JCPenney COO Calls Legacy IT Systems Major Hurdle in Turnaround Efforts

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JCPenney COO Calls Legacy IT Systems Major Hurdle in Turnaround Efforts

By Adam Blair - 05/20/2012
Years and years of what JCPenney COO Michael Kramer calls "band aiding" has resulted in an IT architecture where 88% of the retailer's 492 applications are customized. This overgrown garden of legacy systems is a major roadblock in the turnaround efforts that began earlier this year under new CEO Ron Johnson.

Kramer's comments came as JCPenney reported significant losses in its first quarter, which ended April 28. Net sales dropped to $3.15 billion, down 20.1% from the same period in 2011. Comp store sales declined 18.9%, and Internet sales plunged 27.9% to $271 million. Overall, JCPenney reported a net loss of $163 million, or $0.75 per share.

"Customization is not your friend," Kramer told investors, adding that "90% of my IT spend is on maintenance fees and only 10% goes to strategic initiatives," according to published reports. He added that a company of JCPenney's size should require approximately 100 applications to run it: "This is years and years of a 100-year-old company band aiding and band aiding and band aiding. Those legacy systems make it difficult to make strategic changes."

The combination of a weak Q1 and the structural impediments of a legacy-heavy IT architecture could imperil former Apple CEO Johnson's plans to reinvigorate the company. These efforts began with a new three-tier pricing model that was implemented in February, designed to replace a mass of coupons and confusing promotional events. No one expected these changes to make an immediate hit with customers who have been "trained" to wait for sales, but the precipitous drop in both comp store and online sales during Q1 is undoubtedly troubling to Wall Street investors.

Johnson acknowledged the difficulties but insisted the retailer's efforts are worth waiting for. "Sales and profitability have been tougher than anticipated during the first 13 weeks, but the transformation is ahead of schedule," he said in a statement. "Customers love the new jcp they discover in our stores. Our shop strategy has been applauded by vendor and design partners, our merchants have stepped up to the challenge of improving our merchandise and presentation, we have dramatically simplified our business model and reorganized our teams at headquarters and in our stores.

"While we have work to do to educate the customer on our pricing strategy and to drive more traffic to our stores, we are confident in our vision to become America's favorite store," he added. "We fully expect that the bold and strategic changes we are making to our operations will result in improved profitability and sustainable growth in the long term."

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