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

Value Chain AnalysisThe Overall Classification of the IndustryTo recap, the retail industry segment in which J. C. Penney competes isclassified as having the following attributes: high rivalry among existing firms, alow threat of new entrants, a high threat of substitute products, a highbargaining power of buyers, and a moderate power of suppliers over the firm.Many factors come together to lead this group to these conclusions. The mostimportant factors are a mix of slow growth in a highly concentrated industry,high economies of scale, established distributor relationships, customer’s wilinessto switch to different products, and price sensitivity to these products. Firmscompeting within this industry obviously must focus on several factors in order tobe successful and achieve profitability.As we classify these many ingredients to a successful company into keysuccess factors, focus us put on cost leadership versus specialty differentiation.For the most part, the company must focus on cost leadership as their mainstrategy; however, they must also have a degree of differentiation to achieve fullprofits. Usually, companies must choose to follow one success factor or theother, but in the case of this industry, a smart mix of the two is key to achievingthe competitive advantage.Companies, in order to compete within their industry, are involved indifferent sets of activities to add value to their products. Through the valuechain, a generic product gains value by different inputs and strategies requiredwithin the industry. “The goal of these activities is to offer the customer a levelvalue that exceeds the cost of the activities, thereby resulting in a profit margin”(www.netmba.com). By analyzing the value chain, individuals can gain anunderstanding of the key success factors needed within an industry. In additionto this, they can look at a company and verify if these competitive strategies areneeded where applied.28