Competitive Situation

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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