April 23, 2009
Penney Sees IT as a Competitive Advantage
J.C. Penney
isn’t looking to open new stores. The company’s CEO, Myron "Mike" Ullman,
believes the U.S. already has 80 million or more excess
square feet of department store space.
Instead,
the company is looking to remodel existing locations and add Sephora shops
inside stores that don’t already have them to improve the shopping experience.
But, when it comes down to where Penney believes it can separate itself
from the competition, the company believes its information technology prowess
is an advantage it can bank on.
According
to a report by Maria Halkias of The Dallas Morning News, Penney
has put its IT function on the same footing as marketing, merchandising
and store operations.
"I’m saying IT
isn’t the back door. It’s the front door," Mr. Ullman was quoted as
having said in a recent interview.
According to Mr. Ullman,
2009 is the year that Penney’s IT function is enabling the company to achieve
growth.
"Many of our competitors
are still building the [software and online] tools to run the business.
We’re past that," he said.
The department store
chain’s investment in IT includes a hiring push to add 150 people to its "digital
center for excellence." The additions will join the current 1,700
Penney employees and contractors responsible for IT.
Chief information officer
Tom Nealon told the Morning News, "Our IT people are linked
to the business, not like I’ve seen at other places I’ve worked. That’s
a real advantage."
Penney has somewhat
bucked the outsourcing trend by bringing back creative and development
jobs in-house. It uses Tata in India for support and maintenance functions.
One of the products
of Penney’s IT efforts is a new "smart fixture" kiosk that will
be tested in the home departments of four stores next month. The unit has
a 52-inch touch screen that is iPhone-ready and enables
shoppers to find products sold by Penney but not in-stock at
a given store. It also allows customers to scan merchandise in stores to
get information about features, colors, sizes, cleaning information, etc.
that can be emailed.
Penney understands that
not all of its shoppers will take to the kiosk or other tech-based concepts
it develops. "We have to match customer tastes with technology," Mr.
Nealon said. "Some people are very digital, and you have to interact
with them. Others are more comfortable with store associates."
Discussion Questions:
How dedicated are other department stores to using IT as
a means to achieve a competitive advantage? Is J.C. Penney as ahead of
the competition as its management believes?
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There’s no question that an investment in IT can pay all sorts of dividends for JCPenney as well as other retailers. To name just a few:
1. Continued improvements in supply-chain and store payroll productivity, driven by enhanced systems;
2. A stronger focus on CRM than the brick-and-mortar competition, learning from masters of data mining like Amazon;
3. Development of kiosks and other interactive technology appealing to younger consumers with a high “tech-savvy” comfort level at retailers like Apple and Best Buy.
But a note of caution to JCPenney: IT may lead to a slicker, more modern and more productive operation but the true “front door” to the business should continue to be its merchandising content, store experience and brand positioning.
Given the levels of data and the reliance of IT to run a retail enterprise, JCP is very smart in making this commitment and these investments.
While iPhone apps tied to fixtures are smart tactics, it’s the strategic commitment to data and making it useful that will ultimately give JCP an edge. This competitive advantage will make JCP a better place to work for its employees and a much better and more relevant experience for its customers. Without the appropriate IT systems, neither of these things happen in a business this size.
When I read the first discussion question, I had to laugh. I don’t want to be unkind, and I know in some ways Federated has invested in certain areas of technology, but in general, I would have to say, no, other department store retailers are not nearly as dedicated to IT as a true partner to the business as JCP.
But I would point out that the difference isn’t in how or whether IT is valued. The difference is in how the business side perceives IT. While it’s true that IT enables business strategy, it’s also true that IT creates opportunities for new business strategies that the business might not come up with on its own. It’s a two-way street, and JCP seems to recognize that, while others still see IT as the servant of the business. In today’s era of consumer technology adoption, that to me is a road to “laggard” land.
Which came first, the chicken or the egg? I agree that IT is the front door if you’re using it for the best merchandising, marketing, customer service, and supply chain initiatives.
Putting together a visionary, strategic plan for growth and profitability is like putting together a puzzle. There are many pieces that are critical but IT is the table or foundation in which the puzzle is being constructed. For far too many years, no one has gotten that picture. Amazon has and has been very successful but without the customer service piece they would not have enjoyed the success they have garnered.
IT is the future:
IF the retailer has the resources to span the silos of data collection.
Most retailers hold multiple views of their channels, customers, transactions, stores and categories. Certainly those that grew from acquisition face this challenge, as do those who recently experienced meteoric growth and chose to shift capital from IT infrastructure to store openings.
So if JCP has made the financial allocations and is prepared for operational excellence, good for them.
For the rest, we like to say: “retail ain’t for sissies!”
Retail IT shops have had to fight for every dollar, despite clear ROI on projects, particularly store-related projects.
Penney’s has been an IT leader for years, after its decision to make thousands of SKUs available on the Web. They’ve invested in experienced people and have given them the tools they need. Let’s hope that their continued success inspires other retail companies to recognize IT for the game-changer it is.
I couldn’t agree more with Nikki’s earlier comment. Our Digital IQ research shows that companies that heavily involve the senior IT leaders up front in strategic planning are FOUR times more likely to be top performers in their industry than their competitors: http://tinyurl.com/d7q2tm. However, only 20% actually include IT in strategic planning. My colleague, Chris Curran, just wrote in April’s CIO Insight that alignment alone isn’t the answer: http://tinyurl.com/cugg8h. But while upfront involvement is key, it’s not all that’s necessary–companies must be able to execute their IT strategies as well.
Regardless of whether J.C. Penney is as far ahead of the competition as it believes, it is on the right page. The main area of concern is whether companies are adequately focused on increasing the capabilities that drive the competitive edge of a high “Digital IQ,” such as integrating IT into the strategic planning process, developing a road map to guide IT program implementation, and lining up the right mix of skills to execute projects efficiently. The recession is putting even more pressure on CIOs to strengthen their team’s strategic, mobilization, and execution intelligence.
There is a subtle undertone in the JCP discussion. They seem to have acknowledged that a linked set of IT solutions developed internally or tightly integrated by the internal IT department is better than buying independent solutions. They seem to have decided that their ability to design applications that fit their specific business model can be more beneficial than a generic solution they might buy off the shelf. This is a key decision when it comes to technology and reflects on the same choice made by other large retailers. I don’t know where the cutoff occurs (100 stores, 200, stores, ??? stores) but at some point the ability to customize your own is a big advantage in retail operations. All those “little inconveniences” that get multiplied across hundreds of stores can be avoided.
As far as the consumer is concerned, I agree, technology can be a big factor for drawing them into the store but I would be careful about over “technifying” the store experience. Technology offers the opportunity to expand assortments, reach consumers where they work and play, and reduce operating costs in the store. It does nothing to improve the “human touch” of a retailer, which depends on a well-informed staff who want to serve the customer.
Investment in IT can definitely tip the competitive scales, as Walmart demonstrated years ago. But it goes beyond just the investment. There’s been a lot of investment over the years that ended up contributing little to either the top or bottom line. And, again as Walmart so powerfully demonstrated, execution is where the rubber meets the road.
Not building new stores? Hmmm? I recently visited a very brand-new stand-alone JCP in White Lake, Michigan. I wonder how that happened? It’s also not quite the bastion of an economically booming area, yet strangely there is tons of new development.
The store stood alone. It included a “Sephora” inside the store. The store was the nicest and most well merchandised JCP I had seen in ages. Yet, there was something strangely missing. There were no associates visible in any department and no place to purchase anything in any department. Service was secluded to a walled off area near two entrances and exits. It featured rope lines and a higher than normal counter that resembled a ‘Customer Service’ area versus a ‘checkout’. Even with staff at every opening, service was beyond slow. There was no visible evidence of any support or management at either location. The register system seemed cumbersome and difficult not only for the associate that served us, but also for both associates on either side. There was no visible evidence of any new technology anywhere throughout the store.
It had been recommended that I see the store. I am sorry we attempted a small purchase after the experience.
If their new style of service is their attempt at ‘IT’ enhancing the experience, they failed. In fact, they failed miserably. It was a nice place to shop and walk the departments but not a place to purchase anything. I remain puzzled by these types of retailers, as well as others, that seem to have forgotten that merchandising alone isn’t the only thing you have to do. In the end, you need to be able to take money from the customer. That seems to be the hardest thing for the customer in most retailers–giving them your money should you choose to buy.
There is no question that advanced information systems must be a key strategy if, in a highly-competitive market, a retailer is to maintain or improve market share.
While Penney may be ahead of the industry in this area, you only have to walk through their stores to recognize that they still have many opportunities to capture a greater share of their market. They miss the target in so many areas.
Variations between markets or stores within in a market are too often not recognized. This leads me to believe they are depending too much on information systems that cannot recognize all of the variations that exist in seasonality, size/scale balance, and local fashion trends in style as well as color.
Local input must be a part of creating the right merchandise mix in individual markets that do not fit a prototype mix. With stores located across the country, with many climatic variations, and varying demographics there is no way the human factor can be dismissed. It appears Penney does not seek that input. And there is no human alive or any information system I know of that can centrally handle the thousands of variations that should be considered.
Yes, advanced information systems must continue to be a key strategic issue. There will however be a point of diminishing returns when once again individual store’s local trade area input will be essential in the development of a competitive mix.
Sears is CRUSHING it in digital interface and bricks-and-mortar integration. They’ll have a long way to chase the leader.
KNOW your customer–what they want, what they are buying, what they are asking for…colors, price points, expenditure per visit, impact of sales and special pricing and special deals–hello–this IS IT! Of Course IT IS the front door and the potential benefit it offers, if accessed and utilized correctly, can not be overemphasized.
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There’s no question that an investment in IT can pay all sorts of dividends for JCPenney as well as other retailers. To name just a few:
1. Continued improvements in supply-chain and store payroll productivity, driven by enhanced systems;
2. A stronger focus on CRM than the brick-and-mortar competition, learning from masters of data mining like Amazon;
3. Development of kiosks and other interactive technology appealing to younger consumers with a high “tech-savvy” comfort level at retailers like Apple and Best Buy.
But a note of caution to JCPenney: IT may lead to a slicker, more modern and more productive operation but the true “front door” to the business should continue to be its merchandising content, store experience and brand positioning.
Given the levels of data and the reliance of IT to run a retail enterprise, JCP is very smart in making this commitment and these investments.
While iPhone apps tied to fixtures are smart tactics, it’s the strategic commitment to data and making it useful that will ultimately give JCP an edge. This competitive advantage will make JCP a better place to work for its employees and a much better and more relevant experience for its customers. Without the appropriate IT systems, neither of these things happen in a business this size.
When I read the first discussion question, I had to laugh. I don’t want to be unkind, and I know in some ways Federated has invested in certain areas of technology, but in general, I would have to say, no, other department store retailers are not nearly as dedicated to IT as a true partner to the business as JCP.
But I would point out that the difference isn’t in how or whether IT is valued. The difference is in how the business side perceives IT. While it’s true that IT enables business strategy, it’s also true that IT creates opportunities for new business strategies that the business might not come up with on its own. It’s a two-way street, and JCP seems to recognize that, while others still see IT as the servant of the business. In today’s era of consumer technology adoption, that to me is a road to “laggard” land.
Which came first, the chicken or the egg? I agree that IT is the front door if you’re using it for the best merchandising, marketing, customer service, and supply chain initiatives.
Putting together a visionary, strategic plan for growth and profitability is like putting together a puzzle. There are many pieces that are critical but IT is the table or foundation in which the puzzle is being constructed. For far too many years, no one has gotten that picture. Amazon has and has been very successful but without the customer service piece they would not have enjoyed the success they have garnered.
IT is the future:
IF the retailer has the resources to span the silos of data collection.
Most retailers hold multiple views of their channels, customers, transactions, stores and categories. Certainly those that grew from acquisition face this challenge, as do those who recently experienced meteoric growth and chose to shift capital from IT infrastructure to store openings.
So if JCP has made the financial allocations and is prepared for operational excellence, good for them.
For the rest, we like to say: “retail ain’t for sissies!”
Retail IT shops have had to fight for every dollar, despite clear ROI on projects, particularly store-related projects.
Penney’s has been an IT leader for years, after its decision to make thousands of SKUs available on the Web. They’ve invested in experienced people and have given them the tools they need. Let’s hope that their continued success inspires other retail companies to recognize IT for the game-changer it is.
I couldn’t agree more with Nikki’s earlier comment. Our Digital IQ research shows that companies that heavily involve the senior IT leaders up front in strategic planning are FOUR times more likely to be top performers in their industry than their competitors: http://tinyurl.com/d7q2tm. However, only 20% actually include IT in strategic planning. My colleague, Chris Curran, just wrote in April’s CIO Insight that alignment alone isn’t the answer: http://tinyurl.com/cugg8h. But while upfront involvement is key, it’s not all that’s necessary–companies must be able to execute their IT strategies as well.
Regardless of whether J.C. Penney is as far ahead of the competition as it believes, it is on the right page. The main area of concern is whether companies are adequately focused on increasing the capabilities that drive the competitive edge of a high “Digital IQ,” such as integrating IT into the strategic planning process, developing a road map to guide IT program implementation, and lining up the right mix of skills to execute projects efficiently. The recession is putting even more pressure on CIOs to strengthen their team’s strategic, mobilization, and execution intelligence.
There is a subtle undertone in the JCP discussion. They seem to have acknowledged that a linked set of IT solutions developed internally or tightly integrated by the internal IT department is better than buying independent solutions. They seem to have decided that their ability to design applications that fit their specific business model can be more beneficial than a generic solution they might buy off the shelf. This is a key decision when it comes to technology and reflects on the same choice made by other large retailers. I don’t know where the cutoff occurs (100 stores, 200, stores, ??? stores) but at some point the ability to customize your own is a big advantage in retail operations. All those “little inconveniences” that get multiplied across hundreds of stores can be avoided.
As far as the consumer is concerned, I agree, technology can be a big factor for drawing them into the store but I would be careful about over “technifying” the store experience. Technology offers the opportunity to expand assortments, reach consumers where they work and play, and reduce operating costs in the store. It does nothing to improve the “human touch” of a retailer, which depends on a well-informed staff who want to serve the customer.
Investment in IT can definitely tip the competitive scales, as Walmart demonstrated years ago. But it goes beyond just the investment. There’s been a lot of investment over the years that ended up contributing little to either the top or bottom line. And, again as Walmart so powerfully demonstrated, execution is where the rubber meets the road.
Not building new stores? Hmmm? I recently visited a very brand-new stand-alone JCP in White Lake, Michigan. I wonder how that happened? It’s also not quite the bastion of an economically booming area, yet strangely there is tons of new development.
The store stood alone. It included a “Sephora” inside the store. The store was the nicest and most well merchandised JCP I had seen in ages. Yet, there was something strangely missing. There were no associates visible in any department and no place to purchase anything in any department. Service was secluded to a walled off area near two entrances and exits. It featured rope lines and a higher than normal counter that resembled a ‘Customer Service’ area versus a ‘checkout’. Even with staff at every opening, service was beyond slow. There was no visible evidence of any support or management at either location. The register system seemed cumbersome and difficult not only for the associate that served us, but also for both associates on either side. There was no visible evidence of any new technology anywhere throughout the store.
It had been recommended that I see the store. I am sorry we attempted a small purchase after the experience.
If their new style of service is their attempt at ‘IT’ enhancing the experience, they failed. In fact, they failed miserably. It was a nice place to shop and walk the departments but not a place to purchase anything. I remain puzzled by these types of retailers, as well as others, that seem to have forgotten that merchandising alone isn’t the only thing you have to do. In the end, you need to be able to take money from the customer. That seems to be the hardest thing for the customer in most retailers–giving them your money should you choose to buy.
There is no question that advanced information systems must be a key strategy if, in a highly-competitive market, a retailer is to maintain or improve market share.
While Penney may be ahead of the industry in this area, you only have to walk through their stores to recognize that they still have many opportunities to capture a greater share of their market. They miss the target in so many areas.
Variations between markets or stores within in a market are too often not recognized. This leads me to believe they are depending too much on information systems that cannot recognize all of the variations that exist in seasonality, size/scale balance, and local fashion trends in style as well as color.
Local input must be a part of creating the right merchandise mix in individual markets that do not fit a prototype mix. With stores located across the country, with many climatic variations, and varying demographics there is no way the human factor can be dismissed. It appears Penney does not seek that input. And there is no human alive or any information system I know of that can centrally handle the thousands of variations that should be considered.
Yes, advanced information systems must continue to be a key strategic issue. There will however be a point of diminishing returns when once again individual store’s local trade area input will be essential in the development of a competitive mix.
Sears is CRUSHING it in digital interface and bricks-and-mortar integration. They’ll have a long way to chase the leader.
KNOW your customer–what they want, what they are buying, what they are asking for…colors, price points, expenditure per visit, impact of sales and special pricing and special deals–hello–this IS IT! Of Course IT IS the front door and the potential benefit it offers, if accessed and utilized correctly, can not be overemphasized.