JCPenney to Cut 900 Jobs, to Operate “Like a Start-up”

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Ron Johnson

Plano, TX—Saying that “companies must streamline in order to leap forward,” Ron Johnson, JCPenney’s ceo, said Thursday that the company would be trimming costs, eliminating some 900 jobs.

Among the cuts included in the plan is to close a customer call center in Pittsburgh that would affect about 300 employees. Another approximately 600 employees, representing about 14% of the main office in Plano, would also be eliminated. Estimates put JCPenney’s total workforce of full- and part-time employees at about 136,000.

The cuts come in the wake of the department store’s new everyday low price initiative—a “new approach to pricing, promotion, merchandising and the customer experience requires a more competitive operational structure, with fewer layers of management, wider spans of control and greater accountability throughout the organization.”

The company said it would be taking a “range of actions to realign its management structure” as a result.

‘We Are Going to Operate Like a Start-Up’

“We are also transitioning from a culture based on management to one based on leadership,” Johnson said. “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. Often in business, companies must streamline in order to leap forward. 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.”

The “steamlined” plan is part of the new strategy JCPenney unveiled in January when it said it would be aiming to cut annual expenses by $900 by the end of 2013. Those expense reductions will include $200 million in savings from its corporate headquarters, as well as $400 million in cost savings in store operations and $300 million in advertising expense savings.

According to what Mike Kramer, chief operating officer, said in January, JCPenney’s management hierarchy was bloated and suggested that the company could save $90 million a year with leaner operation at its Plano headquarters.

The changes announced Thursday are expected to reduce expenses to below 30% of sales by the end of 2013 and help the company achieve an expense run rate of 27% by 2015 when its transformation will be complete.

The Pittsburgh call center was one of the first to be shuttered since calls to the company have fallen more than 30% since the new pricing plan began in February. The call center will close July 1, but centers in Columbus, Ohio, and Milwaukee will continue to operate.

Job cuts have been rumored to be part of the retailer’s new strategy even before Johnson announced it in January. Early report speculated that “sales associates to executives” could see their jobs eliminated purportedly as a “trim the fat” stance advocated by two of the company’s biggest shareholders and board members, William Ackman, ceo of Pershing Square Capital Management, a hedge fund, and Steve Roth, chair of Vornado Realty Trust.

Organizing ‘Exciting Stores, Shops and Boutiques’

“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,” said Kramer yesterday. “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 & allocation teams to continually curate our product offering, edit brands and assortments as appropriate, and ultimately organize our stores into a series of exciting Stores, Shops and Boutiques, which will feature newness on a monthly basis in the rhythm of our customers’ lives. 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.”

The store reportedly has been bombarded by vendors interested in doing business with the new JCPenney and being part of its Main Street series of stores-within-stores, shops and boutiques. Vendors must undergo an application process including four-year sales projections, assortment plans, renderings etc. with a deadline of May 1.

Ironically, on Wednesday, Edward Lampert, the billionaire hedge fund manager and chairman of Sears Holdings, making a rare interview appearance on CNBC, said that many of America’s major retailers, including his own struggling Sears and Kmart stores, needed reinvention.

“JCPenney is in need of reinvention, Sears is in need of reinvention, Best Buy is in need of reinvention,” Lampert said. “And that means that you’re going to have to try new things. If you’re unwilling to try new things and to fail and learn, you don’t have a shot. That doesn’t mean you are going to be successful, but you have to try to change.”

Meanwhile in reporting the latest news on JCPenney’s layoffs, 24/7 Wall, investor analysts, criticized the store’s latest announcement:

“Successful start-ups rarely lay off people. Johnson also has decided to alter the way JCPenney prices most of its merchandise. This will make it easier for shoppers to find deals, he says. The real problem is that people cannot find deals if they do not go to stores in the first place. The retailer’s stock is just short of flat this year. Wall Street has rejected the new strategy.”



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