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JC Penny Loses $28 Million in Q3 Profits Due to Misguided RFID Tagging System Implementation

Image via Flickr by Chrishyson90

Ousted JC Penny CEO Ron Johnson was let go in April following poor sales, profit losses, and a lack of cash on hand for the company. JC Penny hired Johnson in November 2011 after his successes running Apple retail stores, but his tenure was short lived as his practices failed to bring success to JC Penny. Among his failed attempts at rejuvenating the popular retailer, Johnson implemented a new RFID tagging system, which began with just a few categories of merchandise. Johnson rushed the system implementation, and required that all merchandise be RFID tagged by January of 2013, so that the company could initiate self-help check out systems within their stores. According to Johnson, consumers were not capable of handling bar code scanners due to their, “complexity.” After this announcement, many of JC Penny’s suppliers quit using EAS tags on merchandise sent to the retailer, depending solely on the RFID tags. Some of the RFID tags were to be placed on the merchandise by the suppliers, while other items were to be tagged in the stores.

Apparently, when Johnson and JC Penny cancelled the implementation of the RIFD tagging system due to a lack of cash funds to finish implementation, the suppliers were not notified. Therefore, many items ended up on JC Penny store shelves bearing no RFID tag nor any EAS tags. Combined with the implementation of new policies that allowed customers to return merchandise to stores without proof of a receipt, JC Penny became an easy target for thieves, who stole merchandise from stores and returned the merchandise for cash. The old EAS tags would have alerted clerks that the merchandise was stolen.

This blunder cost JC Penny one percent of its total profits for quarter three 2013, a total of $28 million. Likely, the total cost of the issue is greater than this, because this number only includes the money lost after the situation was identified. For the quarter, JC Penny lost a total of $489 in declining sales combined with other problems, including the missing RFID tags.

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