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JCPenney CEO: E-Commerce Is Going To Hit A Ceiling

Written by Frank Hayes
July 25th, 2012

JCPenney CEO Ron Johnson believes E-Commerce is a toothless threat to stores. On July 18 Johnson told a conference audience he thinks that E-Commerce is like the catalog craze of the 1980s—its share of retail sales will eventually plateau, making it only a minor challenger to brick-and-mortar sales.

That theory is crucial to the century-old chain’s makeover, which Johnson said will also include all-RFID sales ticketing within six months, elimination of cashwraps by the end of 2013, and a plan to combat showrooming by making 75 percent of its inventory JCPenney-only products to make direct price comparisons impossible.

In the interview at Fortune‘s Brainstorm Tech conference, Johnson filled in some of the technology details for the chain’s 1,100 stores: By Feb. 1, 2013, all stores will have tagged all merchandise with RFID tags, which will be used for both checkout and inventory management, and new Wi-Fi networks will support mobile checkout that will be rolled out through this fall—all as JCPenney is ripping out customized mainframe systems and replacing then with Oracle applications.

“We are going 100 percent RFID with ticketing this fall,” Johnson said. “So February 1st next year, the entire Penney’s platform will be on RFID tickets. Now, most people use RFID for internal operations inventory management. We’re going to jump right to the customer, and my goal in 2013, by the end of 2013, is to eliminate the cashwrap.”

That decision reverses JCPenney’s previous RFID plans—the chain has been testing RFID for inventory control at dozens of stores since 2010 but had ruled out using it for checkout.

Johnson also said he plans to cut showrooming by increasing the number of private-label products to 75 percent of what the chain carries. The new products will be tied in with the village of mini-shops inside the redesigned stores. “For instance, Michael Graves will be designing housewares products for JCPenney now. It will be the only place in America you can buy Michael Graves housewares. He’ll design, we’ll source,” Johnson said.

That’s a clever way of undercutting mobile apps that support showrooming, such as Red Laser and QThru, which scan a UPC code and then search the Internet for lower prices on the same product. Going with a high percentage of private-label items means there is no “same product” from competitors. Customers can still comparison shop online by searching for similar specifications, but the process is a lot less automated.

Though Johnson didn’t spell it out during the interview, the private-label strategy also connects with his chain’s decision to mimic Apple Stores in other ways, including eliminating commissions. The idea is that associates focus on making customers happy instead of on making sales.

That’s fine for Apple Stores, which only sell Apple products. If a customer fondles an iPad at an Apple Store and then buys it at Walmart, the store loses a sale—but Apple still makes money on the product sold.

That’s usually not possible for a retailer that doesn’t do its own manufacturing. But if the only place customers can buy those Michael Graves products is from JCPenney, closing the sale immediately becomes less critical—if the customer likes the product, she may eventually buy from another JCPenney store or the Web site, but the chain will still get the sale somehow.

Will it work? Maybe, but it certainly shows a lot more finesse than, say, Target’s ham-fisted anti-showrooming tactics.Still, Johnson’s most interesting revelation was that he thinks E-Commerce is overblown as a threat to stores.


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One Comment | Read JCPenney CEO: E-Commerce Is Going To Hit A Ceiling

  1. EL Says:

    Everyone in retail should hope that Ron’s strategies pay off. JCP is an anchor at a number of malls and as long as traffic is off, it impacts the rest of the tenants. Their negative same store comp is dragging a lot of other folks down which is counterintuitive. You’d think that folks would go to another store in the mall. Instead, consumers are avoiding the mall altogether.

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