J.C. Penney Co. Inc.’s reinvention is impacting its head count.
This story first appeared in the April 6, 2012 issue of WWD. Subscribe Today.
About 600 associates are being let go at Penney’s Plano, Tex., headquarters, primarily in merchandising, planning and allocation and marketing, according to the company. The headquarters has 5,900 employees.
In addition, the company’s call center in Pittsburgh will shut down on July 1, affecting another 300 employees.
The $17.3 billion, 1,100-unit chain on Thursday said the price simplification, re-merchandising on monthly cycles, marketing and cost-cutting initiatives — all at the core of the four-year reinvention strategy — enabled the personnel cuts. There was no word on whether there would be personnel reductions at stores.
“Often in business, companies must streamline in order to leap forward,” said Ron Johnson, Penney’s chairman and chief executive officer. “In our case, this has involved some very difficult decisions that have had an impact on many of our associates, but these changes are essential to help us achieve our long-term goals and, ultimately, grow our associate base as we grow our business.”
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Mike Kramer, chief operating officer, said, “We are on the cutting edge of a new approach to retail. Even this early on in our transformation, it’s clear that many of the processes required under the old business model are no longer needed. We are putting in place a new operating structure that creates a winning organization built on efficiency. For instance, we’re rebuilding our merchandising and planning and allocation teams to continually curate our product offering, edit brands and assortments as appropriate.”
Kramer also cited the plan to reformat Penney’s selling floors into a mix of “stores,” “shops” and “boutiques” and reimagine the main aisles into The Street for better activities and new kinds of activities, as first reported Wednesday by WWD. The stores, shops and boutiques will be at least 2,000, 500 and 300 square feet, respectively, and feature “newness on a monthly basis in the rhythm of our customers’ lives,” Kramer said Thursday. “Actions like this will enable us to quickly take advantage of a variety of expense savings opportunities while enhancing our profit formula for the long term.”
In January, as officials unveiled the reinvention strategy, they disclosed plans to reduce annual expenses by $900 million by the end of 2013. This includes $200 million in savings from the corporate headquarters, as well as $400 million in cost savings in store operations and $300 million in advertising expense savings. The changes are expected to reduce expenses to below 30 percent of sales by the end of 2013 and help Penney’s achieve an expense run rate of 27 percent by the completion of its reinvent strategy in 2015.
A spokeswoman told WWD on Thursday that since Penney’s “fair and square” pricing strategy and liberalized returns policy began Feb. 1, call center volume has decreased more than 30 percent due to fewer customer concerns related to coupons, prices and returns. “This overwhelmingly demonstrates that customers are being taken care of either at the store or through jcp.com — without the need for further assistance,” the spokeswoman said. “As a result of this shift in demand, we made the strategic decision to reduce the number of call centers from three to two.” The other two call centers are in Columbus, Ohio, and Milwaukee.
Asked how many cuts will occur at the stores, the spokeswoman responded, “We did not announce any changes to stores today.”
Steve Lossing, president of the company’s big & tall men’s concept, The Foundry Big & Tall Supply Co., was also a victim of the layoffs Thursday. His departure could indicate Penney’s is ready to abandon the business that was launched last April. It was part of the company’s Growth Brands Division, a separate business that included Clad, a men’s Web site and Gifting Grace, an online gift site. Clad is being shuttered on April 27.
When The Foundry launched last year, the plan was to roll out the concept, which targets the big & tall customer, aggressively and was planning to have 300 stores within five years. However, according to The Foundry Web site, the business remains at 10 stores, the number with which the concept launched. Sources said business at the stores has been less than stellar and there are apparently no plans to open additional freestanding units. The concept could, however, become one of the new lineup of shops within the Penney’s stores. A Penney’s spokeswoman confirmed Lossing’s departure and added, “We have not provided an update on The Foundry.”
On the management front, officials said new approaches to pricing, promotion, merchandising, and re-creating the customer experience requires “a more competitive operational structure, with fewer layers of management, wider spans of control and greater accountability throughout the organization.”
“Simplicity is one of the guiding principles of our transformation,” Johnson said. “In years past, we’ve motivated our customers with endless promotions and discounts, and that required a lot of process-oriented work. At the new J.C. Penney, we’re beginning to inspire customers with great merchandise, an exciting shopping environment and ‘fair and square’ pricing. Just 60 days into our transformation, we can see — more clearly than we even imagined — that this is a simpler way to do business and a better way to compete.
“We are also transitioning from a culture based on management to one based on leadership,” Johnson added. “We are going to operate like a start-up. We are going to extend the reach and span of control of our very best talent. We are going to be nimble, quick to learn, quicker to react and totally committed to realizing our vision to become America’s favorite store.”