STORES Magazine - October 2008 - (Page S4)

brand and image were rejuvenated, the company was growing at a rate of 50 new stores a year and it hit its five-year operating profit target (9.25 percent) in two years. “Then,” Ullman said, “the consumer hit the wall.” J.C. Penney now is operating under a bridge plan that Ullman characterizes as “a way to muddle through this mess.” While it has cut back on capital investment and expenses, the company continues to invest in people and tools with the intent of returning to its full-bore growth pattern in 2010. Ullman firmly believes J.C. Penney will be able to do that, but he is clear about the fact that not everyone will. At an earlier NRF gathering, he predicted that some 10 to 20 major retailers wouldn’t make it through the current slowdown. “We’re now past 10 and on our way to 20,” he told NRFtech attendees. Good IT governance With that bracing assessment of the economic climate as backdrop, Ullman turned to the role of IT management in executing business strategy. “What,” Nealon asked, “does good IT governance look like?” Ullman noted that in many organizations, IT governance is a matter of budget allocation: You take the IT budget, divide it up among the various department heads, and send them forth to spend it. A better approach, he said, is to engage the department heads in policy: What should we be investing in? “When [Nealon] came in,” Ullman said, “we had 180 IT projects going, none of them strategic. We were spending $275 million a year through the department heads, a situation that was sub-optimal at best.” Not only was spending poorly aligned with overall corporate strategy, there were some severe performance issues. (The planning and allocation system, for example, was up and running for only two of the 13 weeks of what must have been a particularly trying Christmas season.) Nealon’s mandate — Ullman’s answer to the question about what good IT governance looks like — was to get IT focused on five major priorities: A handful of “sacred applications” — purchase order management, the Internet channel, planning and allocation — had to be bulletproof. They had to work right, and they had to work all the time, no matter what. Increased “flow.” Nearly 50 percent of J.C. Penney’s merchandise is private label, so it has an end-toend process that reaches all the way back to design and manufacturing. “A lot of people talk about reduced cycle time,” Ullman said, “but it’s more than that. You S4 STORES / OCTOBER 2008 need the right merchandise, you need frequent deliveries and you need fast cycle times. This enables you to react to what’s happening quickly enough for your reaction to be effective.” Sales channel integration. J.C. Penney has a large ($1.6 billion) e-commerce and catalog business that was being run completely separately from the store operation. The two operations are now (more or less) integrated: merchandising and marketing are now responsible for both channels. To make this process manageable, Ullman and Nealon told only as many people as necessary what they were doing. “We called it Project Import,” Ullman said, “and most people thought it was something to do with the supply chain. Later we told them that ‘Import’ was short for ‘Important.’” Store productivity. “We wanted store managers to be able to see what’s coming, minimize their back office and stockroom expense, and move money over to customer-facing operations.” Data security and integrity. “We’re working hard on this,” Ullman said. “Like the whole industry — I hope it’s the whole industry — we realize that PCI is not optional.” Strategic spending The top 20 business leaders of J.C. Penney hold monthly meetings at which, among other things, IT issues are discussed. Ullman reports that it used to be a gripe session. The business people would say, “I’m not getting what I need,” and IT would respond, “Yes, you are, you just aren’t using it properly.” They don’t do that any more, largely because small teams — most consisting of Nealon and the appropriate executive vice president — meet regularly to plan how a particular area of the business will invest in and use IT. “A few years ago,” Nealon said, “about 30 percent of our spending was strategic; the other 70 percent was tactical — quick-hit stuff. Now it’s 90 percent strategic and 10 percent tactical.” This, he said, works well at the top-executive level, but working teams are still getting some pushback from customers, who don’t care if their problem is strategic — they just want it fixed. Meanwhile, IT funding is approached with the intention of keeping spending in line with the prior year’s budget. Not drastically reduced — Ullman is serious about investing in people and tools — but flat: more bang for the same buck. If this works during the bridge plan, J.C. Penney’s infrastructure ought to be in fine shape when growth returns. WWW.STORES.ORG http://WWW.STORES.ORG

Table of Contents Feed for the Digital Edition of STORES Magazine - October 2008

STORES Magazine - October 2008 Contents Executive Editor's Page President's Page Force of a Different Collar What Shoppers Think Bagging the Competition 10 Things You May Have Missed Numbers Worth Counting Full Price/Markdown Retail People Favorite 50 Sticky Strategies for Retention Concept2Watch Kiosks Online Business Intelligence RFID NRFtech Wrap-up E-Commerce Credit Warehouse Systems Logistics Selling Tools Supply Chain LOEB Retail Letter Arts Update Point of View NRF News Retail Crossword Retail Industry Calendar Last Laugh

STORES Magazine - October 2008

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