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

Bargaining Power of SuppliersThe degree of bargaining power of a firm’s suppliers has a huge effect onhow a company operates. High bargaining power of suppliers causes a firmwithin the industry to be locked down to mostly one or just a few potentialsuppliers of their products. These suppliers can be the ultimate decision-makerson what prices and costs a company has. If a supplier with high bargainingpower has certain demands, such as higher costs or more flexible delivery times,the firm has to abide by these demands to continue the supplier relationship.Low bargaining power of suppliers causes the firm to have higher power inrelation to demands. For example, they can cause their suppliers to come downon prices and have a set delivery schedule or lose their business.Suppliers for the departmental retail industry generally have very littlebargaining power. Many suppliers provide small amounts of inventory regardingthe stores general items. However, industry majors such as Stein Mart, J. C.Penney, and Dillard’s carry exclusive brands at their stores. This causes thebargaining power of these suppliers to be higher than those providing them withjust the basic general merchandise they carry. Combine the bargaining power ofthese two classifications of suppliers, then the overall bargaining power of thedepartmental retail industry’s suppliers sits at a moderate level. More detail intothese two types of suppliers and their bargaining power is discussed in thefollowing sub-sections.Price SensitivityThe price sensitivity of a firm in relation to its supplier is an importantfactor is determining which suppliers to use. The majority of suppliers for thedepartmental retail industry compete with one another based specifically onprice. The products must be low in price while maintaining quality. As with thepower of customers, switching costs are huge contributor as to the degree ofbargaining power a supplier has over the industry as well. The lower the25