The document outlines a proposed strategy for J.C. Penney to address key performance issues by focusing on their customers, restructuring their organization with a horizontal management structure, and differentiating themselves through innovations like a "town center and boutique" store model along with unique product and service offerings. The strategy also discusses leadership, culture, partnerships, and a marketing mix to position J.C. Penney as superior in customer experience compared to competitors.

1. Proposed Strategy for J.C. Penney
15 October 2014
Chris Shaw

2. Key Performance Issues:
In order to succeed, J.C. Penney must address the underlying issues found within the
brand or industry that prevent it from developing a sustainable competitive advantage. These key
performance issues (KPIs) are:
- How do we address the discount obsession that we have created?
- How do we strategically respond to the shrinking middle class?
- How do we establish employee buy-in after such extensive and difficult leadership
changes?
- How do we reposition ourselves and become a preferred brand for our customers?
- What do we want our brand to be?
- How do we add value along the customer’s journey?
- How do we create more market space within the Department Store industry?
- How do we fix the operational effectiveness of J.C. Penney?
- How do we differentiate ourselves within this declining and saturated market?
- How do we maintain profitability in the midst of restructuring?
Vision: J.C. Penney aims to be the largest provider of retail goods and services to the
middle class families of America. J.C. Penney strives to lead sales in the department store
industry for middle class families by a margin of 20% over the next competitor and be able to
successfully market to families with superior private brands and unique and valuable services.
J.C. Penney wants customers to position J.C. Penney as reputable quality with reasonable prices
lowered by enticing promotions, as well as the largest supplier of services and the overall
greatest customer purchasing experience.

3. Culture: J.C. Penney must create a culture that focuses on the customer while still
providing value to the employees and other stakeholders. J.C. Penney must make its history a
proud and established theme within its culture, reminding employees and customers of their
founding principles and continuing values. On a related note, J.C. Penney must ensure that a
code of ethics and core beliefs for the company are agreed upon by the company and
communicated often. Once these are fully established, J.C. Penney should evaluate all
prospective employees on the basis of how well they exemplify these values and fit into the
culture. Furthermore, all of J.C. Penney’s actions should be in accordance with their stated
values and they should partake in opportunities, internally and externally, that demonstrate these
values. J.C. Penney should have clear expectations for their company in work environment,
quality of work, and company representation. J.C. Penney must also hire leaders that not only
exceed and enforce these expectations, but also work to create leadership internally to better
advance the purposes of the company and overall success. J.C. Penney must also possess a clear
system of accountability that measures success through key metrics for the company and
encourages employees to commit to company causes through goals, benchmarks, and consistent
reporting. J.C. Penney must clearly communicate its strategy to employees and ask for their
opinions on matters, involving them in the decision process. By communicating to employees
that they too are stakeholders in the company, they are more likely to support their leaders and
also take personal ownership of the company. This would essentially solve the buy-in problem
found within J.C. Penney and unify the company throughout all levels under one vision and
strategy.
Structure: To ensure communication, culture and financial success, J.C. Penney must
continue to transition into a horizontal management structure, dividing leadership and allowing

4. more employees to take on additional responsibilities and invest in the company. A horizontal
structure will boost employee morale due to increased responsibility and ownership within the
company. This horizontal structure would also increase service speed and quality, something J.C.
Penney will need to remain competitive. To succeed in this restructuring, J.C. Penney must
create a culture that fosters teamwork, reduce management levels to a minimum for the
corporation and adopt a structure that is divided by customer segment. This would entail an
overall CEO, then Target Market Managers who oversees stores for each specific target market,
provide direction for what products to have for the customer segment, how to market them, and
how to relate to customers. The remainder of employees would work as teams and report directly
to their target market managers. At most, J.C. Penney should have 3 levels of management: CEO
and Target Market Managers, Department Heads, and then general employees (Reference
Appendix 1). This will keep the structure more horizontal, despite the size of the organization.
J.C. Penney must reassign major responsibilities for the corporation to the managerial
position for which they best apply. The CEO should be in constant communication with the
Board of Directors as well as each Target Market Manager. His responsibility is to be the liaison
for Target Market Managers to the Board of Directors, and be the face of the company, as well as
to determine if all specified strategies also match the overall corporate strategy. Target Market
Managers must communicate with department heads and piece together a strategy for their
specific customer base that appeals to them and adds value. The department heads will report
financial metrics and marketing mixes, as well as distribution plans to the Target Market
Managers, who will then establish fit within the company’s processes and create a clear and
cohesive strategy that matches the overall corporate vision. Department heads will gather

5. information as “team leaders” of their department and organize it then communicate it to the
Target Market Managers.
J.C. Penney would also benefit by reimagining their store space and creating the “town
center and boutique” model prescribed by Johnson. This would be structuring the store by
updating the general floor space and placing items with major promotions and sales along with
checkout and services in the center of the store. Along the perimeter of the store, J.C. Penney
should place boutiques that are small areas of floor space customized to brilliantly display a
certain product or brand. These would include J.C. Penney’s most profitable partnerships and
brands such as Disney and Sephora. This new model would attract customers, differentiate J.C.
Penney from competitors, and increase overall customer experience.
Secondary Practices:
Leadership: J.C. Penney must aim to obtain leaders that do not hesitate to take risks,
understand the company, competitors, and market space, and are efficient communicators and
motivators. By accumulating leadership with these characteristics in all levels of the corporation,
J.C. Penney can better develop a strategy and sustain and maintain it. Success in this industry
requires advanced innovation and exemplary fit with strategy. J.C. Penney should hire leadership
primarily within the retail industry, who can transition easily and quickly to the department store
industry and understand the trends, opportunities and threats. Leadership must be effective in its
efforts to communicate and have operated in a horizontal organizational structure. Furthermore,
all leaders should have an understanding and appreciation for J.C. Penney’s brand and culture.
These leaders must also be trustworthy and cooperative, coordinating all ideas and execution
throughout the company. Lastly, leaders should be value-driven and customer focused, never
veering from an understanding that the success of the company relies upon the fulfillment of

6. needs for the customer. Whether this leader is CEO, Target Market Manager, or department
head, these qualities are necessary to aid in the success of J.C. Penney.
Talent: The talent found within J.C. Penney will not exclusively come from those in
leadership positions. It is also important the J.C. Penney seeks talented low level employees to
employ. These employees must represent J.C. Penney often directly to the customer, and
influence the customers’ perception of the brand. For this reason, employees should at all levels
should be capable and competent, while also representing J.C. Penney’s values. Furthermore,
talented employees, even at a low level, can attribute to the company’s ability to innovate, add
value for the customer, and appeal to the customer. These ideas can then be communicated and
put into action. Lastly, talented lower level employees can increase the rate of promoting from
within and help minimize the needed transition process for people taking over new positions.
While J.C. Penney needs to acquire talented employees, they also require talented brands to
succeed. J.C. Penney has already benefitted from several talented partnerships (see partnership
section below). In looking for products to expand their product offering, J.C. Penney should
continue to acquire relationships with brands that are talented marketers and already have high
established brand equity, favorable customer positioning, and superior quality.
Innovation: In order to support their dominant selling idea (see following section), J.C.
Penney must innovate in the forms of store layout, customer convenience, and product and
service offerings. J.C. Penney must use these innovations to differentiate themselves from the
competition and create a superior customer experience, since changing the industry’s pricing
strategy would be dangerous and difficult. With a new store layout, J.C. Penney can draw in
customers and offer a different experience than typical department stores, using unique boutiques
and updated retail space that help customers interact more with the store and products. Shopping

7. at J.C. Penney will feel more like exploring a town center, rather than browsing through boring
and homogenous departments. J.C. Penney can increase customer retention and stimulate
customers to purchase more through innovations in customer convenience. This would include
integrating a new form of checkout (see Marketing Mix) that allows customers to conveniently
shop in all departments and services with only one checkout. Furthermore, J.C. Penney would
enhance their current mobile application to better facilitate online shopping and encourage
shoppers to purchase more. Lastly, J.C. Penney must differentiate and add value through their
product and service offerings. J.C. Penney can innovate in this area by adding more services, to
make customers’ experiences easier, more productive and enjoyable.
Partnerships: Partnerships are essential to J.C. Penney’s success because they bring in
customers even when J.C. Penney struggled to do so on its own. This is due to the individual
brand equity and reputable products that partners of J.C. Penney such as Disney and Sephora
have. J.C. Penney should continue to maintain these relationships and attempt to expand the
product offerings of the most successful brands with the promise of boutique style store space in
each J.C. Penney. J.C. Penney must also scout other brands and attempt to obtain products that
target and provide value to their key target markets (mainly middle class families and young
professionals). With this period of restructuring, J.C. Penney has an opportunity to offer brands a
partnership in a completely new and innovative store design, and can accommodate specific
needs that brands might request. In a different vein, J.C. Penney should also look for companies
to pair with in philanthropic and ESG causes. Associating with a charity or another charitable
organization could automatically improve J.C. Penney’s brand equity and positioning within
customer’s minds, while also reinforcing company values and encouraging employees.
Dominant Selling Idea:

8. J.C. Penney must continue to build upon its rich history, targeting middle class families
and offering them unique products through their profitable partnerships at reasonable prices
supplemented with consistent annual promotions. They must renovate stores progressively to
move towards a boutique and town center model, while also updating the general floor space to
keep stores looking attractive and desirable. This paired with an extension of services to include
childcare, food carts, personal stylists, and spa services will help to transform the J.C. Penney
experience into a fun family event, rather than a necessary trip or unwanted chore.
Name: J.C. Penney must choose the identity that they want to maintain and market to
customers from now on, either “jcp” or “J.C. Penney.” J.C. Penney should refer to themselves
exclusively as J.C. Penney. This name has a rich history and positive connotations in the
customers’ minds. “jcp” may be used by customers as a short hand for the brand, but the title was
used during Ullman’s tenure and has a negative association with the “fair and square” pricing
model and discontinuation of key brands. J.C. Penney should continue to use “jcp” strictly as the
name for a specific line of their private brand products. Beyond this, in all communication with
the customer, the name “J.C. Penney” should be used.
Tag Line: A possible tag line for J.C. Penney following the realization of their DSI could
be “More pretty for your Penney.” This tag line utilizes the name of the company within the tag
line so that when it is seen, there is no doubt about what company it refers to. Furthermore, it
plays off of the common phrases “more bang for your buck,” reinforcing the idea of attractive
prices, and “costs a pretty penny,” reinforcing quality and status. It touches on the new
aesthetically pleasing store design and improved product offering through the word “pretty.”
Lastly, the phrase is simple, memorable, and pleasing. All messaging should emphasize new
product and service offerings to attempt to attract new customers and simultaneously increase

9. perception of brand quality. It is important to continue the advertising of sales and promotions to
retain customers who are highly motivated by these sales. Messaging also needs to focus on the
new and updated sales space without decreasing the attractiveness of the sales space not in
boutique form. Lastly, messaging must portray the superior customer shopping experience that is
to be had at J.C. Penney. Buzzwords like “convenience”, “exclusively”, “savings”, and
referencing of popular brands like St. John’s Bay, should be used in messaging to appeal to key
target markets and grab the attention of the audience.
Key Visuals: J.C. Penney should continue to utilize patriotic imagery due to their rich
American history and the positive connotation consumers have with American symbols;
however, J.C. Penney should discontinue the use of the “jcp” American square logo and replace
all store logos with the simple J.C. Penney logo in red font. J.C. Penney must display images of
families enjoying shopping experiences, as well as integrate products and services into the same
advertisement. J.C. Penney should attempt to create campaigns using the image of their founder
integrated with the new store’s identity in order to try and reinforce the idea of progress yet with
the same values in place. The
Position against Competition: J.C. Penney needs to take a position against competitors
that place them superior in terms of customer purchasing experience with average product
breadth and product quality, but superlative service offerings and a unique product mix. It is too
difficult to compete on price in the industry, so J.C. Penney can be content to sit at the industry
average level with Macy’s and Sears. It is also not plausible for J.C. Penney to derive their
competitive advantage in product breadth or quality, instead they should take the position of
having a more unique and specialized product mix, mainly through their private brands and
partnerships. J.C. Penney already has the most services and with a planned expansion, this will

10. certainly assert J.C. Penney as superlative in the industry for service offerings. The industry
competitors are all very similar in store structure and shopping experience, J.C. Penney must
take advantage of this and aim to position themselves as the leader in these areas as well, through
their boutique and town center structure, service offerings, and consumer convenience
innovations.
Marketing Mix Strategy: (include innovations)
Customer Solution Strategy: J.C. Penney must use a mix of consumer convenience
solutions, innovative store design that increases customer experience, unique product offerings,
superior service offerings and sales promotions to add value to the customer. Customers will be
able to shop at J.C. Penney and find not only unique products from their favorite brands like Liz
Claibourne, Disney, and Sephora, as well as J.C. Penney private labels that pair style and
reasonable quality at obtainable prices, but J.C. Penney will also extend their line of services to
include in-store personal stylists, spa, food-carts, and child-care. These services will then satisfy
a whole new list of needs that shoppers have, including what to do with their kids, what and
where to eat, and what outfit to choose. These services are convenient for shoppers and they also
contribute to the “town-center and boutique model” that J.C. Penney will progressively convert
their stores to. This model is meant to better display products in an attractive way, differentiate
from competitors, and improve to shoppers’ experience. The most popular and well-known
products for each department will receive small boutique space around the perimeter of the store,
while other products (particularly those on sale), the service center, and the customer service and
checkout counters will encompass the center of the store. Shopping at these “boutiques” will
provide customers with a perception of luxury and wealth, and the newly renovated general floor
space will still be attractive to customers due to the renovations, as well as the promotions that

11. will occur within these spaces. J.C. Penney will also provide one large and central check out area
(like Walmart and Target), rather than individual checkouts at each department. Customers can
keep a “tab” through the use of J.C. Penney “IDs” paired with their J.C. Penney mobile
application or the recording of a J.C. Penney Credit card. This would allow a whole family of
shoppers to partake in services and shop and only have to pay once throughout the whole trip,
settling the account at the front checkout, and closing their tab before they leave. J.C. Penney
must continue to compete online and through mobile applications. J.C. Penney has a strong
mobile application and should continue to add features, including shopping recommendations on
customer behavior and a service scheduler, as well as advertise the app in store, incentivizing
customers to use it. J.C. Penney also should maintain their pricing strategy, as it is difficult to
compete in the industry without promotions; however, it should decrease the number of
promotions progressively and increase the customer reward programs, so while prices may be
lower at Macy’s for a comparable product, customers could still receive a better deal at J.C.
Penney by using customer rewards.
Access Strategy: J.C. Penney will provide its customer solution to customers through its
store and online presence. While J.C. Penney stores are currently located in indoor malls, these
are dying, so J.C. Penney should progressively transition into moving stores into outdoor strip
malls. Many customers hate going to indoor malls due to perception of high traffic, but outdoor
malls and outlet malls are still growing in popularity. J.C. Penney can take advantage of this by
closing low performing stores, and if and when the resources are available, opening new stores in
outdoor and outlet malls, where their target markets shop. J.C. Penney should progressively close
at least the bottom 10 – 15 poorest performing stores to provide capital for restructuring and the
renovation of other stores. J.C. Penney’s stores will take on the “boutique and town center”

12. model discussed in the previous section. This will provide customers with attractive sales space
to view their favorite products and help them to feel more luxurious and entertained, as if they
were stepping into a different store with a unique image for every boutique. However, the rest of
the store will be updated to still be aesthetically pleasing and this space will contain the majority
of sales and promotions to minimize the loss of sales that may occur from customers enjoying
the boutiques. J.C. Penney must maintain their online presence and mobile shopping presence
and continue to innovate through adding convenience features for customers and increasing
reward systems to incentivize customers to use these applications.
Value Strategy: J.C. Penney’s pricing strategy must be competitive with the rest of the
industry, which means they have to maintain a strategy that utilizes couponing and sales
promotion, because they do not have the resources and ability to innovate the market on price.
Therefore, J.C. Penney should continue promotion and couponing but reduce the frequency of
widespread sales in order to ensure they aren’t depending on pricing strategy to succeed. Instead,
J.C. Penney should focus on communicating and increasing the use of their rewards program and
increase the frequency and amount of rewards so that customers can receive prices through the
use of earned rewards despite the decrease in sales and promotions. Customers are motivated by
sales pricing, but the increase of rewards can provide them with similar prices at reduced costs
for J.C. Penney, and simultaneously further engage customers with the brand. J.C. Penney’s new
store model will also affect the pricing strategy, as they should initially promote boutique
products to draw attention and create a customer base, then reduce promotions for these high
demand products and focus on increasing sales of other brands through the use of promotion.
Engagement Strategy: J.C. Penney must improve and offer focused communication in
their messaging efforts. This includes better communicating the values of J.C. Penney and their

13. philanthropic and ESG interests, in an effort to restore any lost brand equity from the Johnson
era. J.C. Penney must focus the majority of its advertising on the completely revitalized customer
experience that will result from new store structures, customer convenience innovations and
services, and retaining and adding key brands. In educating customers on these changes, J.C.
Penney must continue to include messaging regarding promotions over all channels of
communication. Furthermore, J.C. Penney should start a “My J.C. Penney” advertising campaign
after the launch of newly structured stores to improve brand equity and show what customers
honestly like about the new J.C. Penney and how they are making every trip into their own
enjoyable experience. J.C. Penney should improve their social media presence specifically to
attract younger customers, both children who can influence the family to shop at J.C. Penney,
and young adults and professionals. J.C. Penney’s product advertising should revolve around
marketing unique products (private brands and partnerships). This can be accomplished by
posting promotions and contests specifically on Facebook and Twitter, and collaborating with
the social media messaging of partner brands to reach a larger audience. Overall, J.C. Penney
needs to focus on the customer and what value they can gleam from shopping at J.C. Penney.
Forgetting the needs and views of the customer (as Johnson did) is extremely detrimental.
Most Valuable Target Market:
J.C. Penney’s most valuable target market is upper-middle class American families,
labeled “Trendy Families.” This segment most has an above average amount of disposable
income, children between the ages of 10 and 15, and most likely live in suburban areas. These
families are very subject to trends and value style highly. However, they are thrilled by finding
deals and are attracted by promotions. Lastly, they demand convenience and only shop at stores
that accommodate the whole family’s needs in order to save time.

14. Customer Solution Components: Trendy Families focus on value, style, breadth of
product offering, and convenience. When Trendy Families are at a J.C. Penney location they will
enjoy the boutique style structure because it satisfies their psychological need for status through
the more expensive environment it creates. However, the structure still allows for deals and
promotions to be present, satisfying the need for value. J.C. Penney should emphasize their
unique product offering and partnerships that attract kids, such as Disney, because children have
a significant effect on their parents purchasing decisions. Furthermore, J.C. Penney should target
Trendy Families with their services and create services designed to specifically serve them.
Families already are the target market for J.C. Penney’s portraits and haircut services, and they
would also benefit from childcare services and food cart offerings as they look for a convenient
way to grab food, or a chance to shop without their children. Trendy Families will especially
benefit from the time-saving convenience features implemented into stores, such as centralized
checkout and the new tab system that allows families to place their services and items from
various departments onto a tab that they pay right before leaving the store. Therefore, J.C.
Penney must provide these checkout options in stores in order to improve family shopping
experience and convenience.
Access Components: J.C. Penney should focus on providing a quality online shopping
experience with features that maximize the convenience of shopping. The J.C. Penney website
will allow families to ensure that their needed products are available at J.C. Penney before
reaching the store, let them to purchase products from the comfort of their home, reserve
products or order them for in-store pickup. As mentioned in the previous section, Trendy
Families will also benefit from the new store structure and each member of the family will have

15. an enriched shopping experience, whether due to the convenience of the centralized check out,
the placement of on-sale brands, or the exciting unique boutiques.
Value Components: Like most everyone, Trendy Families will also value the
continuation of the promotion and couponing pricing strategy. Despite the above average amount
of disposable income, Trendy Families must satisfy the needs of, on average, four different
people and stick to a reasonable budget. So, it is essential that J.C. Penney maintains the pricing
strategy in order to attract this family audience. J.C. Penney must also offer promotions that
center around their lifecycle such as “Back to School” sales where they can receive discounts on
needed clothing and items for their children as they return to school. J.C. Penney’s rewards
program will also be a key factor for Trendy Families, who will benefit from rewards more than
other segments due to the number of purchases they make throughout the year. With four or
more consumers to purchase in the family, rewards can accumulate quickly and result in larger
savings for the family.
Engagement Components: J.C. Penney’s messaging to families will most heavily
differentiate from the company’s overall marketing mix. To attract families, J.C. Penney should
advertise during children’s television shows as well as prime time “family appropriate”
programs. If J.C. Penney can captivate the audience of the children in the family there is a high
likelihood that the children can then motivate their family to partake in the J.C. Penney shopping
experience. Furthermore, J.C. Penney should implement strategies to increase the number of
customers who offer post-purchase reviews, in order to improve the quality and reliability of
customer reviews online. Families often use customer reviews to evaluate products before trying
them for themselves at the store. J.C. Penney should also search out opportunities to sponsor
events in which the majority of the audience will be families. Lastly, J.C. Penney should

16. collaborate with partners to reach a larger audience in their advertising and benefit from their
brand equity.
Most Potential for Growth:
The target market with the highest potential for growth for J.C. Penney are referred to as
“Young Professionals.” These are consumers with an undergraduate or graduate level of
education, who are entering the workforce for their first full time salaried jobs, ages 22 - 30.
They do not possess a large amount of disposable income but have middle class status and
moderate to high earning potentials. Most Young Professionals do not have kids and search for
good quality and style without hefty price tags.
Customer Solution Components: In order to attract Young Professionals and capitalize
on the market’s potential, J.C. Penney must determine which part of their product mix is most
valuable to the target. J.C. Penney should focus on advertising their less popular private and
national brands and providing them at enticing prices. Young Professionals want quality
products at great values, they do not need to possess the top name brands in order to satisfy their
needs, as long as the product is functional, at a good price, and fits their style. For this reason,
J.C. Penney must update the general floor space and keep it attractive to customers so that
customers are not deterred away from the products. While, Young Professionals will not be too
concerned with the fancy boutiques of the new J.C. Penney model, some subgroups from the
segment will appreciate particular brands and partners. For instance, J.C. Penney will want to
strengthen their relationship with Sephora and increase product lines in order to capture the
business of female Young Professionals. Young Professionals are also transitioning in their
needs as they move from college to the workforce. This means they are looking for help in

17. deciding what clothing, home goods, and other products to purchase. J.C. Penney should provide
in-store personal stylists and interior design specialists to accommodate these needs.
Access Components: As a younger generation, J.C. Penney must strengthen and
innovate their internet and mobile presence in order to fit the needs and lifestyles of the Young
Professionals segment. Young Professionals have been raised on computers and use the internet
as a form of shopping more than they physically shop at stores. J.C. Penney must innovate by
adding features that Young Professionals value, to both the website and smartphone application.
These could include a J.C. Penney service scheduler, a recommendations page based upon past
purchases, and a more comprehensive product catalog that can be filtered by criteria such as
price, quality, occasion, average review, brand, size, and other characteristics. J.C. Penney
should also undertake the transition towards strip malls in order to better capture this target
market.
Value Components: J.C. Penney should continue to provide sales and promotions in
order to attract this market, as Young Professionals are very selective in how they use their little
disposable income and will not hesitate to purchase from a different retailer if the price is not
attractive or reasonable. In particular, J.C. Penney should consider the stage of life these
consumers are in, and offer sales that offer reduced prices on related items such as blazers and
dress shoes, as Young Professionals attempt to expand their selection of work clothes. J.C.
Penney should offer special incentives to Young Professionals through the J.C. Penney rewards
program on the mobile app. Through the profiles of the mobile application, J.C. Penney could
determine Young Professionals based upon age and offer them discounts on products and brands
that they enjoy. Young Professionals know how to utilize technology extensively and would

18. shop much more frequently if they received promotions and incentives on their phone that were
convenient to sort through and use.
Engagement Components: Once again, in order to engage and education Young
Professionals, J.C. Penney must utilize online and mobile technology and be innovative in their
messaging. J.C. Penney should advertise and post promotions, sweepstakes, and contests on
Facebook and Twitter. Young Professionals use these forms of communication almost constantly
both for work and leisure, and would simultaneously learn of J.C. Penney’s offerings as well as
receive motivation to visit their store, website, or social media page. In J.C. Penney’s product
messaging, they must advertise using people that Young Professionals can relate to, being
around the same age. Young Professionals have a need for products that apply specifically to
them in their stage of life (out of school, independent, but not necessarily married and having
kids). If Young Professionals see men and women their age in stylish outfits advertised at
reasonable outfits, they will immediately consider J.C. Penney as an option and probably
research the product offering. As previously mentioned, Young Professionals also value the
rewards system. Therefore, J.C. Penney should also channel messaging through this medium,
syncing rewards with the mobile application to offer specific promotions on recently viewed
items or related items.
Business Model:
New Model: A new business model that could be an asset to the growth and profitability
of J.C. Penney would resemble the company “Trunk Club,” which is now owned by Nordstrom.
J.C. Penney could offer free personal stylist consultation to customers, customers would then
meet with the stylist and define their ideal clothing style and sizes. The stylist would then
assemble outfits that match the customers taste in style as well as the location’s climate and

19. season. These outfits would then be shipped to the customer. The service would be called
“Penney Packages,” have variable pricing to match the approximate worth of the clothing
purchased, and customers would select at what interval they would like to receive an outfit
(monthly, every 3 months, semiannually, annually, etc.). Clothing of all types could be
purchased through this method, dress clothes, casual wear, even pajamas. This would also
provide J.C. Penney another method of distributing rewards points and another channel for
customers to use reward points.
Target Customers: This model would target multiple customer segments. Due to its
variable pricing and frequency, Penney Packages could be purchased by groups in the middle
class or higher. The idea would mainly target Young Professionals and middle class single
adults. Young Professionals and single adults consider style to be very important as it affects
their professional and dating lives. Young Professionals would also appreciate help in selecting
new clothing for their professional lives. Both groups would also appreciate the convenience and
of the purchasing method and its customization to their taste and attributes.
Fit: This model fits well with the DSI prescribed for J.C. Penney, because it
simultaneously innovates, provides a service to customers, and increases perceived product
quality and breadth. Furthermore, Penney Packages contributes to the customer experience, both
inside the store and out as customers interact with personal stylists in the store and then receive
the product in a convenient and exciting form. Penney Packages do not conflict with any of the
history of values of J.C. Penney, and they J.C. Penney could also offer coupons or sales on the
packages to be consistent in pricing strategy.
Budget and Resource Allocation:

20. Resources: The restructuring of J.C. Penney will take substantial financial resources
including liquid cash, real estate, and talent. To convert every store to the “boutique and town
center” model will require substantial amounts of money, not only will these boutiques have to
be designed and set up around the perimeter of storefronts, but the entire building must be
updated to match the quality and atmosphere that the boutiques create. Furthermore, checkout
will have to be repositioned and the addition of services will result in the addition of service
stations and purchase of equipment such as massage tables for the spa and play equipment for the
childcare center. It will also take money to replace store signs that currently still display the fair
square jcp logo. If J.C. Penney wants to relocate to strip malls, they must also find available real
estate within a strip mall to do so, or find clear land to build upon and start a strip mall with J.C.
Penney as the center. J.C. Penney also will need talent in order to complete this restructuring.
This talent is needed in leadership positions, skilled service providers, and general employees.
J.C. Penney does not currently have much of these resources due to its poor financial success
over recent years. This is an issue, but if the risk is not taken or J.C. Penney waits for an
alternative that is less costly, it will continue to lose market share and have poor profit returns.
So, J.C. Penney must obtain the necessary resources to complete this strategy and compete
within the industry.
Funding Growth: While this process will be progressive and the store redesign will be
tested before it is widely implemented, the J.C. Penney still must obtain vast resources to
complete this vision. In order to do so, J.C. Penney will first close down the top ten
underperforming stores. J.C. Penney will also save money through decreasing the number and
cost of promotions. J.C. Penney will still have to borrow money, however. In order to counteract
this debt, J.C. Penney can sell stock and attempt to balance the debt-to-equity level. If these

21. steps are not sufficient, other options could include selling off private brands that are
underperforming or not beneficial to J.C. Penney in the new strategic context.
Estimated Return on Investment: It will take multiple years to implement the strategy
fully across the corporation as a whole. Following this period, if the strategy is successful and
communicated well, the Return on Investment should be around 7.6% by the year 2019. This
would be about a 17% increase since 2013, with an average growth of 3.4% per year, and return
the ROI almost back to its rate in 2008.
Assessing Strategy:
Financial Metrics: In assessing the strategy’s success throughout the years J.C. Penney
should reference all financial metrics but in particular: Gross Profit Margin, Return on Assets,
Current Ratio, Inventory Management, and Debt-to-Equity Ratio. Expectations for these ratios
vary. The Gross Profit Margin will demonstrate the profitability of J.C. Penney and is expected
to drop slightly in the first year of restructuring, but continuously increase about 3 to 3.5%
annually for the following five years. Gross Profit Margin depends on revenue, so after the initial
company transition, revenue will increase as customers learn of the new value and experience of
J.C. Penney. If Gross Profit Margin falls, it indicates decreased revenues or increased cost of
goods sold, and J.C. Penney must adapt, altering marketing strategies in an attempt to attract
customers. Return on Assets, as a metric of management effectiveness, will indicate to J.C.
Penney how well management is managing the company. This metric should also increase due to
the estimated increase in revenue. However, if the metric falls it indicates a decrease in sales or
an increase in assets. In terms of liquidity, J.C. Penney can utilize the Current Ratio to ascertain
how well they are covering their current liabilities. This ratio made drop with addition of debt for
restructuring but if it drops below around 1.3, J.C. Penney has real reasons for concern and

22. should concentrate on paying off and reducing liabilities or liquefying assets in order to create
more current assets. Inventory Turnover rate indicates the efficiency of J.C. Penney, and this
should not alter much throughout the restructuring process, continuing to hover around 4, as long
as J.C. Penney continues to accurately predict sales trends and adjust accordingly. Lastly, the
Debt-to-Equity ratio indicates how much of J.C. Penney is financed by creditors. This ratio will
increase in the upcoming years as J.C. Penney will initially accumulate more debt during these
structural changes despite efforts to also finance with equity. This metric will become a cause for
concern if it raises above 1.5 despite simultaneous equity financing.
Market-based Metrics: In terms of in process metrics, J.C. Penney can use trust and
loyalty, customer satisfaction, relative price, and response time to problems to indicate the status
of the company in the minds of consumers. J.C. Penney should see an increase and affirmation of
trust and loyalty due to the implementation of this strategy, as customers can see the products
they value as well as the promotions pricing strategy they expect return to J.C. Penney. If these
two metrics do not increase, J.C. Penney would need to conduct surveys and interviews to
understand if customer service is an issue, and analyze messaging to ensure clarity. With new
products, store structure, services, and customer convenience, there is an expectation that
customer satisfaction will also increase substantially. However, if this does not occur the new
structure has most likely been rejected by consumers. Relative price should stay fairly constant
as J.C. Penney plans to decrease the number of promotions slightly, while increasing rewards in
order to remain competitive. If this metric changes unexpectedly, it is important to analyze
competitors as well as J.C. Penney in order to determine if the change was internal or external.
Lastly, response time to problems should decrease due to the increased efficiency of a horizontal

23. organizational structure. If response time does not decrease, the organization or leadership has
failed to communicate properly.
When considering end result market-based metrics, revenue per customer, customer
retention rate, market share, and percent new customers all help indicate J.C. Penney’s success
rate within the market. Revenue per customer is expected to increase, this is partly due to the
store layout that will attract buyers to more products, as well as a specified product offering, and
innovations in online and mobile purchasing platforms. Customer retention rate also is expected
to increase due to some of these same strategic changes, as well as increased trust between
customer and company and a superior customer experience. If either of these metrics drop, it is
an indication that the store’s offerings are not fulfilling a customer need or are still losing out to
competitors. With these strategic changes and Wal-Mart and Target leaving the industry, J.C.
Penney’s market share is also expected to rise. This more competitive strategy will push back on
the competition of Sears and Macy’s. If market share decreases, J.C. Penney must consider
whether the environment and industry changed or if customers are not purchasing more. Lastly,
percent new customers is also expected to increase. This is an anticipated result due to the focus
on J.C. Penney on markets such as Young Professionals, who are often overlooked but have
large growth potential.

24. Appendix
1. Organizational Structure of J.C. Penney
Older
Adult
Young
Professional
CEO Trendy
Families
Low-Income
Families
2. Department Heads
3. Employees
Board of Directors
1. Market Managers and CEO
Legend
Finance
Marketing
Product Development
Distribution