The Wall Street Journal recently had a story on what J.C. Penney is doing to improve its supply chain (J.C. Penney Spends to Get Ahead on Mobile Shoppers, Other Trends, May 4). The answer involves spending a lot on IT. As shown in the graph below, their IT spending held fairly steady even as they have cut their capital expenditures.
Cutting capital spending isn’t all that surprising. It has largely meant opening fewer stores, but what are they hoping to get from all the IT dollars?
“This is the next generation of how to make things better, and how to be a better competitor,” says Chief Executive Myron E. Ullman III. “People who are going to survive are working on this.” Mr. Ullman has invested in programs to unify online and store pricing and shorten product cycles. Penney’s new “City Streets” private-label apparel line for teens goes from factory to stores in as little as three months. An initiative called “door to floor” enables store managers to know what’s being delivered in trucks 24 hours in advance, which speeds up turnaround times.
The article goes on to note that other retailers are similarly boosting IT spending in order to improve supply chain efficiency.
Kohl’s Corp. is spending $100 million on e-commerce, including the addition of a new distribution center to fill online orders. Specialty players like Talbots Inc. and The Children’s Place Retail Stores Inc. are investing in inventory allocation systems to tailor their style and size assortment by region.
The investments are aimed at keeping sales up in an era of lean inventories and discounts, as well as capitalizing on growth in e-commerce. Jill Puleri, world-wide retail industry leader at IBM Business Services, says she is seeing a pickup in spending on software that helps companies better tailor promotions to existing customers.
Now I must admit that I would have never picked Penney as a fast fashion player and I wonder how many teen girls do. To the extent that Penney’s core customer skews a little older, I wonder how much value their average customer gets out of the ability to get clothes from design to the store in three months.
More generally, however, the investment in more sophisticated systems makes a lot of sense. Generally, inventory and information are substitutes. Here, squeezing inventory out of the stores requires better planning and management capabilities if service levels are not going to suffer. As the article notes, retailers have been forced into these investments to manage through the recession. However, they should still be adding value as the economy picks up.