advertisement
advertisement
advertisement

JCPenney IT “Is A Mess,” Says COO

Written by Frank Hayes
May 17th, 2012

Now it is IT’s turn to take the blame for JCPenney’s woes. On Tuesday (May 15), JCPenney COO Michael Kramer told analysts that problems during the chain’s terrible first few months under its new “Fair and Square” pricing approach (store traffic down 10 percent, sales down 20 percent) were compounded by out-of-control inventory management and legacy system maintenance that ate up 90 percent of the IT budget—both fundamentally IT problems.

The result: It costs JCPenney at least $600 million per year more than it should to run the chain—which explains a lot about the quarter’s $55 million operating loss.

In Kramer’s words, “I can think of no other thing to say about our systems and our IT infrastructure, and I have seen a lot of them: It’s a mess.”

How bad is that mess? About $500 million of the retailer’s inventory involves products where there are enough items in the warehouse to last the chain a year or more at current sales rates. It should be more like 13 weeks—and it took Kramer’s team months to discover that, a bad sign in itself.

Another bad sign: the “492 unique applications it takes to operate JCPenney. And that is not including Excel, and Excel is used a lot,” Kramer said. “Out of those 492 applications, 88 percent of them were customized. Customization is not your friend. This translates to 90 percent of my IT spend both on expense and capital basis goes to maintenance. Ten percent goes to strategic initiatives. That’s crazy. That’s a lot of money going to maintenance.”

Kramer estimates that a company of JCPenney’s size should be using “around 100” major applications. He added, “This is years and years of a hundred-year-old company band-aiding and band-aiding and band-aiding. So that when you want to make a change in the business, in the strategy in the business, it takes a lot of unlayering and putting back on, unlayering and putting back on. That costs money. That’s what drives headcount.”

Let’s be clear about this amazing recital of just how bad JCPenney’s IT situation is. Kramer was hired in December 2011, so none of it is his fault. The old CIO, and the one before that, is already gone. The chain’s new chief technology officer, Kristen Blum, is handling what would typically be CIO duties; she arrived in January, so it’s not her fault, either. Both Kramer and Blum used to work for CEO Ron Johnson at Apple, so they have the boss’ support.

Kramer also has cover from a truly awful financial quarter.


advertisement

Comments are closed.

Newsletters

StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!
advertisement

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

StorefrontBacktalk
Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.