J.C. Penney Defers Its RFID Dreams

By Claire Swedberg

Six months after its CEO announced plans to use RFID tags for 100 percent of its goods by February 2013, the retailer now says that it will restrict tagging to only a few merchandise categories, in order to reduce costs.

J.C. Penney has reduced its commitment to radio frequency identification tagging this month, to a fraction of its original rollout plans. The retailer issued a letter to its suppliers on Jan. 21, indicating that only shoes, bras and some denim products would require item-level RFID tags. However, the firm indicated to RFID Journal that the tagged items would also include fashion jewelry.

Six months ago, at the Fortune Brainstorm Tech conference—held in July 2012, in Aspen, Colo.—Ron Johnson, the company's CEO, had announced that all merchandise sold by J.C. Penney would be tagged by February 2013, and that every store would be equipped with the hardware and software necessary to read the tags and use the culled data to improve supply chain and inventory visibility (see J.C. Penney CEO Predicts RFID Will Help Create a Transformational Shopping Experience). What's more, the retailer would begin using RFID to enable customer self-checkout, Johnson announced, explaining that operating the company's cash registers would be a big expense. "About 10 percent of all the money we spend—half a billion dollars a year—goes to transactions," he had stated. By using RFID, in conjunction with other technologies, to enable self-checkout, the firm would save money that it could then redirect to providing a new level of customer service.

In order to reap all of the money-saving benefits of such a huge RFID deployment, however, the retailer would first need to spend a great deal of money on the technology's purchase and installation. Ultimately, the price tag for such an ambitious program proved to be too high for the national retailer at this time.

"The company recently postponed the implementation of RFID as part of a cost-saving initiative," says Joey Thomas, J.C. Penney's media relations manager, "but will continue to roll out tagging in bras, footwear, fashion jewelry, and men's and women's denim. We see the value and benefits of RFID, and will continue exploring the opportunity to further deploy the technology at a later date."

Several factors may have led to the RFID postponement, among them the company's own financial problems throughout the past two years. "J.C. Penney's shortfall in sales can't be understated," says Paula Rosenblum, an RSR Research analyst with more than 20 years' experience as a retail technology executive and CIO. "The impact of its shortfall on other decision-making is real."

Although many retailers—including Macy's, Lord & Taylor and even J.C. Penney—say they are achieving big benefits by deploying RFID within just a few departments, Rosenblum believes that there may be a more fundamental problem inhibiting the technology's deployment at department stores. If, based on RFID read data, a cycle count within one department reveals that items are missing from the store front, she explains, the challenge becomes how to interpret that information and how to reconcile it with the expected inventory count. She surmises that auditors—even internal auditors—would be reluctant to accept those results without a full count of goods throughout the entire store if RFID counts differed from expected inventory levels.

For example, 10 pairs of jeans may not appear on the RFID-based count because those items may be located in a non-RFID-enabled dressing room or department, and might turn up on another count two weeks later. When only a few of a store's departments are utilizing radio frequency identification, Rosenblum says, it can be challenging for auditors to figure out why RFID data does not match the expected count. "My feeling is until you can get to a point where you have full RFID coverage [of the entire store]," she states, "the RFID counts are interesting, but I can't imagine an auditor who would sign off on that."

Implementing RFID technology throughout an entire store, including dressing rooms and every department, could initially be a costly proposition, Rosenblum notes. For that reason, she predicts that RFID will currently be a greater benefit to smaller or specialty stores, rather than to large department stores. The stumbling block for RFID installations, she contends, is not so much tag cost as the cost of readers, which would need to be in use within every part of a large store, rather than a few handhelds used periodically by personnel within a few departments.

In its letter to its merchandize vendors, J.C. Penney included a list of the various shoe, bra and denim products that would still need to be tagged, noting that merchandise not included on the list would no longer require an RFID tag. The letter also indicated that the retailer plans to reduce the amount it pays to suppliers for any goods no longer tagged. Since the list of 41 product areas did not include jewelry, Penney's fashion jewelry vendors are most likely not supplying goods with RFID tags already attached. Instead, the retailer's employees are likely attaching RFID tags to jewelry items after receiving them at its distribution centers or stores.