Memo to JCPenney: firing workers breeds five-finger discounts.
The flailing retailer, logging a $489 million quarterly loss, admitted Wednesday its margins have been hit by shoplifting — but some insiders disagreed with the department store’s official excuse for the problem.
Chief Executive Mike Ullman, in a conference call with analysts, blamed the noticeable uptick in what retail insiders call “shrinkage” — and what the rest of America calls shoplifted goods — on a move by former CEO Ron Johnson to eliminate anti-theft sensor tags.
Johnson had removed the tags last year because they interfered with the rollout of higher-tech radio-frequency ID tags used to track inventory — a project that was put on hold in January as funds dwindled.
Penney execs failed to mention, however, a far more significant reason for the jump in losses from stolen goods, according to critics: Johnson’s layoffs of tens of thousands of workers, who haven’t been re-hired.
“The idea that shrinkage is spiking because of sensor tags is laughable,” said one former exec, noting that the tags were only used on a small fraction of a store’s inventory. “The fact is they’ve fired everybody who was watching the stores. This is not rocket science.”
Penney officials didn’t respond to requests for comment Wednesday.
The news on the increase in theft accompanied moderately upbeat results for the third quarter that sparked an 8.4 percent rise in Penney shares, to $9.44.
Ullman said rampant store looting hit the company’s margins by a full percentage point.
“This cannot continue,” Ullman said, vowing to restore the sensor tags.
Johnson — ousted in April after his botched turnaround strategy spurred a $1 billion loss and a 25-percent drop in sales last year — sparked double trouble last spring when he introduced a remarkably lax return policy, sources said.
In a TV spot starring Ellen DeGeneres during last year’s Oscars, Penney announced that shoppers could “return any item, any time.” The immediate result, according to sources, was a deluge of questionable returns.
“One lady walked in with a half-empty package of underwear that was maybe 10 years old,” a former Penney worker said. “[Another] lady bought a shirt, ate lunch, spilled something on it, came back and returned it.”
Ullman has since restored an old 90-day policy requiring a receipt, issuing only store credit in some cases.
Nevertheless, Penney is still plagued by pilferers, partly because of lingering changes by Johnson, sources said. The former Apple exec’s addition of shop-in-shops for some brands has created “many, little, hidden corners” for store-roving apparel rustlers, a source said.
Had Johnson’s plans come to fruition, some insiders say the problem could have worsened further. One project under development had been an automated checkout table shaped like “a gigantic iPad,” according to a former exec.
“The idea was to eliminate checkout staff,” the former exec said.