JCPenney's RFID Reversal Guts In-Aisle Checkout

When JCPenney very publicly and very aggressively embraced a chain-wide, all-product item-level RFID strategy—with the promise of a full rollout by February 1 (2013)—executives cited supply-chain savings as a key driver. The chain has now reversed course, killing much of the RFID program to save money. When a chain is under this much financial pressure, a little savings today is a lot more valuable than a lot of savings down the road.

But of much greater significance is the digital domino effect. In this case, JCPenney was building its in-aisle checkout on the premise that it had item-level RFID fully in place. And if remodeled stores have dramatically scaled back the number of cashwraps (because customers would be doing in-aisle checkout), does that mean all those customers will have to line up for the limited number of cashwraps? That's not going to be pretty—presuming JCPenney can actually get enough returning customers to make it a problem.

"With RFID postponed, self-check-out is now postponed. Always had to be 100 percent RFID-enabled first and then the next step will be to start building out the self checkout tables," said JCPenney spokesperson Kate Coultas. "These two initiatives were not happening at the same time."

The domino effect continues with this week's JCPenney reversal. Monday (Jan. 28) saw the official return of the once-banned special sales, along with a partial return of associate sales commissions. Those commissions were killed back in May 2012, when JCPenney CEO Ron Johnson apparently thought he was still working at Apple. For the record, commissions are—for the moment—still being denied to sales-floor associates, but they're back for service associates (at the hair salon and jewelry counter, for example).

All this comes down to the strange situation that JCPenney finds itself in now. CEO Johnson's plan to remodel every store in the chain was a hugely capital-intensive project when it was rolled out in January 2012. It was predicated on the idea that there would be money to pay for all those remodels—money that was going to keep coming in because, heck, what customers wouldn't respond positively to a plan to eliminate sales, coupons and pretty much everything else the chain's customers like?

A year later, most of Johnson's vision for re-adjusting JCPenney is gone, along with a sizable chunk of the chain's revenue. What's left is the grand (and expensive) plan for remaking the stores. Scaling back item-level RFID will save some money, but the ripple effects will be much more powerful.

JCPenney's in-aisle checkout system—slated to go live later this year—was supposed to depend on storewide item-level RFID. Without storewide RFID, will in-aisle checkout work at all?

The RFID move was announced in a January 21 company memo to all suppliers. Tagging is now gone for all online merchandise as well as all in-store products other than a handful of apparel items, including denim jeans, bras, fashion jewelry and some sub-categories of footwear.

"In the event that suppliers own tag inventory, please reach out to your merchant team," the memo said, adding that JCPenney expects suppliers to now deliver "the new lower cost for all items without RFID tags. Due to this change, RFID offsets will cease immediately for any merchandise not listed in the above sub-divisions/categories."

JCPenney officials were explicit that the program was killed to save dollars, as opposed to high-error rates or other implementation struggles. The chain "recently postponed the implementation of RFID as part of a cost-saving initiative," JCPenney's Coultas said. "We see the value and benefits of RFID and will continue exploring the opportunity to further deploy the technology at a later date."

Note: The memo did not include fashion jewelry in the still-to-be-tagged items, because "the memo was sent before the decision was made to also include fashion jewelry."