Lesson #4: Cutting Costs Can Save Your Company

Penney was born and raised on a small Missouri farm. His father, a Baptist minister, was a well-respected member of the community. But, as it was an unsalaried position, the family rarely had the wealth to accompany that status. As a result, Penney grew up in a household that stressed the importance of self-reliance and self-discipline, especially when it came to financial matters. Penney took that attitude with him into the business world. Indeed, much of Penney’s success can be attributed to his willingness to penny pinch wherever he needed to.

To begin with, Penney always made sure his stores were all located in inexpensive areas of small communities. He took the time to scout out various locations and determine which was the most cost effective. Penney had no use for elaborate fixtures or displays, and thus saved money by focusing on creating simple store interiors. He also went to great efforts to determine precisely which merchandise his customers wanted, carrying only that much so as to ensure a rapid inventory turnover.

No detail was too small for Penney to examine in his effort to reduce operating costs and thus increase the amount of savings that could be passed on to customers. “Basically the stores were places where the folks of a town and its outlying regions could buy needed goods,” said Penney. “For us to stay in a position to sell always at the lowest possible prices, we had to work constantly. We had to save, not only in prices paid in the wholesale markets, but on costs all along the line, right to shelves and over the counter. Stocks must turn over down to the last paper of pins a given number of times a year.”

Penney wanted to do whatever it took to keep his costs low in order that his customers did not have to bear the burden of higher prices. To this end, Penney also did such minor things as using the blank side of envelopes as scrap paper. In the early days, he also used old packing crates as shelves and counters in many of his J.C. Penney stores.

While Penney might have been completely focused on cutting costs where he could, he refused to do so at the cost of quality or service. To this end, Penney would frequently pop up in one of his many stores to do a spot check. In one particular Milwaukee outlet of J.C. Penney, Penney was making one of his surprise visits and strolling down one of the aisles, when he came across the display of men’s corduroy pants. They had been erroneously marked $3.98. Penney immediately called over the store manager and said, “These pants sell at $2.98!” The store manager pleaded with Penney, insisting that the pants were an excellent buy even at that higher price. Penney exploded saying, “You violate company policy! You must give the customer the best value and make a reasonable profit!”

Penney’s number one focus was always on saving money wherever he could, but he knew where to draw the line.

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