J. C. Penney Company, Inc. Equity Valuation and Analysis As of ...

typically lack customer base and brand loyalty. This is just one reason for failurein this highly competitive market. Another reason existing firms have anadvantage over newcomers is their economies of scale. They also have moreexperience in managing distribution channels and inventories, which is crucial tomaximizing profits in the retail industry. New stores are unable to lower pricesenough to compete with established retailers without taking a hit in their bottomline for many years in the future. These factors give large firms a competitiveadvantage in all areas of the industry. The chart below shows that the mostsuccessful firms in the industry are also the largest.Total Assets2002 2003 2004 2005 2006JCPenney $17,867 $18,300 $14,127 $12,461 $12,673Kohl’s $6,315 $6,698 $7,979 $9,153 $9,041Dillard’s $6,675 $6,411 $5,691 $5,516 $5,408Stage Stores, Inc. $532 $659 $686 $731 $824Stein Mart, Inc. $410 $393 $474 $519 $480*in millionsDistribution Access and Supplier RelationshipsOne of the biggest problems for first time firms entering retail industryinvolves supplier relations. Large firms have well established relationships withtheir suppliers, creating a loyalty issue, which they use to their advantage. Largecompanies receive price breaks and discounts for buying often and in bulk. Newcompetitors do not posses the networking experience that veterans do uponinitial entrance into the retail industry. New firms’ limited access to distributionand suppliers is demonstrated by the lack of new companies opening departmentstore in malls across America.19