Table of Contents Part 1: Describe Two Publicly Traded Business Rivals



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VS.


Amandeep Kataria

Aashka Shah


Table of Contents

Part 1: Describe Two Publicly Traded Business Rivals

  1. JCPenney and Kohl’s………………………………………………………………………….3

Part II: Opportunity

  1. Industry Description……………………………………………………...........……………....4

  2. Geographic Area……………………………………………………………………………….6

Part III: Industry Analysis

  1. Five Force Analysis…………………………………………………………………...……….7

  2. Low-Power Forces...................................................................................................................10

  3. Key Success Factors.................................................................................................................11

  4. Rivalry Defended by Establishment of Brand Name………………………………………...13

Part IV: Strength Assessment

  1. Calculation of Key Success Factors………………………………………………………….14

  2. Converted Score of Key Success Factors…………………………………………………….15

  3. Average Converted Score of Key Success Factors…………………………..………………16

  4. Sustain Competitive Advantage……………………………………………………………...16

References………………………………………………………………………………………………...17

Part 1: Describe Two Publicly Traded Business Rivals



  1. In the United States, JCPenney and Kohl’s are considered some of largest department stores. According to the article “J.C. Penney Profit Rises on Sales of Clothing, Exclusive Brands,” JCPenney is the third largest retail department chain store, while Kohl’s comes in at number four. In JCPenney’s annual 10-K filing, it states that they sell their merchandise and services through department stores and by direct channeling which consists of the internet and catalogs (1). JCPenney sells a variety of merchandise which includes apparel and footwear for the whole family, accessories, fine jewelry, home goods, and beauty products provided by Sephora inside their stores (JCPenney-10K, 1).They are known for their clothing and home goods where some are sold under their own company’s brand name (Coleman-Lochner). JCPenney has recently added more exclusive brand names to attract more fashion-orientated consumer but their main targeted customer-base has been middle income consumers (Coleman-Lochner). According to the Standard’s & Poor’s Industry Survey for Retailing: General, private and exclusive brands count for 50% of annual net sales for JCPenney (13). As of January 30, 2010, JCPenney currently has 1,108 department stores open throughout United States and Puerto Rico (1). Their corporate address is 6501 Legacy Drive, Plano, Texas, 75024-3698 (JCPenney-10K). In Kohl’s annual filing of 10-K, it states that they sell their merchandise by two channels which are department stores or the internet (3). According to the article “Kohl’s 3Q revenue rises, but net income is flat,” Kohl’s major focus has been on providing moderate prices on exclusive name brand items. They also provide their customer with national brands as well privately and exclusive brands that can only be found within this company (Kohl’s-10K, 3). Their merchandise typically includes apparel, footwear, and accessories for the family, soft home products, and household items (Kohl’s-10K, 3). Kohl’s profitability is driven by two main factors which are sales growth by offering variety of merchandise and presentation of the store to fit the customer’s preference in different geographical regions (Kohl’s-10K, 3). According to the lecture notes, “Introduction to strategic analysis fundamentals,” Kohl’s are following the production model keys of increasing profitability, effectiveness, efficiency due to an increase in quantity of product available and their geographical regions which covers more target customers. Also, they have kept their inventory at a reasonable level so they will not be forced to lower their prices in order to clear out their inventory items, which is a major advantage because it will not lower their profit (Fredix). As of January 30, 2010, Kohl’s had 1,058 stores open in 49 states (Kohl’s-10K). Their corporate address is N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051(Kohl’s-10K, 7). Kohl’s and JCPenney compete in the retail industry. According to IBISWorld in their Department Stores in the US Industry Report, JCPenney has 9.0% market share, while Kohl’s has 8.5% in this industry (27-28). The retail industry can be highly competitive because a lot of major competitors already exist in the market place. JCPenney’s main competitors come from national, regional, and local stores (JCPenney-10K, 4). They have to compete for customers, associates, locations, products, and services (JCPenney-10K, 4). Their main competition includes factors like the variety of merchandise available, quality, pricing, advertising, services, locations, reputation, and credit availability (JCPenney-10K, 1). Kohl’s primary competitors’ are department stores, high/upscale mass merchandisers, and specialty stores (Kohl’s-10K, 6). The key aspects they compete in their industry are quality, merchandise mix, value, service, and convenience (Kohl’s-10K, 6). JCPenney and Kohl’s both compete heavily on the quality and the availability of products, price, and customer service.

Part II: Opportunity

  1. The department store retail industry is very a large industry with many key competitors. This industry offers a wide range of goods that are in a large size stores which are separated according to departments (IBISWorld-Department Stores, 2). The chart below is from IBISWorld Department Store and it shows how each category is divided up in the retail industry.

Since women’s wear is the largest product segmentation, we will be putting our main focus on this industry. The chart below is from IBISWorld Industry Report for Women’s Clothing Stores in the US and it shows how much each product makes up in this industry.


For JCPenney, women’s apparel was one of the segments that performed the best (JCPenney-10K, 20). The net sales for JCPenney in women’s apparel were 24% both in 2008 and 2009 (JCPenney-10K, 20). This is JCPenney’s largest source of revenue from all the merchandise sold. They have continued to offer new styles and latest fashion by introducing more private and exclusive designer names for women. This shows that JCPenny is using competitive strategy by providing a unique mix of products to attract customers and create value (Introduction to Strategic Analysis Fundamentals). Liz Claiborne has been one of the most recognizable brand names in women’s apparel because customers continue being loyal to this brand (JCPenney-10K, 21). At Kohl’s, women’s clothing consisted of 32% both in 2008 and 2009 (Kohl’s-10K 23). Women’s apparel was the strongest in intimate and sportswear section because of the improvement of the private brand names (23). While those sections were strong, overall women’s clothing went down compared to other merchandise sold (23). Kohl’s is focused on continuing to expand their women’s apparel by attracting more customers by creating value and offering different exclusive and private brand names which could only be found at Kohl’s (3). One of the new brand that was recently introduced is called Dana Buchman, which brings a classic lifestyle brand to women’s apparel (Kohl’s-10K, 3). According to Diamonds.Net, Kohl’s will launch two new multi-department contemporary lifestyle brands in 2011. This can help Kohl’s to differentiate themselves from their main competitors.

  1. Women’s clothing has the largest amount of demand in the United States. The women wear industry was about $38.6 billion in 2010 in the United States (IBISWorld-Women’s Clothing Stores, 4). JCPenney had a revenue of 17.6 billion and Kohl’s had 17.2 billion in 2009 (S&P, 9). Women love to keep up with the latest fashion. So the demand for women’s clothing continues to grow because the fashion-trends keep changing. They believe that over the next five years the number of stores in the women’s clothing industry will increase each year by 1.9% (IBISWorld-Women’s Clothing Stores, 9). The revenue increased by 1.2% from 2008-2009 and is expected to increased each year through 2015 (IBISWorld-Women’s Clothing Stores, 34). Kohl’s had an increase in net income from $885 million in 2008 to $991 million in 2009 and JC Penney had a decrease of net income from $572 million in 2008 to $251 million in 2009 (Kohl’s-10K, F-4 and JCPenney 10-K, F-3). So even though revenue maybe increasing for some companies, their profits may decrease. One key factor in which this industry can increase their demand is by the growth of the female population. The population of female has increased by .9% in 2006 to 151.75 million (IBISWorld-Women’s Clothing Stores, 14). This is positive sign for companies in this industry since women are their target market. In the United States, women’s clothing businesses are usually located around cities that are heavily populated because consumers have higher income and demand for fashion.

This graph shows how closely the population is related to the number of women clothing stores are within that particular region. As you can see, the southeast region has the greatest number of women clothing stores.



Part III: Industry Analysis

  1. The five force analysis is very important to any company who is currently in or deciding to enter into a particular industry. It allows the company to view what the levels of threat to profit will be using the competitive forces comparing it with other companies. It also allows companies to form strategies to defend against their threats to profit. Each industry has different levels of threat and should be assessed differently. The following table shows the levels of threat for each competitive force in the women’s clothing industry.

COMPETITIVE FORCES

HIGH, MODERATE, or LOW power

1) SUPPLIERS

High

2) BUYERS

High

3) SUBSTITUTES

Low

4) RIVALRY

High

5) THREAT OF ENTRY

Low



There are many factors that are important to satisfy customer’s demand. Thus in the women’s clothing industry, the company should make sure that they have the best suppliers that provide high quality raw materials. Also, the company should have established a better supply chain process in which it helps to keep up with the current fashion trends and new, upcoming trends too. Fashion plays an important role in this industry because if suppliers cannot supply the materials or products on time, then it will be outdated by next season. So businesses dealing with these industries should be careful when choosing their suppliers make sure they supply the products on time. Once the product is supplied, it is very important to have a high quality material because in market with many rivals, it is necessary to provide customers with the best quality to get their loyalty. Thus suppliers have a high threat to profit because they help to provide high quality products at the right time and amount; thus, companies cannot afford to lose them. One of the examples is by Yahoo News,”JC Penney’s 3Q profit rises on exclusives,” the chairman and CEO, Myron E. Ullman III states that, during this recession, they have managed to focus on expanding on their exclusive items and working with suppliers to offer them better prices. Industries have to make sure that they pay their suppliers properly so that they do not lose them to their other competitors. The women wear industry has a high threat of profit from their buyers. It is not one of those luxurious industries where buyers can choose to buy or not. No matter how bad the economy is customers buy clothes for daily wear, casual wear, party dress, or business outfit. But in this economy where recession has made customers think twice about spending their money, customers are looking for clothes with better quality and for right price. Customers prefer to spend more money on higher quality clothes rather than going for cheaper material. If industries successfully satisfy their customer’s needs at right time and with perfect material, then buyers will tend to come again and also pass a word to others. This is the best way to bring back their loyal customers and attract new comers too. Since a loss of one unsatisfied customer costs more in this industry compared to other ten satisfied customers, this industry has a high threat of buyers. As sales growth increases, profit margin also increases, so, it is important to satisfy the customers since they are the main source of revenue. In Kohl’s stores, sales growth has increased from -6.9% in 2008 to 0.4% in 2009 and also JCPenney has increased from -8.5% in 2008 to -6.3% in 2009 (Kohl’s-10K, 20 and JCPenney-10K, 11). Women clothing industry provides clothes for all occasions like casual, business, sports, and party wear. If a customer is looking for sportswear and for some reason that customer did not like the style, price or material, she cannot substitute sportswear to a party wear just because she likes the material. Thus this industry has low threat of substitutes because women cannot compensate any particular type of outfit with any other outfit. Also, women need clothes in their everyday life so their demand cannot be satisfied with different products from elsewhere. There are many businesses in this industry that have numerous retail stores in the United States. The competition for this industry is between women’s clothing stores and other industries (IBISWorld-Women’s Clothing Stores, 22). When two stores in women clothing industry are competing, they compete against brand name, image rating, fashion, store location, customer service, and quality of clothes. All these factors play an important role in attracting customers and getting loyalty. Brand name clothes are more preferable by customers so retail stores have to keep brand name clothes on their shelves to bring customers in their stores compared to their rivals. After having brand name clothes in retail stores, they have to market their products to spread brand awareness among customers. Businesses have to keep up with the price, quality, and fashion because if one of these factors is better by their rivals, then, the company might lose their sales. Having more rivals means customers have more choices to prefer from and in this case, retail stores have to provide extraordinary customer service. Thus this industry has an intense competition and if one store does better in brand awareness, marketing, customer service, or fashion trend, then the other stores will lose many sales and customer loyalty. Investors are also interested to see how the companies are doing against each other by looking at their stock price. Kohl’s had $53.93 share price in 2009 while JC Penney had $26.61 share price in 2009 (S&P). Rivals for women’s clothing industry include other industries such as local department stores, online retailers, and national department stores. These stores are convenient for one stop shop and sell clothes at cheaper prices. Price base competition is high in these kinds of stores where more discounts are promoted and online offers are provided. So, basically the threat to profit from rivalry is high in this industry. In this industry, there is already high number of competitors competing for same factors like size, fashion, quality, and services so a new entry does not have as high as impact in market. The threat of entry is low because when new player enters the market, it has to invest more in brand awareness, marketing, and other factors which all other stores are competing for. This competition in market reduces the interest for others to come in and compete with well-known companies. It is a challenge to compete against those who already have stores all over the country and to pull loyal customers towards a new entered store. For new comers, the first couple years would be mostly focused on growth so there might not be as much profit. Also, they would have more expenses because they have to advertise and promote more than their competitors do. This results in less sales and more cost of goods sold which equates less profit margin.

  1. From the five force analysis that we did above for women clothing industry, there are two low threat forces which are substitutes and threat of entry. The two low forces represents almost the same rate of return as much as that has been invested (Industry Analysis). This industry has three high forces that will affect the industry financially. Suppliers have a high threat so the industry must be careful in maintaining their suppliers or look for better suppliers. Once they have obtained their supplies, businesses may have to pay a higher price to them. Thus this expense of paying more to suppliers increases but in return businesses get better material and product. Buyers have a high threat because they are the main source of revenue. Thus it is important that they are aware of company’s brand name and image rating which is possible through more marketing. Different ways of marketing includes advertising, surveying, providing discounts through newspaper, magazines, and banners. This increases the cost but the return will increase the sales growth and leads to a higher profit margin. With high rivalry in the market, industry has to sell the best quality products, which cost more and also should be in fashion. Businesses can have fashionable clothes by hiring famous fashion designers which increases the salary expense but attracts the customers. An industry having high threat forces will have to invest more money to have a higher return and with two low forces, businesses can manage to have almost equal profitability.

  2. Key success factors are very critical in order to make the business operate successfully. Key success factors are resources that a company utilizes to compete against its competitors (Introduction to Strategic Analysis Fundamentals). They also allow the company and employees to stay on pathway that will help the business run efficiently. Key success factors should be closely related to the industry that your company is conducting their business in. Since every industry has it’s unique set of key success factors, it may vary accordingly to the industry. A business that sells merchandise in women’s clothing industry should focus on some of the following key success factors. First, the company should try to establish a brand name so consumers can become familiar with the brand (IBISWorld-Women’s Clothing Stores, 20). Since a lot of customers are attracted to brand names, it will have a major impact on the number of consumers who can relate to the brand. Businesses that establish brand awareness among their consumer will command customer attention and change their shopping behaviors if they are very loyal to the brand. This can be calculated by looking at the reputation ranking that the company receives. Second, it is very important that the business can control the inventory they have on hand (IBISWorld-Women’s Clothing Stores, 20). They must have the quick ability to adjust to increasing or decreasing demand trends so they do not have too little or too much inventory on hand. Women depend on the store having the particular clothing available to them or else the business might lose sales. Therefore, women’s clothing should be ordered efficiently and effectively so it meets customer demands or so excess inventory does not pile up, while still increasing inventory turnover rate. This can be calculated by the inventory turnover ratio for the company. Third, the production of women’s clothing should be favored by the latest fashion trends (IBISWorld-Women’s Clothing Stores, 20). The business should provide their customers with new, up to date fashion trends that are consistent in the fashion world. The fashion-forward clothes the business provides to their consumer should also appeal to their target market’s tastes. Women are not willing to settle for last season’s fashion so the business must be able to keep up with the fashion trends. This can be calculated by the manufacturing efficiency of the company. Companies with better supply chain process can be successful because they can respond to the demand quicker. Fourth, the business should have established a growth strategy by using G*. It is important for the company in this industry to have superior financial management and debt management (IBISWorld-Women’s Clothing Stores, 20). In the women’s clothing industry, it is crucial because if a company is growing that means it must be doing well compared to its others competitors. The growth strategy will allow the company to see if their current financial structure is strong enough to support their operations or if it needs to be changed. This can be calculated by using G* as the measure. Fifth, the business should have an attractive product presentation (IBISWorld-Women’s Clothing Stores, 20). The store should have separate departments for different types of good that are sold. The women’s clothing should be in one section that is organized by style or by brand name so it easier for consumers to shop. By making it more convenient for shoppers, it will lead to them to have a better shopping experience because they do not have to waste time searching through messy piles of clothes to find what they are looking for. A good display will also attract more consumers to the merchandise which will increase the chances of the product being purchased and strength the company’s image. Women are more likely to purchase clothes that catch their eye. This can be calculated by sales per square foot in the store. Sixth, the business should be located close to key markets (IBISWorld-Women’s Clothing Stores, 20). Location is important factor in sales of merchandise, so the company should try to locate their store where there is a larger number of passing traffic. They should also be close to their targeted customers. Since women have to able to see the clothes they want to purchase, companies must place their stores near locations that are heavy populated. This can be calculated by counting up the number of stores that are in areas of highly wealthy people.

  3. The key success factors are very important because they can help to defend against company’s high threats to profit. The women’s clothing industry can be a very competitive environment with many rivals existing in the market place. To gain popularity in the industry, the establishment of name brand is very important because it allows the company to differentiate themselves from their competitors. There are many rivals in the women’s clothing industry that can easily reduce the sales of other businesses. Since this industry has a high threat to profit from rivalry, the company can defend themselves by focusing on establishing a name for their company. This will allow the company to position themselves to achieve success in the long-term, so they should first focus on building up their company’s name and reputation. If the company is well-recognized in the industry, then, when new competitors enter the market they will not have a major impact on the company because consumers will continue to shop with them. If the customers are attracted and can relate to the company’s name brand, then, they will continue to be loyal to the company. JCPenney and Kohl’s have established their brand names by advertising heavily in the public’s eyes. They continue to bring out the newest, latest private and exclusive brand names from their consumers at reasonable prices. Even if more competitors enter into the industry, their customers will remain loyal to them because those department stores may carry merchandise that is exclusively available at JCPenney and Kohl’s only.

Part IV: Strength Assessment



  1. JCPenney

Key Success Factors

Calculation

Result

Company Rating

5.60

5.60

Inventory Turnover

(17,556,000)/((3,024,000+3,259,000)/2)

5.5884

Manufacturing Efficiency

(10,646,000)/(17,556,000)

.6064

G*

(1 – 75%) x 5.6%

.014

Sales per sq. ft.

$149

$149

Location

(434)/(10)

43.4

Kohl’s


Key Success Factors

Calculation

Result

Company Rating

6.06

6.06

Inventory Turnover

(17,178,000)/((2,923,000+2,799,000)/2)

6.0042

Manufacturing Efficiency

(10,680,000)/(17,178,000)

.6217

G*

(1 – 0%) x 13.6%

.1360

Sales per sq. ft.

$93

$93

Location

(500)/(10)

50

The company’s rating was calculated by using CNNMoney Fortune’s ranking for the “World’s Most Admired Companies” overall score. The higher the overall score the better it is for the company. According to the lecture notes “Measuring Performance & Setting Objectives,” the inventory turnover can be calculated as revenue divided by average inventory. These numbers can be found from the company’s 10-K filing. A higher inventory rate is better because that means the company is selling their inventory at a faster pace. The manufacturing efficiency can be calculated by cost of goods sold divided by revenue (Measuring Performance & Setting Objectives). These numbers can also be found in the company’s 10-K filing. A lower manufacturing efficiency is better because that means it costs the company less to develop and deliver goods to the customers. The G* can be calculated by multiplying ROE by one minus the dividend payout ratio (Measuring Performance & Setting Objectives). These numbers can be obtained from S&P Industry Survey for the industry the company is in. The higher the G* is better because it means that the company will be able to maintain its growth strategy. The sales per square foot were found on the company’s 10-K filing. The higher the sales per square foot the better it is for company because that means they are selling more merchandise. The location can be calculated by finding the states in the United States with highest number of household whose income is $200,000 or higher. We took the numbers from “Household Income--Distribution by Income Level and State: 2007” which can be found on the census website. Then, we took the wealthiest states and compared it to the number of stores in that state. So, we took the top 10 wealthiest states and the number of stores corresponding to the state and added them up for each company and divided the total by 10. The calculation gave us an average of which company has more stores in higher income states. The wealthiest states numbers can be found on the census website and the number of company’s store in each state can be found in their 10-K.

2.


Key Success Factors

JCPenney

Kohl’s

Company Rating

1

5

Inventory Turnover

1

5

Manufacturing Efficiency

3

3

G*

1

5

Sales per sq. ft.

5

1

Location

1

5

3.





JCPenney

Kohl’s

Average Strength Score

2

4

4. From the strength assessment above, we can conclude that Kohl’s will sustain a competitive advantage over JCPenney. Kohl’s is the strongest in many of key factors that are important in this industry. They have a higher company ranking compared to their competitor. Also, Kohl’s is able to control their inventory better and this can be crucial in this industry because women are looking for the latest fashion items. Since women demand up to date clothing, the manufacturing efficiency is important. JCPenney and Kohl’s are about equal in providing their customers with the latest fashion trends. Since Kohl’s is not paying out dividends, they have more cash available to grow their company. Kohl’s is using its internal financial resources more effectively than JCPenney. One factor that Kohl’s is weak on is its sales per square foot, but they are strong on location compared to JCPenney. During the recession, Kohl’s was the only major company that increased their net profits during 2008-2009 (IBISWorld). So, overall Kohl’s be able to sustain a competitive advantage over JCPenney.

Resources

690 - Household Income--Distribution by Income Level and State: 2007. Census, 25 Sep. 2008. Web. 3 Dec. 2010. .

Andrews, Robert. J. 45211 Department Stores in the US Industry Report. IBISWorld, Sep. 2010. Web. 3 Dec. 2010. < http://www.ibisworld.com.www.lib.ncsu.edu:2048/reports/ reportdownload.aspx?cid=1&rtid=1&e=1090&ft=pdf&beta=y>.

Asaeda, Jason. Industry Surveys Retailing: General. Standard & Poor\'s, 25 Nov. 2010. Web. 3 Dec. 2010. .

Coleman-Lochner, Lauren. J.C. Penney Profit Rises on Sales of Clothing, Exclusive Brands. Bloomberg, 12 Nov. 2010. Web. 21 Nov. 2010. .

D'Innocenzio, Anne. J.C. Penney's 3Q Profit Rises on Exclusives. Yahoo, 12 Nov. 2010. Web. 3 Dec. 2010. .

Fredrix, Emily. Kohl’s 3Q Revenue Rises, but Net Income Is Flat. Bloombery Businessweek, 10 Nov. 2010. Web. 21 Nov. 2010. .



J.C.Penney Company, Inc. Form 10-K. United States Security and Exchange Commision, 30 Mar. 2010. Web. 3 Dec. 2010. .

Kohl's Corporation Form 10-K. United States Security and Exchange Commision, 19 Mar. 2010. Web. 3 Dec. 2010. .

Miller, Jeff. Kohl's to Carry New Lifestyle Brand from Jennifer Lopez and Marc Anthony. Diamonds.Net, 19 Nov. 2010. Web. 3 Dec. 2010. .

Panteva, Nikoleta. 44812 Women's Clothing Stores in the US Industry Report. IBISWorld, Sep. 2010. Web. 3 Dec. 2010. < http://www.ibisworld.com.www.lib.ncsu.edu:2048/reports/ reportdownload.aspx?cid=1&rtid=1&e=1067&ft=pdf&beta=y>.

World's Most Admired Companies. CNNMoney, 22 Mar. 2010. Web. 2 Dec. 2010. .

Young, Greg. Industry Analysis. 11 Oct. 2010. 3 Dec. 2010. .

Young, Greg. Introduction to Strategic Analysis Fundamentals. 18 Aug. 2010. 3 Dec. 2010. .

Young, Greg. Measuring Performance & Setting Objectives. 15 Sep. 2010. 3 Dec. 2010. .

Pictures:

http://walpolemall.homestead.com/Kohls_Logo.jpg

http://www.examiner.com/images/blog/EXID31274/images/jcpenney_edm.jpg

http://www.ibisworld.com.www.lib.ncsu.edu:2048/reports/reportdownload.aspx?cid=1&rtid=1&e=1067&ft=pdf&beta=y



http://www.ibisworld.com.www.lib.ncsu.edu:2048/reports/reportdownload.aspx?cid=1&rtid=1&e=1090&ft=pdf&beta=y


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