This week I encountered an interesting article regarding the transformation that will take place at JC Penney's. (http://online.wsj.com/article/SB10001424052970203718504577182751798318594.html?KEYWORDS=jc+penney) The article focuses on how JC Penney's is adjusting their strategy to compete better. As I read the article, I pondered why JC Penney's has been performing so poorly in recent history. I believe that Porter's five forces explain what has happened.
Substitutes. First of all, a lot of substitutes have cropped up into the space that has traditionally been held for department stores. I think one main competitor has been the various retailers on the internet who can provide the same or similar products for a lower price. Internet shopping has also become increasingly more convenient. Also, discount stores have entered this space as well with Target and Costco selling name-brand clothing.
Rivals. Another force that has changed over the past several years has been the rivals competing for the same customers. Kohl's has become quite popular by providing low cost, name-brand clothing and other department store products. In my experience, Kohl's stores are generally newer and less expensive than Penney's.
Barriers to Entry. I also believe that the barriers to entry have changed as smaller stores and manufacturers have been able to sell their products to a global customer base over the internet. Amazon has become a one-stop shop where small vendors and manufacturers can sell their wares. There is no longer a necessity for a new-entrant to acquire expensive space at the mall in order to compete for the same customers that Penney's is targeting.
Buyer Power. Another force that has changed dramatically is buyer power. People have a world of information at their fingertips and can easily price-shop for the best deals without leaving their homes. This is quite different from several years ago when a person needed to visit multiple stores in order to find the best price.
Supplier Power. This is one force that I believe has not changed much over the past few years.
Clearly the market has changed dramatically and Penney's has been slow to respond. The store now plans to offer specialty labels and a better shopping experience in order to attract customers. Also, the store is slashing all of its prices by at least 40% to reduce the number of sales and to provide an everyday low price. It will be interesting to see if these changes will allow Penney's to be a more attractive and profitable retailer.