JCPenneyNancy Pietschnig wasn't at all excited when she first heard about J.C. Penney's (JCP) plan to ditch most of their hundreds of annual sale events, dump their coupons, and just offer lower prices every day, with only a handful of regularly spaced sales a year. The patient care technician from Lodi, N.J., likes her sales, and her coupons, too.

The strategy -- outlined in January by the retailer's new CEO Ron Johnson -- was designed to revive Penney's sluggish business and redefine department store shopping. They would eliminate the rampant discounting events that taught shoppers to distrust their prices, and that have increasingly led them to wait for final clearance sales to buy.

The retail and investment communities have been watching Johnson with bated breath, to see if the man many regard as a kind of merchant prince could pull it off.

So far, the jury is still out: Penney's first quarter sales tanked.

Down, But Not Done

Due to Johnson's stellar pedigree, the industry isn't giving up on him yet. The man who led Apple's (AAPL) highly successful venture into retail stores, and prior to that, helped burnish Target's (TGT) image as a high-end discounter with exclusive lines from upscale designers like Missoni and Jean Paul Gaultier, will be given more time to work his magic on Penney's.

And other retailers have already begun following Penney's lead. In March, regional department store chain Stein Mart, announced its plans to slash coupons by 50% and return to its everyday low price roots.

Nancy PietschnigBut Pietschnig, who was willing to give Penney's new "fair and square" pricing strategy a try, is unimpressed. Worse, she's also skeptical that she's getting a good deal.

"They're saying, 'no more sales,' they're going to give me a rock-bottom price as soon as I walk into a store," said Pietschnig, who spoke to DailyFinance back in March about her penchant for shopping department store clearance racks.

But during a visit to the store the following week, "the stuff was even cheaper -- what the heck was that?" she said. "They made this whole big thing about having the cheap prices from the beginning ... It's confusing, and I don't want to even bother with them."

Based on Penney's quarterly earnings report this week, Pietschnig wasn't alone in her feelings.

New Pricing Strategy Turns Off Shoppers

Store traffic at J.C. Penney sank 10% last quarter, in part because shoppers didn't get the retailer's new pricing strategy, Johnson told investors and press this week during a meeting in New York City to review its earnings results.

Johnson also outlined the next phase of Penney's "seismic" reinvention strategy -- which sounded a lot like adding more upscale, hip products a la Target, but in a department store setting -- while conceding that the turnaround would be tougher than management had anticipated. But he also stressed that Penney's makeover is a work in progress, and the chain is on the right track.

Still, during the first quarter ended April 28, Penney posted a $55 million net loss. Sales fell 20.1%, to $3.15 billion from a year ago, while same-store sales dove 18.9%.

Penney's sales especially sank over the weekends, when heavy coupon users like Pietschnig hit the stores.

While shoppers were entertained by the retailer's new cheeky print and broadcast ad campaign, "it's not doing the work" of communicating the new strategy, Johnson said.


To that end, Penney is tweaking its ads to hammer away its value proposition -- 40% lower prices every day, monthly sales and clearance sales Thursday and Friday -- with ads that spell out the savings and feature copy like, "Do the math."

The retailer underestimated just how much consumers are addicted to coupons and sales events, which Penney executives kept referring to as "drugs" from which shoppers need to be weaned. "We've got to learn to drive traffic in new ways, the old way was with a coupon and a sale," Johnson said.

On the bright side, customer surveys showed that shoppers are warming up to Penney's changes, he said. "Customers love what they see when they come to the store."

Target-like Merchandise in a Department Store Setting?

Beyond the change in pricing, by this autumn, nearly half of Penney's merchandise will be different.

The chain, which announced plans in January to reorganize its store floors into 100 specialty shops -- including a massive Martha Stewart home store -- will also introduce exclusive, edgy fare to fix its struggling home furnishings business -- a clear sign that Johnson is using the lessons he learned during his tenure at Target.

The new lines will include:
  • home products from Michael Graves, the architect whose housewares line at Target was the first of the discounter's now-famous trendy designer collections;
  • a home line from Sir Terence Conran, the British retailer/restaurateur whose modernist, high-brow stores are iconic in the world of home design;
  • a shop from Bodum, the contemporary Danish kitchenware company;
  • and a shop from Jonathan Adler, a hipster designer known for his cheeky, vibrant home products.
In classic Target fashion, Graves, Conran and Adler are not totally household names, but each brings to the table both design cachet and a cool factor.

Elsewhere in the store, Penney's soon-to-arrive fashion and accessories lines reflect a high-end push. They include a girl's clothing line from designer Cynthia Rowley (another Target collaborator); a collection from designer Georgina Chapman of Marchesa, a high-end brand that's a regular on the runway and at red-carpet events; and watches from tony Tourneau.

And don't be surprised to see food and beverage shop concepts integrated into the store, Johnson said.

"The goal here is to reach younger, newer shoppers," Penney's President Michael Francis told the audience.

But is this what shoppers want from a chain that has traditionally played to the sensibilities of Middle America? Analysts -- who were largely unfazed by Penney's first quarter declines -- seem to think so.

Although "their numbers were in the ditch ... I'm optimistic," Craig Johnson, president of retail consultancy Customer Growth Partners, told DailyFinance, saying the shop concepts are the right strategy.

Citi analyst Deborah Weinswig agreed. "We do not believe that J.C. Penney's disappointing first quarter results signify that the company's transformation is off track," she said, in a research note. Weinswig was bullish on the "significant product newness on the way," noting Penney's 28 brand introductions and relaunches.

"While the first quarter was more challenging than anticipated, management has already begun to tweak its marketing and pricing to improve traffic," she said.

Stay tuned.

Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

Intro to Retirement

Get started early planning for your long term future.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Beverly Angermeier

yeah penneys is having a sale alright a going out of business sale!!

July 24 2012 at 2:06 PM Report abuse +1 rate up rate down Reply

Because of all of this there are massive layoffs at JCP going on right now.Most of the dedicated employees that have worked there for over 25 years are all gone.They are hiring temps for lower pay and no insurance to do the work.Management has been weeded out to almost nothing. Everyday they go into work they are afraid they will be walked out.Yes Ron Johnson is one scary person.He believes he has a vision.He is a very rich man playing with the live and jobs of American people.

July 11 2012 at 1:46 PM Report abuse rate up rate down Reply

Well the ink is dry now. Francis is gone, middle managers, associates, and more to come.
Johnson isnt a retailer he is a dreamer. He had the time before to look important at Apple
because Apple did the work for him. Johnson wasnt dealing with product development,
finance, re doing existing stores to the degree of $5B+ to even come close to his competition.

Now he thinks he is the master engineer and architect for the Marketing, What was he before Francis
resigned or was told to leave? Now he wants to control this area after he said he did it previously. Well
Johnson I been a CEO for 25+ years and WS knows that the CEO is the one the buck stops at when there
is a problem. So face it that mistake in how you came out of the gate was you fault and none else. You hired the wrong people and you are the wrong person without experience to run a retail company,. Maybe that is why Cooke is CEO of Apple and you were not the person Jobs was considering.

Now you have your $50M and that is above beyond wihat you should have gotten,. Qustrom and Ullman didnt even get that!

The shareholders are being robbed and Roth and Ackman are not the proven Retailers by any means.

Through my careful review of similar businesses that our company has taken on the time to roll out change is more important than doing it wrong. The cost for each mistake could take the company down after a few. You are dealing with people not machines.

Vendors are now being pressed to the brink and willl jump ship if they haven't already.The next thing will be J C Penney on HSN or QVC. Maybe that is a throught for exposure.

S LeVine New York NY

June 23 2012 at 10:35 AM Report abuse rate up rate down Reply

I have no effect of these things on my shopping from Macys, I am always a fan of Macys.

June 12 2012 at 4:54 AM Report abuse rate up rate down Reply

Remember their is a nationwide boycott of JCPenney's because of their pushing of perverts on their customers.

June 02 2012 at 10:07 PM Report abuse +1 rate up rate down Reply

I think their marketing blunder was to pander to the homosexual crowd. I'm not sure how this first downturn occurred, but it seems to me that when you anger 95% of your customer base, sales are going to tank. Add that, with the bad economy, this may be the largest marketing blunder of biblical proportions. My take on it is that people are boycotting the company and will continue to do so for a long time.

June 02 2012 at 8:16 PM Report abuse +1 rate up rate down Reply

I think no sales is great! They aren't truely real, for the most part, anyways. Kohl's always has sales on....always, they are still costly compared to others.

May 22 2012 at 9:40 AM Report abuse rate up rate down Reply

People have spoken and I also do not like the store anymore. So lets just watch the next quarter go downhill and so will the holiday seasons fourth quarter. All because the CEO knows what his customers want, he is so out of touch with the working class.

May 21 2012 at 11:20 PM Report abuse +1 rate up rate down Reply

The JCP store started to look rundown not long after the holidays 2011 into 2012. Then they announced a new spokesperson and that did it for me. Closed my account and stopped shopping there altogether. I shop at SEARS now. Just bought a few area rugs on SALE! I also love the Land's End clothing line. Way more expensive but the quality is great! I'm very happy I have a new place to shop!

May 21 2012 at 10:42 PM Report abuse +1 rate up rate down Reply

What idiot CEO would bring in a divisive figure like Ellen Degenerate and make people think things had changed for the better? Very few

May 21 2012 at 9:50 PM Report abuse +2 rate up rate down Reply
1 reply to Doc's comment

I guess the CEO didn't understand that he was marketing to idiots like you.

May 21 2012 at 11:19 PM Report abuse rate up rate down Reply