Monday, May 7, 2012
Store-level layoffs hit J.C. Penney
The company feels the layoffs will better prepare it to reach its long-term goals.
The latest round of layoffs to hit J.C. Penney came last Wednesday, when the retail giant announced store-level layoffs. The move was announced a month after 600 employees were laid off at the Plano headquarters. Additionally, a call center in Pennsylvania will be closed this summer, eliminating 300 more jobs.
The company hired former Apple executive Ron Johnson as its new CEO in November, and is in the middle of re-branding itself, a move that was necessary after the company's stock fell nearly 54 percent over the past five years. Johnson announced in January he hoped to reduce costs by $900 million by the end of 2013, including $200 million from its Plano headquarters.
A company spokeswoman said the new business model has made some layers of management unnecessary.
"The company's new approach to pricing, promotion, merchandising, and the customer experience has simplified our business and removed a lot of the process-oriented work that was previously required under the old business model," Kate Coultas said. "We are also operating with fewer layers of management so leaders have broader spans of control, greater accountability, and higher flexibility to focus on work that provides the greatest value to our customers."
Mike Davis, an economics professor at the SMU Cox School of Business, said J.C. Penney found itself in the situation it is currently in due to its inability to adapt its aging business model.
"What we are seeing at Penney's is a reflection of what we are seeing in the retail sector, that is change," Davis said. "It was good marketing decisions for the past that caused their stock to go up. Penney's was a very profitable and successful company for a very long time. It isn't that they made bad decisions, it was more that the model that worked for them for 80 or 90 years really was no longer the right retailing model."
Davis said the traditional model of a regional mall with one or two department stores as anchors has fallen out of favor with developers, which hurt stores such as J.C. Penney. Instead of regional malls such as Town East and NorthPark, developers now favor outdoor malls such as Firewheel in Garland and The Village at Allen.
He also said the rise of online sites such as Amazon, as well as other big box retailers such as Best Buy and super-discount stores such as Target and Walmart also hurt the bottom line of large department store chains.
Coultas would not go into detail on how many employees were laid off on Wednesday, but said the company feels the layoffs will better prepare it to reach its long-term goals.
"Over time, we expect that the likelihood for new and more enriched job opportunities will develop as our business grows," she said. "We would not have moved forward with these difficult decisions if we did not believe it was absolutely necessary for the future growth of our company."
Davis said he doesn't know what the future holds for J.C. Penney, but said the layoffs were not unexpected.
"It is pretty hard for a company in financial distress to change their model and expand, since they don't have the resources to do that," he said. "I am pretty sure if they hadn't of done something, they would have failed. Whether this is going to work, I have no idea."
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