible to external competition with Target and Walmart because of its positioning with middle-to-low income households (Thongkham, 2015). Target and Walmart both compete at the low price point level, just like J.C. Penney does, and offer various alternatives to J.C. Penney products and services. For example, Walmart usually has a hair salon in its stores which is a different company but acts as an alternative to J.C. Penney’s salon option. Walmart has a current stock price of 73.89 and Target has a current stock price of 53.60 compared to J.C. Penney’s current stock price of 5.72 (Yahoo! Finance, 2017). Another indirect competitor of J.C. Penney that is a major contributor to its decline is Amazon.

Amazon

Unlike J.C. Penney and other competitors mentioned to this point, Amazon belongs to the catalog and mail order houses industry (Yahoo! Finance, 2017). Amazon offers an alternative to J.C. Penney by having a stronger and completely online platform and offering a larger variety of products and services (Monica, 2017). With significantly less overhead cost than traditional brick-and-mortar buildings, Amazon operating completely online through their website has allowed them to keep costs much lower than competition and offer a wider range of services and products. Combining J.C. Penney, Macy’s, Kohls, Sears, Target, Best Buy, Dillard’s, Nordstrom, Barnes & Noble, and Gap does not even reach the worth of Amazon which carries just above a three hundred seventy billion dollar market value; compared to the combined market value of ninety five billion dollars, forty billion being contributed by Target alone, of all the others (Monica, 2017, & Yahoo! Finance, 2017). Amazon is thriving so much; they even have a market value that is approximately one hundred sixty billion dollars above Walmart’s market value (Monica, 2017, & Yahoo! Finance, 2017). Struggling to evolve and stay relevant to today’s dynamic and digitally-savvy shopper are brands like Sears, Kmart, and Macy’s according to Brendan Witcher, Forrester retail analyst (Monica, 2017). Enhancing J.C. Penney’s online presence and focusing more efforts there versus brick-and-mortar stores could significantly enhance performance for the company. In addition to Amazon, Walmart, and Target, additional indirect competitors exist for J.C. Penney. One these competitors would be body paint companies; an alternative to clothing altogether.

Body Paint

Body paint companies like Skin City and Epic Body Paint also present competition to J.C. Penney because they provide an alternative to clothing; body paint. Body paint companies seem to target more of the entertainment business clientele but they are capable of entering other markets at any point. Some body paint companies target millennials that are interested in clubbing, raves, or parties. Epic Body Paint offers face painting, body painting, belly painting, and more (Epic Body Paint, 2017).  Providing professional body paint, makeup, and hair styling to locals and visitors, Skin City is Las Vegas’ premier body painting company (Skin City, 2017). Skin City also specializes in entertainers, acrobatic, and model talent for promotions, events, conventions, and parties (Skin City, 2017). Skin City’s living art has been featured on Lifetime, MTV, Travel Channel, Showtime, GSN and in Hustler Magazine, USA Today, Huffington Post, the Dallas Observer, Las Vegas Magazine, and more (Skin City, 2017). Robin Slonina, Skin City’s founder, judges Skin Wars, the hit body painting competition TV show (Skin City, 2017). Large-scale corporate trade shows or events, private clients for parties, couples looking for a unique Vegas experience, and events and private photo shoots are all welcomed at Skin City who use the motto of having no too small or too big job (Skin City, 2017).

Other

Additional competitors exist and could be emerging for J.C. Penney; eventually, places like Subway and J.C. Penney could be considered competitors because they target the same audience but sell differing and alternative products. For example, someone may have the goal of looking better. Instead of purchasing new clothes from J.C. Penney or something from the new Ivy Park fitness line, they could choose to purchase a healthy lunch alternative like Subway. A powerful advantage over other business owners that believe they have no indirect competitors and are unique can be created by considering all the possible ways customers’ needs can be satisfied (Oman, 2015). J.C. Penney needs to be prepared for various types of competitors they may encounter.

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