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Focus: RFID and Automated Identification and Data Collection (AIDC)

Feature Article from Our RFID and AIDC Subject Area - See All

From SCDigest's OnTarget e-Magazine

- Aug. 21, 2012 -

 

RFID and AIDC News: The Unusual Catalyst for New Aggressive RFID Push by JC Penney

 

Move is about Customer Experience, not Inventory, but Back Story is CEO's New Pricing Strategy Fail

 

SCDigest Editorial Staff

 

Last week, we reported how JC Penney CEO Ron Johnson had recently announced in an interview that the retailer was aggressively rolling out a new technology strategy in store, of which RFID would be a key component.

SCDigest Says:

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The RFID-based checkout experience can only be delivered if the customer has an easily known price that doesn't involve coupons.

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Johnson said all items in JC Penney stores will be RFID tagged by sometime this Fall, and that by early 2013 Penney will have fully rolled out systems that combined those tagged items with high speed WiFi, mobile POS units, and self-checkout stations.

The drivers of the strategy: first, hack at the way some half a billion dollars Johnson says the retailer spends annually on labor to process transactions at traditional POS stations for one, and second create a differentiated store experience for JC Penney shoppers. (See JC Penney CEO Says Retailer Going All in on RFID, Perhaps with Significant Impact on the Industry.)

"You'll be able to check out anywhere anytime, from anyone including yourself, because we're going to roll out self checkout to our stores next year, and it's really cool and it's really easy because it's RFID-based,' Johnson said.

He added that RFID will have big benefits for the consumer over bar coding: "You don't have to scan an item. You just throw it down and there's the price," Johnson said.

This customer service play on RFID is a bit surprising just because the focus to date on item-level apparel tagging has been the huge gains in in-store inventory accuracy. The complexities of the "style, color, size" nature of soft goods SKUs, combined with the way they are displayed in store and maybe some shrinkage mixed in have generally led to extremely poor levels of inventory accuracy.

Dr. Bill Hardgrave
of Auburn University, who has spent years studying RFID, has said that using his definition that an accurate inventory count is one where the true on-hand inventory level exactly equals the count in the store's perpetual inventory system, most retailers have accuracy levels of only 50-60%.

He said he recently worked with one 600-store chain that thought it had accuracy levels of about 80%. It turned out to be 28%.

"Virtually all retailers overestimate their accuracy levels," Hardgrave said.


(RFID and AIDC Story Continued Below)

 

CATEGORY SPONSOR: SOFTEON

 

 

JC Penney was known to be on a fairly aggressive RFID program, with one executive last Fall surprising a conference audience by saying that retailer had quietly rolled out RFID in three categories at all 1100 of its US stores. Most at the time had though Penney's was only in pilot mode with a much smaller number of stores.


The exec added that he hoped to have 100% item coverage within four years.

Now, Johnson says it will be all items tagged in the Fall, and the aggressive new store systems by next February or March.

What changed?

It's circumstantial evidence, but it is highly plausible the RFID program acceleration is related to the challenges Johnson is having with his strategy for Penney's.

Johnson was named Penney CEO in June 2011, after his successful stint running Apple's retail stores division.

Not long after his appointment, Johnson announced that Penney was going to end the "big sales" and discount coupons that have characterized the department store market for decades, in favor of a more "everyday low pricing" strategy. Note, of course, that Apple stores don't really discount or ever offer coupons.

To date, the strategy has simply not worked. Same store sales in the second quarter were down a huge 22%, traffic was down 12%, and the company lost $147 million. Many Wall Street and retail observers think Johnson's mission to change how the department store world works at Penney is a fundamentally flawed concept.

That includes legendary former Penney CEO Allen Questrom, who said last week that the "first part of the strategy, which is the elimination of the discounts and the coupons, has clearly been a failure. I've never seen a strategy of some company this size drop that much in the two quarters that he's had. And I guess it's a pretty good indication that it may be something he believes in, but I believe the customer does not believe in it."

So how does this new pricing strategy connect with the RFID and self-checkout technology plans?

Here is what Johnson told Forbes magazine a couple of weeks ago, relative to the fast self-checkout capabilities: "You couldn't do that if you had coupons, and you couldn't do that in a promotional business strategy, because the customer has to figure out that every item had this unique price and was it right for this hour, you know."

So, that line of thinking goes, though the customer has not yet embraced the no coupon, everyday low pricing strategy yet, they will love the new checkout experience, and that RFID-based checkout experience can only be delivered if the customer has an easily known price that doesn't involve coupons.

Whether Johnson is correct or not only time will tell. But what this dramatic acceleration of the RFID and mobile technology roll out does is given Johnson more time to say "This will work," rather than deep six the no promo strategy just a couple of quarters into its execution under heavy criticism.

This is indeed an almost unheard speed in the roll out of new technology. Now we know why.

Interesting how business works, isn't it?

What do you think of JC Penney's new technology and pricing strategy? Does it make sense? Let us know your thoughts at the Feedback section below.



Recent Feedback

Speed wins. He has to get this aircraft carrier to turn on a dime. No easy feat! He is pushing hard. He has a complete plan. We've only seen parts of it. I believe in it. Staying the course in this over hyped media panic/crisis world we live in is virtually impossible. I hope the board gives it the time it needs. The biggest issue I see is the product assortment. They have cheap products. Their advertising looks and feels completely different from the reality when shopping their older stores. They need to remodel old stores and update the product. But how do you afford that when your sales drop 22%?


Mark
COO
S
Aug, 28 2012

I visited a J C Penney store today for the first time in about 4 months.  My absence was not realted to the new pricing strategy, I simply didn't have a need or want to go shopping.  I have been a customer of J C Penney for about 20 years and I always hated the constant sales.  In fact, most of the time, I ignored the sale papers because it was like everything was on sale all the time, except the items I wanted, when I wanted them.  I have seen the jeans bar, the re-vamping of some departments, and the new iPods the sales associates are using. 

The only thing I didn't like about the new technology, (which by the way, just started at the Southland store in Taylor, Michigan on aThursday evening), was that I could not see the price when the sales associate rang it up, and I had some clearance items in my bag.  Overall, I think the new strategy will work because the old days of shopping are over and the new generation will be carrying J C Penney into the future, not us old guys.  Given time, I think the new pricing strategy and check out system will catch on and most people, like it or not, will adjust, like we did with self serve gasoline stations. 

Technology does not solve all problems for management and marketers, it simply makes life easier for them if it is managed correctly.  I wish J C Penney the best and I will continue to shop there and I am looking forward to checking myself out with my smartphone.  FYI--I am one of those "old foagies" that everyone thinks will not embrace this new technology, I am a 53-year old male who enjoys shopping for myself, not sending the wife into do it for me.  Good Luck J C Penney. 


Mike
Technology Management Student
Eastern Michigan University
Oct, 26 2012
 
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