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Case Study on JC Penney

SWOT Analysis
One of the main strengths that JC Penney Company possesses over its competitors is its Customer First Initiative. The firm also has a broad product and service provisions. The firm is able to offer a wide array of products and services over customers through its numerous online retail channels (Baron, 2000). The firm also has a reasonable brand portfolio. This is indicated by the popular brands the company retails. Some of these brands include South Pole, Dockers and Degree (Phalon, 2001).

The main weakness for the firm is their preceding surplus inventory. The overflow in the products the firm had acquired is the main reason for the decline in sales. Moreover, the overflow in the inventory has delayed the firm in receiving new stock that caters for the new fashion tendencies (Baron, 2000).

One opportunity that the firm has over its competitors is its expansion of Sephora stores. Since Sephora is an upcoming brand that provides new cosmetic trends, the firm has the opportunity of expanding the stores in order to include more Sephora products (Slywotzky, 2002). The firm also has the possibility of launching novel and exclusive private label brands due to its wide network that covers the country.

One of the main threats facing JC Penney was its weak financial projection for the 2010 financial year. This projection was attributed to the decline in sales by the stores. Another threat facing the firm is the increasing labor cost in the country. This will lead to wage inflation in the firm. Moderate and novel store openings in the country also represent a formidable threat to the company (Sheridan, 2010).

Analysis of Major Competitors
The major competitors that rival JC Penney Company are Kohl’s Corporation and Macy’s Inc (Crane, 2000). In order to enable analysis of the competitors, SWOT analysis will be used to assess the two firms.

Macy’s Inc
Strengths. One of the main strengths that Macy’s Inc possesses is its sturdy brand equity.
Through this strength, the company is able to impose premium prices for its commodities and services. This has proven to be the firm’s main strength due to the prices it imposes on its apparel. By charging premium prices, the firm is able to achieve elevated profit margins. Another strength that Macy’s possesses is its considerable network of stores. The company is a nation wide retailer and therefore has stores in every state in the United States (Butler, 2011).

Weaknesses. The main weakness evident in the company is declining net profit. This is attributed to the ongoing recession in the United States. The recession has forced the prices of the products offered by the firm to increase. Moreover, consumers have been unable to purchase the products. Moreover, the high availability of substitutes has led to declining net profit attributed to declining sales (Lavin, 2009).
Opportunities. One opportunity that Macy’s holds is the growth in online retail transactions. Macy’s is an internet retailer and is thus able to gain and perform business transactions all over America. Since retail spending is growing considerable in America, the firm can increase online retailing for profit maximization (n.a, 2007). The firm can also invest in overseas operation as another opportunity (Hollock, 2007). The firm’s sturdy brand equity and strong revenues can enable it to further its operations to international borders.
Threats. The economic turndown in America is a major threat since it forces the firm to experience declining sales in its products. Moreover, elevated minimum wages in the country can also force the firm to attain wage inflation limiting its costs of production and retail. In addition, intense competition from firms such as JC Penney also presents a formidable threat to the firm.

Kohl’s Corporation
Strengths. One of the main advantages that Kohl’s possesses is its strong brand equity. The firm is able to maximize profit margins through change in prices. The firm also possesses an innovative culture that fends off competitors. Asset advantage also provides the firm with the strength to compete against other firms (n.a, 2004).
Weaknesses. The firm possesses a weak supply chain, which limits its ability to supply products over its channels. Customer service is poor at Kohl’s and thus limits the number of consumers. The firm also lacks domestic market potential due to the saturation of the market by other formidable rivals (n.a, 2004).
Opportunities. The firm has the opportunity to ensure product expansions due to its considerable asset base, which can enable it, gain considerable finances for the expansion. The firm can also engage in corporate takeovers due to the strong barriers of entry for new firms. The firm can also adopt online retailing innovations (n.a, 2004).
Threats. Intense local competition affixed in the retailing industry is a major threat to Kohl’s. Another threat is international competition, which could affect the firm negatively due to competition from mature and established retailers such as Zara. Varying consumer tastes and preferences can also hurt the firm if it does not keep up with the latest trends (n.a, 2004).

Financial Analysis
In order to perform the financial analysis of JC Penney Company, various financial ratios will be used in order to determine the financial stand of the firm. The rations that will be used include the liquidity ratios.

Liquidity Ratios
Current Ratio. The current ratio is the relationship between the firm’s current assets and the current liabilities. JC Penney maintains a current ratio of 1.8 (JCP, 2012).
Quick Ratio. The quick ratio is the relationship between the firm’s current assets (excluding the inventory) and the current liabilities. Excluding inventory, JC Penney’s quick ratio is 0.2 (JCP, 2012).
Receivables Turnover. The receivables turnover is the relationship between the firm’s net sales and the accounts receivable. The firm has maintained a receivables turnover ratio that is between 45 and 75 (JCP, 2012).
Inventory Turnover. Inventory Turnover is the ratio between the inventory and the selling price of the products sold. The firm has an inventory turnover of 2.5 (JCP, 2012).

Profitability Ratios
Asset Turnover. Asset turnover is the ratio between the net sales and the average total assets. The firm has an asset turnover of 1.2.
Return on Assets. Return on Assets is the ratio between the net income and the total assets. The return on assets for JC Penney is -3.03 percent.
Return on Equity. Return on Equity is the ratio between the net income and the total equity. The firm’s return on equity as of 2012 is -12.96 percent.
Return on Capital Employed. Return on Capital is the ratio between the net earnings before income and tax (EBIT) and the capital employed. The firm’s return on capital employed is -5.08 percent.

Solvency Ratios
Debt to Equity Ratio. The debt to equity ratio is the ratio between the total liabilities and the total equity. The debt to equity ratio for the firm is 84.7.
Debt to Total Assets Ratio. The debt to total assets ratio is the ratio between the total liabilities and the total assets of the firm. The ratio for the firm is 67.8.
Times Interest Earned Ratio. The times interest earned ratio is the ratio between the Income before income taxes and interest expense and the interest expense. The times interest earned ratio for the firm is -2.14.

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