J.C. Penney Says 'No Sale': Cuts All Prices, All the Time to Simplify Bargain Hunting

J. C. PenneyBy ANNE D'INNOCENZIO, AP Retail Writer


J.C. Penney (JCP) is permanently marking down all of its merchandise by at least 40% so shoppers will no longer have to wait for a sale to get the lowest prices in its stores.

Penney said Wednesday that it is getting rid of the hundreds of sales it offers each year in favor of a simpler approach to pricing. On Feb. 1, the retailer is rolling out a three-tiered strategy that offers "Every Day" low pricing daily, "Monthly Value" discounts on select merchandise each month and clearance deals called "Best Price" during the first and the third Friday of each month when many shoppers get paid.

The plan is similar to Walmart's (WMT) iconic everyday low pricing strategy except that Penney's goal isn't to undercut competitors. Instead, Penney aims to take the guesswork out of shopping in its stores by offering customers fewer sales and more predictable pricing.

Penney's plan comes at a time when stores are struggling to wean shoppers off the profit-busting bargains that they have come to expect in the weak economy. The move is risky because shoppers who love to bargain-hunt may be turned off by the absence of sales.

"The big question on investors' minds will be how customers will react to a single price point versus a perceived discount under the old strategy," says Citi Investment Research analyst Deborah L. Weinswig.

Here's how Penney's pricing will be different:

• Sale prices become everyday prices.
The company will use sales data from last year to slash prices on all merchandise at least 40% or lower than the previous year's prices. So, a woman's St. John's Bay blouse regularly priced at $14.99 could have the "Every Day" price of $7.

• Fewer sales.
The retailer will pick items to go on sale each month for a "Monthly Value." For instance, in February, it might be jewelry for Valentine's Day and in December it could be Christmas decorations. Items that don't sell well would go on clearance and be tagged "Best Price," signaling to customers that's the cheapest price.

• New tags.
The retailer used to pile stickers on price tags to indicate each time an item was marked down. But now each time an item gets a new price, it gets a new tag too. A red tag indicates an "Every Day" price, a white tag a "Monthly Value" and a blue tag a "Best Price."

• Simpler pricing.
Penney will use whole numbers more often when pricing items. In other words, you won't see jeans with a price tag of $19.99, but rather $20.

• New advertising.
There will be an ad that shows shoppers screaming "No" to discounts as they look in their mailboxes, a pile of coupons and big sales signs. A 96-page colorful catalog that highlights "Monthly Value" items will be mailed each month to 14 million customers, along with other promotional efforts.

The new strategy, unveiled at Penney's investor meeting on Wednesday, comes as the retailer tries to turn around its business. Heavy discounting has hurt department stores like Penney. The group generates an average of about $200 per square foot, less than half the $550 or $600 stores like Victoria's Secret and Lululemon generate per square foot, according to John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team.

Penney has been a laggard even among department stores as its core middle-class customers have been among the hardest hit by the weak economy. It's also failed to attract a younger, hip customer despite its efforts to add brands Mary Kate and Ashley Olsen teen clothing collection. And its stores are described by some in the industry as "boring."

For the first nine months of fiscal 2011, Penney's revenue at stores opened at least a year -- an indicator of a retailer's health -- rose 0.9%, while competitors like Macy's (M) rose 5.4%, and Kohl's (KSS) was up 1.1%. Penney posted a loss in the third quarter and cut its fourth-quarter earnings outlook after a disappointing holiday season when it had to heavily discount to attract consumers. Penney's gross profit margin has shrunk for six straight quarters.

The pricing strategy caps months of speculation about what Penney's future might look like under the leadership of Ron Johnson, a former Target (TGT) executive and the mastermind behind the success of the Apple Store (AAPL) who became Penney's CEO in November.

Johnson, who joined the company's board in August, has begun to put his stamp on the retailer. Penney announced in December it will have homemaker doyenne Martha Stewart develop mini-shops starting next year. And Johnson has tapped former colleagues at Apple and Target to join him at Penney.

Johnson and his management team have a big task ahead of them in making the new pricing strategy appeal to shoppers. For years, Penney, like many other stores, has artificially propped up ticketed prices even as costs have come down slightly over the past decade. The intent: to make it look like shoppers are getting great discounts.

Penney has been an especially big promoter. Last year, the company, which offered 590 sales events last year, had about 72% of its revenue come from merchandise that was discounted by 50% or more.

That's more than double the industry average. According to an estimate by management consultant firm A.T. Kearney, a typical retailer sells between 40% and 45% of its inventory at a promotional price, up from 15% to 20% 10 years ago.

The increased discounting has been a vicious cycle that only feeds into shoppers' insatiable appetite for bigger and better discounts. In fact, whereas it took 38% off to get shoppers to buy 10 years ago, it now takes discounts of 60%, Penney says.

At Penney, the regular price on an item that costs $10 to make rose 43%, from $28 in 2002 to $40 in 2011. But because of all of its sales and other promotions, what it actually ended up selling for rose only 15 cents, from $15.80 to $15.95 during that same period.

Charles Grom, a retail analyst at J.P. Morgan (JPM), said it will be difficult to change shoppers' buying habits. Macy's, for example, cut back on coupons a few years ago, only being forced to ramp it back up after seeing sales suffer.

"Shopper fatigue has been building for several years with the advent of the Internet and the ability for shoppers to compare prices," he said. "If [Johnson] can try to pull this off, it will be impressive. But it's hard for retailers to change the image of the company. He has a lot of wood to chop."



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621 Comments

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Mala Aswani Wadhwani

I guess we ( including me) could use a little patience and try to go along with the new pricing strategy to give it a fair chance. Who knows, it might simplify shopping and others might follow. I know that I would love to save all the time I spend sorting coupons and so much promotional paper in the mail is just overwhelming for me.

August 01 2012 at 9:40 AM Report abuse rate up rate down Reply
bjsparky8

No way will I continue going to JC Penny's without my COUPONS. That is what made me keep going as I did like the merchandise I purchased there.

May 16 2012 at 2:52 PM Report abuse rate up rate down Reply
Marge

I dont think the new Penny's philosphy will help. I just bought my son a pair of casual shoes at Penny's for 55.00 (their everyday low price :)....I had to return them as they wre made w/an imperfection. They didn't have a shoe his size. I called 2 other competitors who had them at the SAME PRICE. Guess what Macys had that same low price at 20 percent off and told me if I wanted them to be bought online they would waive the delivery. I couldn't even get Pennys to ship free from store to store after they gave me an imperfect pair. Everyday low prices is fine if indeed they are lower than other stores....They were not lower. They were the same and the others had a sale.

May 09 2012 at 1:11 AM Report abuse rate up rate down Reply
Barb Rzz

Bye Bye JC Penney! I have shopped there for years when they had sales and coupons,and yes,they could have still done coupons,they could have emailed them to people and alerted them of sales that way.There is always a way.I am now a huge Kohls shopper,they have the best clearance and you can use up to the 30% off coupon and get $10 Kohls cash for next time,which is to get u in the store,yes,but still a good deal.I got a pr of shoes orig 100 for 20 bucks.I will go where the best deals are.I am a stay home mom and have to save money and I will not settle for the everyday low price or wait for certain clearance days.I was in JCP recently,Their proces are not that low at all,the stores looked half empty.I am off to check out Macys,I hear they have great clearance and coupons!!

May 02 2012 at 10:19 PM Report abuse rate up rate down Reply
Get-Over-It

I like J.C. Penney and plan to continue shopping there. My shopping experience since the new pricing started has been great. I bought 15 ties last week for $2 each; the regular prices were $17 to $36. With coupons, I never got a tie there for less than $7. Two weeks ago, I bought 3 pairs of their more expensive slacks for $15 each. I used to use coupons and never got them for less than $25. And I went this past weekend and two premium dress shirts for $8 each. I'm not making this stuff up folks; will happily share receipts if you care about it that much. My point is that my experience with the new pricing has been great and I have no incentive to stop shopping there.

And Frankly, I don't care what or who is in their TV ads; that's irrelevant. You should all learn to be a little more objective in life. For example, I absolutely hate the Macy's "One Day Sale" song, but rest assured, when their doors open for the One Day sales, I'm walking through at 9:01 a.m. every time...crappy music and all. Who cares whether the commercial was pleasant or not? I'm there to find a bargain! So for some of us the "ads" are simply a reminder...and that's all they are or ever will be. You don't need to be hypnotized into some feel-good warm-n-fuzzy to get down to the store, buy your junk, and go home!

March 20 2012 at 5:13 PM Report abuse rate up rate down Reply
louanna

I do not like the new ads and I dont like not having the sale signs I was in there every week or two now I may go in once a month or ever two months

February 04 2012 at 11:34 AM Report abuse rate up rate down Reply
Beth

I was looking at the jeans price and they are $12 - $15 dollars more than they would be on sale. So how can they say they are the same price or cheaper? I used to like going into to JCP to get good deals. Now we are getting ripped off. Not shopping there anymore. I think this is going to backfire on them.

February 04 2012 at 10:35 AM Report abuse rate up rate down Reply
1 reply to Beth's comment
pitcherme2

youre not getting ripped off youre just not getting heavily clearanced items anymore, which u wouldnt get if they kept selling things at 80% off... if u havent read theyve LOST money.

May 23 2012 at 1:16 AM Report abuse rate up rate down Reply
Lisa

So if they're cutting prices to get rid of sales, why is the bedding set I was planning on buying MORE today (Feb 1st) than it was yesterday?????? Guess I'll look elsewhere for bedding. What a crappy thing to do - make people think you're lowering prices, when, in fact, you're increasing them!

February 01 2012 at 10:09 PM Report abuse rate up rate down Reply
Faye Malench

I will never set foot in a JC Penney store just because of those horrible ads. JCP should be ashamed to resort to so low and undignified a gambit.

February 01 2012 at 4:44 PM Report abuse rate up rate down Reply
kvsoske

Those horrible, annoying JCP adds that have people screaming are not a positive for JCP. I hit mute every time one comes on and I react negatively. Regardless of their pricing strategy this has done nothing to encourage me to shop at JCP. I have now been Pavolvian trained to think NOOOOOOOOOOOOOOOOOOOOOOOOOO every time I hear JCP.

It would be fair play for someone to walk into a JCP and start screaming. If they are going to bring that into my home, I hope someone bring it into theirs. I would be pleased to hear that this has been done.

February 01 2012 at 1:00 PM Report abuse -1 rate up rate down Reply