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

Lower Input CostsIn order to maintain affordable prices and receive a profit, input costsmust be lowered within the retail department industry. This is an extremelylarge task when considering the quantity and diversity of supply within adepartment store. If this is achieved though, it will increase profit because mostof the inventory will be sold at the price needed to receive at a minimum therequired rate of return. Excess inventory forces department stores to havediscounts and at worst put items in clearance where the department store willbreak even if not lose money. Another component is maintaining a closerelationship with suppliers enabling the cut of costs. Suppliers give discounts tolarge quantities of items sold because of high fixed to variable costs ratio. It isprofitable to both companies to establish a relationship and maintain it for a longperiod of time. In addition, as most companies in the United States arepracticing today, it is cheaper to outsource from foreign companies to managecosts. This has not become an option in our industry but a demand.Tight Cost Control SystemAll competitive strategies within the cost leadership focus come down tohaving a tight cost control system in order to be successful. Without establishinga cost control system, every other minimizing cost strategy will ultimately failbecause a competitor with this system in place will be able to beat the rest of thecompetitors out of the market by lowering price and maintaining a profit. Thiscan only be achieved by having a company structure that benefits theoperations. This can be achieved with plans such as distribution centers inaccessible locations for the stores in order to drive costs down and receivemerchandise at a reasonable time. Also, maintaining the same setups andinventory selection within all company stores. Furthermore as mentioned earlier,outsourcing is a demand that must be met in order to minimize costs within theretail industry.30