JCPenney 'excited' about its IT strategy amid turmoil

JCPenney 'excited' about its IT strategy amid turmoil

Summary: CEO Ron Johnson has big IT plans and touts state-of-the-art Oracle systems on deck. The problem: The fundamentals are so bad at JCPenney that Johnson and his big IT plans could run out of time.

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Retailer JCPenney's fourth quarter results were a disaster as same store sales tanked, the company had to start issuing coupons and the balance sheet showed cracks. But CEO Ron Johnson, best known for running Apple's retail business, has a lot of faith in using technology and Oracle's systems as part of a turnaround plan.

Speaking on JCPenney's fourth quarter earnings conference call, Johnson outlined his big Oracle bet:

We are so excited about our Oracle strategy. Over the next three years, we will completely overhaul our information systems and be 100% at state-of-the-art Oracle systems and with systems from a handful of other partners that will augment that. And so we will have state-of-the-art systems.

But the most important part of the change is that nearly $100 million a year as we go forward will be invested in the next new thing. And so we're going to stay current for years to come because of this transformation we're going through. So we will see benefits each and every year as we roll out systems. This year we will see benefits in our financial systems. Later in the year, we will see benefits in our merchandising, our planning and allocation systems as they roll out. But as we move through this transformation, when we exit, we will be in an unbelievably great place on systems and I think ready to compete with anybody in our industry on the use of information technology to drive the business.

What's unclear is whether Johnson and JCPenney will have enough time to see these Oracle plans completed. Johnson has an in-store strategy that emulates Apple in many ways with mobile checkout systems and a layout that emulates an app model in some respects.

Also: JC Penney bets on Oracle, RFID checkouts | JC Penney CEO Ron Johnson on Steve Jobs: Transformation isn't easy

Johnson added that systems improvements are already helping the retailer "understand the business and serve our customers." One big example is that JCPenney now has mobile point of sale systems so employees can check out customers with an iPad at any time in about a month.

The problem with JCPenney's IT strategy is that it needs the business to deliver results as well. Here's a look at JCPenney by the numbers in the fourth quarter:

  • Same store sales fell 31.7 percent in the quarter.
  • Gross margin in the fourth quarter was 23.8 percent, well off the 30 percent expected by Piper Jaffray.
  • Cash on the balance sheet was $930 million, below the $1 billion projected by management after the third quarter.
  • The fourth quarter net loss for JCPenney was $552 million and the 2012 loss was $985 million.
  • Sales were dreadful throughout 2012.
jcp022813a

 

JCPenney's stock chart speaks for itself:

jcp022813b

 


And then there's the cash burn. Piper Jaffray analyst Alex Fuhrman said:

We believe JCP will likely burn cash throughout the remaining three years of its four year turnaround strategy unless sales rebound sharply in 2H13 or 2014. We believe JCP has adequate liquidity to fund its capital expenditures in 2013, although it will likely need to draw on its credit facility as soon as Q1. Looking into 2014 and beyond, we believe JCPenney will likely need to raise additional capital unless there a meaningful turnaround in sales in 2H13.

In other words, JCPenney's Oracle rollout may be derailed if the retailer can't deliver better sales.

Topics: CXO, E-Commerce, Enterprise Software, Oracle

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10 comments
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  • Jason the Saj

    There is some good ideas being considered. And I think with some time, they might pull it off.

    I've just recently begun shopping at JCP. And will probably sound like a troll. But seriously, I bought a hat that I really liked. It's only the second hat I've ever bought. Went back a month or so later to get some jeans. Didn't find any that I really liked the look or fit of. But I did get a couple of nice shirts.

    I think the mobile checkout is a smart idea. Let people scan QR codes or even better, NFC tags with the JCP app. And then, give a 10% discount to anyone who uses the app to check out.

    The savings on not having to have as many cashiers should help balance sheets. And it'd be geeky cool.
    theSaj
  • JCP

    My wife used to buy a lot stuff at JCP, but is so upset over their remodelling that she has virtually quit shopping there altogether. I am sure that many other customers feel that way too. That is why they have lost money for the last year. Mobile cashiers may help, if there are any customers in the store at all. Since Sears quit catalogs, we have almost exclusively bought my shirts at JCP (I am tall, so I can't buy off the shelf at most places). We end up buying on line, which doesn't help the B&M store, except at least it is still JCP.
    I miss the good old days when they and Sears had their catalog and store overruns ina discount store, we use to buy a lot from them. WalMart even tried it for a while with Bud's, but that went by the wayside quickly.
    dhays
  • JCP

    NO edit button, have to post my own correction: " buy a lot stuff at JCP" should have the word 'of' added "lot of stuff"
    I have seen the portable cashier in a quilt shop in the St. Louis area. We were on a bus trip quiltshop hop and with busloads of customers, it was much easier and efficient that way. It wouldn't be as easy for a cash customer, where would the cashier put the money and make change? LIke a Sonic Drive-in? Wads of cash and a coin dispenser?
    dhays
    • JCP

      made an account just to answer your question about the cash customers with the mobile registers (or Libbys as they like to call them in the store). Every JCPenney will keep a few registers scattered throughout the store for the people who pay with cash, returns and online orders/pickups. Since obviously you cannot do any of that with the mobile register. So yes, there will be registers still, just not as many.
      jcpemployee
  • CEO Ron Johnson is/was the wrong man for the job,

    and Penney's problem was believing that, his work at Apple would translate to success at Penney too.

    The Apple store strategy is overrated, and not transferable to regular department stores. What Apple sold in their Apple stores, could have been sold at Apple latrines. When people want something so badly, they'll get it at even the worst locations. Thus, the Apple strategy when used at regular retail shops. was doomed to fail.
    adornoe
  • He won't win

    If your still losing traffic then Mr. Johnson will not win in the end. At the very least you have to stop customers from moving on to another store and developing other shopping habits. Ask Sears about losing customers. JC Penney cannot recover from this. Just because Mr. Johnson worked for Apple says nothing about his abilities. Apple had products that sold themselves at great margins.
    jscott418-22447200638980614791982928182376
  • Store of the future

    He may very well start retail on the right path. When these things are industry standard perhapes people will look back and say JCPenny started this, I don't know why they went out of buisness. It seems every store wants the young stylish croud. Alot of people aren't young or stylish. People who just want clothes to go to work in have money to spend and no one is harvesting that cash flow. Again Sears was the number one retailer until they took this same path.
    lbshultz
  • The problem is who goes to the mall?

    The mall is so dated really. Most people shop online. Amazon has change how people shop. I may go to Walmart or kmart for shoes and maybe to get some cloths time to time. However my bulk shopping is done online.

    When grew out of my pants I went to Kmart to buy some new ones. Now that I know my size I can get it from Amazon.
    Randalllind
  • Value test the Oracle implementations - and the timing

    It's a great plan. It's going to be essential that JCP not spend any money on the Oracle components or integration that doesn't specifically address cost reduction or revenue improvement. It's very easy to let I.T. drive automation, and they'll automate for sure, but for real value process change needs to happen before a dime of integration dollars are spent. JCP should make sure the Project Management Office has identified all the projects according to that criteria and all project $s should flow from Executive approval of the Service Portfolio.

    In other words, JCP should ensure that the business problems and processes are being solved, and that planning does not come from I.T. Lastly, watch out for analysis paralysis - implement 80% of the savings with a quick 20% effort on current process. Survive for tomorrow, grow from there.

    Patrick Bouldin (RunThisProject)
    Patrick Bouldin (972)897-2726-ITIL V3F, BICSI002
  • Idiot CEO's

    Another overpaid CEO who thinks his plans will play exactly as he made them. If he had military experience he would have known that no plan survives it implementation unchanged. Or at least those that succeed change with the circumstances. Unfortunately Ron Johnson has been consistently late in making changes.

    These boards of directors need to learn that you don't offer contracts to prospective CEO's, you offer the position and inform them what you expect. If they fail they will be terminated as soon as their successor can be found.
    shanedr