Shoplifting Hits J.C. Penney's Quarter

Jeff Macke

More people are going to J.C. Penney (JCP) lately, unfortunately a lot of them are thieves.

CEO Myron “Mike” Ullman told analysts that inventory “shrinkage” in J.C. Penney exploded in the third quarter, hitting gross margins by 1.1%, more than what was seen in the prior 3 months.  Based on the income statement, that suggests that the amount of inventory that simply disappeared from the stores grew by more than $300,000 during the period.

Ullman blamed the loss on J.C. Penney’s replacement of clunky sensor security tags to a more modern radio frequency, or RFID method of inventory tracking.  The sensors had to go because they interfered with the RFID system.  Apparently it was easier for shoplifters to walk off with product without having paid during the transition process.

Shrinkage is just an industry term for products that somehow disappear between the time a retailer buys it, and when it gets rung up at the register.  According to industry estimates about 20% of all shrinkage can be blamed on bad bookkeeping or crooked vendors. The rest is assumed stolen.

The National Retail Federation says thieves made off with more than $20 billion worth of product in 2011.  Shoplifters get the blame, but the NRF says employees were to blame for almost $15 billion of property stolen that year.

Industry-wide shrinkage accounts for 1.5% of all products sold every year on average.  J.C. Penney’s shrinkage rose by nearly that much in the 3rd quarter alone.  It’s a stunningly high price to pay for transitioning to an RFID system that’s already more expensive than what it replaced.

When J.C. Penney chose to implement a return policy that didn’t require receipts in the middle of the switch to RFID, it became open season for shoplifters and crooked employees.  With much of the store inventory untagged, thieves had the choice of taking product straight out the door or going straight to the cash register for a gift card of the same value. 

After massive layoffs and a 70% drop in the stock price over the last two years, employee morale at J.C. Penney is so bad the company reportedly sought out the help of therapists last summer. 

Based on the spike in theft, it looks like at least some workers decided on a different sort of therapy to lift their spirits.  Regardless of what happened to the missing product, it’s safe to say J.C. Penney still has plenty of work to do on improving day-to-day operations.

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