JCP payroll reductions…will they be enough?

The hot topic among retail observers continues to be the “reinvention” of JCPenney by its new management team. The latest news — announced, unfortunately, just before the Easter holiday — concerned massive layouts at JCP stores, headquarters and one of its call centers. My ongoing point of view about the JCP evolution: It needs to drive more sales, not fewer sales, to be judged a success over the long term. Here’s my latest RetailWire blog post on the subject:

It’s been clear since the analyst presentation in late January (laying out JCP’s new strategic course) that the payroll reductions were destined to happen. (In fact, the writing was probably on the wall for the past six months in the Plano headquarters…with a lot of people uncertain whether they would survive the process or not.) Ron Johnson and his leadership team made it clear that JCP would need to reduce SG&A to 30% of sales in order to be more competitive and profitable.

Here’s the problem: Some observers have concluded that JCP sales are falling faster than expected. (Nobody will know what the Q1 comps look like until early May.) It’s possible that the first $900 million in expense reductions — HQ and store payroll as well as marketing — may not get JCP to the expense number promised to analysts by 2013. And many of the initiatives promised at the “new” JCP (such as Town Square) are potentially quite labor-intensive.

Bottom line: It pays for the JCP team — at headquarters and in the field — to understand clearly that the first wave of cost cutting may not be the last. (And investors will be typically impatient for results.) Since the “reinvention” of JCP is positioned as a four-year project, it will make a fascinating case study years from now to find out whether this bold experiment has actually worked.


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