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

Tight Cost Control SystemJ. C. Penney, during implementation of its turnaround plan, realized thatsomething had to be done about its cost control system in order to reach thetarget customer. J. C. Penney had a decentralized system with branch managersin charge of displays and available inventory. This has changed to a standardfloor design and product layout for consistency across many stores and reducescosts in the long run. In addition, J.C. Penney now has thirteen key distributioncenters to lower the cost of distribution and increase accessibility. The centershave the ability to reroute orders and deliveries.Another way J. C. Penney has reduced costs has been by finalizinginstallations of POS (Point of Sale) systems within all stores. This helps makequicker transactions, and it also connects all stores via the internet to keep arunning count of all inventory at all times. This helps the stores in many ways.For one, the inventory POS system reduces the amount of staff needed to makethe sale to customers due to a quicker transaction, which in turn drives downcosts of labor. Also, knowledge of amount of inventory helps J. C. Penney keepa semi-accurate count all products on hand, disposing the idea of excessinventory that creates waste. Finally, as mentioned earlier, J. C. Penney hasforeign suppliers as they outsource all private brand merchandise from both itsforeign and domestic suppliers, which also helps to reduce the cost of purchasingsupplies.Operating Expenses over Sales2002 2003 2004 2005 2006Operating Expenses/Sales.98 .97 .94 .92 .91The table above shows how J. C. Penney has been successful inmarinating tight cost controls in the last five years. As one can see, the amountof operating expenses per dollar made in sales has been reduced by seven cents36