J.C. Penney sees a spike in shoplifting

Thefts rise after the retailer removes sensor security tags in a shift to a new system. The impact is hurting profit margins.

By MSN Money Partner Nov 21, 2013 1:39PM

Image: Woman shopping in interior design shop, side view © Alistair Berg/Digital Vision/Getty ImagesBy Suzanne Kapner, The Wall Street Journal

Shoppers are buying more at J.C. Penney (JCP). They're also stealing more.

The retailer said Wednesday that theft spiked in the third quarter after it removed sensor security tags from merchandise while it shifted to a new inventory-tracking system that uses radio tags.

Shoplifting took a full percentage point off the department store chain's profit margins during the quarter, Chief Executive Myron "Mike" Ullman said. That was just one more weight that dragged the 1,100-store chain down to a loss of nearly half a billion dollars even as it showed some improvement getting long disaffected customers to spend again.

Penney is struggling to right itself after a disastrous overhaul under former Apple (AAPL) executive Ron Johnson, who drove customers away when he did away with promotions and eliminated in-house brands in an effort to simplify and modernize the chain's offerings.

That bad bet pushed Penney into a loss of $1 billion last year and continues to plague the company. The need to liquidate old inventory did further damage to profits in the last quarter and will continue through the end of the year. Penney also wrote down the value of some tax offsets by $184 million.

In all, Penney reported a loss of $489 million for the three months ended Nov. 2, compared with a year-earlier loss of $123 million. Sales fell 5.1% to $2.78 billion, compared with a drop of 27% a year earlier.

Sales excluding newly opened or long-closed stores fell 4.8% in the third quarter, but ticked up in October for the first time since December 2011. Mr. Ullman stuck to his forecast that they would be positive in the crucial holiday quarter as well, finally stopping a long slide.

Store traffic was up in November, and the company said it is doing a better job of getting browsers to buy.

Then there is the shoplifting. Penney unveiled plans in early 2012 to add radio frequency identification, or RFID, tags to every item in its stores.

The tags are more expensive than traditional bar codes, but they promise to make it easier to manage inventory. Sensor tags designed to prevent theft were removed from merchandise, because they would have interfered with the radio frequency, a person familiar with the situation said.

At the same time, Penney had switched to a friendlier return policy that did not require customers to present a receipt. The combination gave people the opportunity to grab armloads of merchandise off store shelves, walk over to a cash register and return the goods on the spot, the person said.

Mr. Ullman indicated on a conference call with analysts Wednesday that the move away from sensors actually encouraged thieves to come to Penney. Competitors were still using the devices, so "most of the theft comes to our place," he said.

Penney, which scaled back its storewide RFID ambitions in January, said that rising store traffic had made thefts a big enough problem in the August to October period to disclose to investors.

The company is now retagging items on the sales floors with sensors, as well as tagging those that it is bringing in. It also recently tightened its return policy by giving store credit, rather than a refund, to customers who return goods without a receipt and are unable to produce the credit card used for purchase.

Mr. Ullman also said the bulk of the effort to clear old inventory should be completed in the first quarter of the new year.

"As we come out of the third quarter and go into the fourth, obviously we're seeing traction, and we're seeing things move in the right direction," Kenneth Hannah, Penney's chief financial officer, said on the conference call to discuss earnings.

More from The Wall Street Journal

Tags: JCP
Nov 21, 2013 2:15PM
Nov 21, 2013 3:07PM
Welcome to the new norm ! As the middle class is becoming the lower class they are starting to lose everything ! 
Nov 21, 2013 4:39PM
Sorry, I believe there is more to it than just sensor tags. I shop at Penny's regularly and finding someone to ring up my purchase can be difficult most of the time. There have been times when I couldn't find an employee anywhere on the floor. More than once I have just given up, laid the merchandise down and left. If it is that hard and takes that long to make a purchase, I would bet a lot of people have figured out how to just walk out with the merchandise, with or without sensor tags.
Nov 21, 2013 3:11PM
Well, that's one way to clear the old merchandise.
Nov 21, 2013 2:52PM
Talk about kicking someone while they're down...
Nov 21, 2013 4:56PM
The new moral standard in America. It's only wrong if you are caught. This is the result of years of situation ethics being taught in our public schools and foistered upon us by the liberal media
Nov 21, 2013 3:25PM
Obamaville was built on thievery - stealing from others is not only legal, it's also encouraged.
Nov 21, 2013 4:45PM
Oh, I would so love to know the demographics of the thieves but I know you will never print the truth.
Nov 21, 2013 3:08PM
Racist article, always projecting white people doing something wrong!
Nov 21, 2013 2:53PM
Be sure and show a White Person shoplifting     BSSSS
Nov 21, 2013 3:33PM
I think Ron Johnson is behind this.
Nov 21, 2013 6:17PM
Where were yourr brains to make it so easy for the shoplifters?
employee theft is the largest loss for businesses it amounts in the billions each year and you and i pay for it because they build those losses in to there profit margins and have been a victim of it in the years i was in business
Nov 21, 2013 3:28PM

Bad journalism could be to blame if they wrote articles talking about the transition and the time frame for it to occur.  These types of transitions should go unnoticed to the public.

Nov 21, 2013 8:35PM
Send the bill to Nobama but for his nonsense we can't afford to purchase things , not that I am condoning theft but....
Dec 16, 2013 6:14PM
I worked at JCP in Goodyear AZ. For eight years! Shop lifting was bad there. 9 out of 10 were illegal Hispanics. Illegals were let off  with a warning! To much paper work, and they preferred to turn a blind eye to the fact that they were illegal. A citizen regardless of race or color was  arrested and prosecuted depending on the amount stolen. Hispanics know the ropes! and that is why the theft is so high at JCP.
Dec 16, 2013 6:16PM
Notice how MSN always uses a white person when running articles about theft. We won't scream racism is why!  :-)
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