JCPenney 2015 Annual Report Download - page 8

Table of Contents
characterized by many factors, including merchandise assortment, advertising, price, quality, service, location, reputation, credit availability and customer
loyalty. We have experienced, and anticipate that we will continue to experience for at least the foreseeable future, significant competition from our
competitors. The performance of competitors as well as changes in their pricing and promotional policies, marketing activities, customer loyalty programs,
new store openings, store renovations, launches of Internet websites or mobile platforms, brand launches and other merchandise and operational strategies
could cause us to have lower sales, lower gross margin and/or higher operating expenses such as marketing costs and other selling, general and administrative
expenses, which in turn could have an adverse impact on our profitability.

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Our sales and operating results depend in part on our ability to predict and respond to changes in fashion trends and customer preferences in a timely manner
by consistently offering stylish, quality merchandise assortments at competitive prices. We continuously assess emerging styles and trends and focus on
developing a merchandise assortment to meet customer preferences. There is no assurance that these efforts will be successful or that we will be able to satisfy
constantly changing customer demands. To the extent our decisions regarding our merchandise differ from our customers’ preferences, we may be faced with
reduced sales and excess inventories for some products and/or missed opportunities for others. Any sustained failure to identify and respond to emerging
trends in lifestyle and customer preferences and buying trends could have an adverse impact on our business. In addition, merchandise misjudgments may
adversely impact the perception or reputation of our Company, which could result in declines in customer loyalty and vendor relationship issues, and
ultimately have a material adverse effect on our business, financial condition and results of operations.
We may also seek to expand into new lines of business from time to time, such as offering large appliances for sale in our stores and online. There is no
assurance that these efforts will be successful. Further, if we devote time and resources to new lines of business and those businesses are not as successful as
we planned, then we risk damaging our overall business results. We also may not be able to develop new lines of business in a manner that improves our
overall business and operating results and may therefore be forced to close the new lines of business, which may damage our reputation and negatively
impact our operating results.
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Maintaining and continually enhancing the value of our Company and our private brand merchandise is important to the success of our business. The value
of our private brands is based in large part on the degree to which customers perceive and react to them. The value of our private brands could diminish
significantly due to a number of factors, including customer perception that we have acted in an irresponsible manner in sourcing our private brand
merchandise, adverse publicity about our private brand merchandise, our failure to maintain the quality of our private brand products, or the failure of our
private brand merchandise to deliver consistently good value to the customer. The growing use of social and digital media by customers, us, and third parties
increases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our private brands, or
any of our merchandise on social or digital media could seriously damage our reputation. If we do not maintain the favorable perception of our Company and
our private brand merchandise, our business results could be negatively impacted.

Customer traffic depends upon our ability to successfully market compelling merchandise assortments as well as present an appealing shopping environment
and experience to customers. Our strategies focus on increasing customer traffic and improving conversion in our stores and online; however, there can be no
assurance that our efforts will be successful or will result in increased sales. In addition, external events outside of our control, including pandemics, terrorist
threats, domestic conflicts and civil unrest, may influence customers' decisions to visit malls or might otherwise cause customers to avoid public places.
There is no assurance that we will be able to reverse any decline in traffic or that increases in Internet sales will offset any decline in store traffic. We may
need to respond to any declines in customer traffic or conversion rates by increasing markdowns or promotions to attract customers, which could adversely
impact our gross margins, operating results and cash flows from operating activities.
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