JCPenney 2015 Annual Report Download - page 9

Table of Contents
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Our profitability depends upon our ability to manage appropriate inventory levels and respond quickly to shifts in consumer demand patterns. We must
properly execute our inventory management strategies by appropriately allocating merchandise among our stores and online, timely and efficiently
distributing inventory to stores, maintaining an appropriate mix and level of inventory in stores and online, adjusting our merchandise mix between our
private and exclusive brands and national brands, appropriately changing the allocation of floor space of stores among product categories to respond to
customer demand and effectively managing pricing and markdowns. If we overestimate customer demand for our merchandise, we will likely need to record
inventory markdowns and sell the excess inventory at clearance prices which would negatively impact our gross margins and operating results. If we
underestimate customer demand for our merchandise, we may experience inventory shortages which may result in missed sales opportunities and have a
negative impact on customer loyalty.
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As part of our normal operations, we and third-party service providers with whom we contract receive and maintain information about our customers
(including credit/debit card information), our employees and other third parties. Confidential data must at all times be protected against security breaches or
other unauthorized disclosure. We have, and require our third-party service providers to have, administrative, physical and technical safeguards and
procedures in place to protect the security, confidentiality and integrity of such information and to protect such information against unauthorized access,
disclosure or acquisition. Despite our safeguards and security processes and procedures, there is no assurance that all of our systems and processes, or those of
our third-party service providers, are free from vulnerability to security breaches or inadvertent data disclosure or acquisition by third parties or us. Further,
because the methods used to obtain unauthorized access change frequently and may not be immediately detected, we may be unable to anticipate these
methods or promptly implement safeguards. Any failure to protect confidential data about our business or our customers, employees or other third parties
could materially damage our brand and reputation as well as result in significant expenses and disruptions to our operations, and loss of customer confidence,
any of which could have a material adverse impact on our business and results of operations. We could also be subject to government enforcement actions
and private litigation as a result of any such failure.
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Our results depend on the contributions of our employees, including our senior management team and other key employees. This depends to a great extent on
our ability to retain, attract and motivate talented employees throughout the organization, many of whom, particularly in the stores, are in entry level or part-
time positions, which have historically had high rates of turnover. We currently operate with significantly fewer individuals than we have in the past who
have assumed additional duties and responsibilities, which could have an adverse impact on our operating performance and efficiency. Negative media
reports regarding the Company or the retail industry in general could also have an adverse impact on our ability to attract, retain and motivate our employees.
If we are unable to retain, attract and motivate talented employees with the appropriate skill sets, we may not achieve our objectives and our results of
operations could be adversely impacted. Our ability to meet our changing labor needs while controlling our costs is also subject to external factors such as
unemployment levels, competing wages, potential union organizing efforts and increased government regulation. An inability to provide wages and/or
benefits that are competitive within the markets in which we operate could adversely affect our ability to retain and attract employees. In addition, the loss of
one or more of our key personnel or the inability to effectively identify a suitable successor to a key role in our senior management could have a material
adverse effect on our business.
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One of the pillars of our strategic framework is to deliver a superior omnichannel shopping experience for our customers through the integration of our store
and digital shopping channels. Omnichannel retailing is rapidly evolving and we must anticipate and meet changing customer expectations. Our
omnichannel initiatives include our ship-from-store and pickup-in-store programs and expansion of our SKU count online. In addition, we continue to
explore ways to enhance our customers’ omnichannel shopping experience. These initiatives involve significant investments in IT systems and significant
operational changes. In addition, our competitors are also investing in omnichannel initiatives, some of which may be more successful than our initiatives. If
the implementation of our omnichannel initiatives is not successful or does not meet customer expectations, or we do not realize a return on our omnichannel
investments, our reputation and operating results may be adversely affected.
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