From SCDigest's OnTarget e-Magazine
- Dec. 3, 2013 -
RFID News: JC Penney's Sudden Retreat from RFID Led to Rash of Store Thefts
EAS Tags were Dropped in Favor of RFID - but then that Program Also Was Largely Abandoned; a $28+ Million Mistake
SCDigest Editorial Staff
In yet another example of the strange and mostly bad legacy of former JC Penney CEO Ron Johnson, the struggling department store chain said last week that a botched transition to RFID over traditional Electronic Article Surveillance (EAS) technology allowed thieves to run relatively wild in Q3 and probably earlier.
SCDigest Says: |
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When the RFID requirements were announced, the vendors stopped buying EAS tags for Penney orders. Then the RFID requirement ended, and somehow vendors were not instructed to continue EAS tagging.
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What Do You Say?
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The new level of theft led a one percentage point reduction in margins in the quarter and probably earlier than that as well.
With sales of $2.78 billion in the quarter, the percentage point drop in margin cost Penney about $28 million in lost profits - a significant sum for a retailer that lost $489 million in the quarter. That amount was large enough in Q3 that it needed to be disclosed in its earnings call, the company said.
Several years ago, Johnson came to Penney, after running Apple's retail store operations. Johnson pursued a number of controversial strategies, including ending the normal department store practice of discount coupons and other perceived markdowns.
Along the way, item-level RFID tagging was embraced, first for traditional inventory management reasons. But after starting with just a few categories, Penney announced it was going to require all items to be tagged by early 2013.
Johnson later said RFID was in fact key to his overall in-store strategy, as having the items tagged would allow customers to check out quickly throughout the store using self-help stations. Scanning bar codes was too complicated for customers, Johnson said. (See JC Penney CEO Says Retailer Going All in on RFID, Perhaps with Significant Impact on the Industry.)
Alas, Johnson ran out of time to see if his strategy could really work. Facing mounting declines in sales, a lot of red ink, and a rapidly declining cash balance, Penney sent a letter this past January to its suppliers pulling back from the "all items tagged" program to just maintaining tagging for the few categories that had already been RFID-enabled. Penney simply lacked the cash to implement the in-store strategy. (See JC Penney Backs Off RFID Rollout Pace, as Getting All the Parts Together Proves a Little More Complicated than First Thought.)
(RFID and AIDC Story Continued Below)
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What exactly happened there from the January announcement isn't clear. Penney used an RFID program where it both required some source tagging and it also tagged some items itself in-store.