Market Minute: J.C. Penney Is Bringing Back Sales


By ANNE D'INNOCENZIO

NEW YORK (AP) - J.C. Penney (JCP) is bringing back sales.

The struggling department store chain this week will begin adding back some of the hundreds of sales it ditched last year in hopes of luring shoppers who were turned off when the discounts disappeared, CEO Ron Johnson told The Associated Press.

Penney also plans to add price tags or signs for more than half of its merchandise to show customers how much they're saving by shopping at the chain - a strategy used by a few other retailers. For store-branded items such as Arizona, Penney will show comparison prices from competitors.

The reversal comes on the eve of the one-year anniversary of its original vow to almost completely get rid of the sales that Americans covet but that cut into a store's profits. The idea was to offer everyday low prices that customers could count on rather than the nearly 600 fleeting discounts, coupons and sales it once offered.

JCPThe bold plan has been closely watched by others in the retail industry, which commonly offers deep discounts to draw shoppers. But so far the experiment has served as a cautionary tale of how difficult it is to change shoppers' habits: Penney next month is expected to report its fourth consecutive quarter of big sales drops and net losses. After losing more than half of its value, Penney's stock is trading at about $19. And the company's credit ratings are in junk status.

Johnson, who rolled out the pricing plan shortly after taking the top job in November 2011, told The Associated Press the latest moves are not a "deviation" from his strategy but rather an "evolution."

"Our sales have gone backward a little more than we expected, but that doesn't change the vision or the strategy," said Johnson, who previously masterminded Apple Inc.'s (AAPL) retail stores and Target Corp.'s (TGT) cheap chic fashion strategy. "We made changes and we learned an incredible amount. That is what's informing our tactics as we go forward."

But critics say Johnson is backpedaling. Walter Loeb, a New York-based retail consultant, said Johnson "is now realizing that he has to be more promotional to attract shoppers."

The pricing strategy has been a key part of Johnson's plan to reinvent Penney, which had failed to change with the times as its competitors updated their stores to make them cool places to shop. The plan includes adding hip new brands such as Joe Fresh and replacing racks of clothing with small shops-within-stores by 2015. But this isn't the first time the pricing strategy has been tweaked.

When it was rolled out in February 2012, the plan entailed permanently slashing prices on everything in the store by 40 percent. Penney decided to have just 12 monthlong sales events on some merchandise. And there would be periodic clearance events throughout the year.

But the new pricing plan wasn't well received on Wall Street or Main Street, so six months after launching it, Johnson ditched the monthlong sales, saying that they were too confusing to shoppers. Johnson said Penney has learned that people don't shop on a monthly basis, but rather they buy when they need something for say, back-to-school or during the winter holidays. And during those times, he said, they're looking for even more value.

"I still believe that the customer knows the right price, but they want help," he said.

Penney declined to say how many sales events it will offer going forward, citing competitive reasons. But the company said the figure will still be well below the nearly 600 it used to offer. The company said the discounts will vary depending on the sale. From Feb. 1 through Feb. 14, for instance, shoppers will get 20 percent off some jewelry for Valentine's Day. One example: half-carat diamond heart pendants on sale for $96, below Penny's everyday price of $120.

Penney said the decision to add tags or signs on much of its merchandise that shows the "manufacturer's suggested retail price" alongside Penney's "everyday" price was a result of his realization that shoppers want a reference price to consider.

National brands were also asking Penney to show the suggested price to shoppers, he said. Penney began showing the suggested manufacturer's price on Izod men's merchandise last fall and was encouraged by the response.

Burt Flickinger, a retail consultant, said the move could help Penney because manufacturers' suggested retail prices can be as much as 40 percent higher than what retailers wind up charging. The practice is common in the home appliance industry but spotty in the department-store industry because stores generally hike prices up even more to give shoppers the illusion of a big discount, he said.

"The strategy will be helpful for shoppers to understand lower prices," Flickinger said. "At the same time, it will be tough to get consumers back in the store from competitors."

But Craig Johnson, another retail consultant, said that adding the suggested manufacturer's price is just a gimmick. "The objective of this exercise is to maximize the perceived value for the purchase."

Johnson said that for Penney's own store brands like Arizona and Worthington, the team will research other stores and will submit supporting data to its legal team for approval before it advertises comparison prices, using certain criteria. For example, they'll make sure the fabric used is of the same quality as its rivals. For jewelry, Penney is using the International Gemological Institute, a third-party appraiser.

"There are no makeup prices here," Johnson said. "It's all about trying to communicate what it's worth to the customer."

Penney will not show comparison prices for merchandise that is part of exclusive partnerships with brands such as Nicole Miller and Mango, however. The company said it's difficult to offer such references.

To promote the strategy, Penney on Wednesday will begin launching TV, print and digital ads. One TV ad compares a $9 polo shirt under its store brand Arizona with $19 "elsewhere." ''Two polos, same color, same vibrant, same details, same swing, same swagger, different prices," the ad said.

Johnson reiterated that he expects Penney to return to sales growth sometime in 2013. That would be a welcome change for Penney, which has had steep sales and profit losses since the new strategy was launched.

For the first nine months of its current fiscal year, Penney lost $433 million, or $1.98 per share compared with a loss of $65 million, or 30 cents per share in the year-ago period. Total sales dropped 23.1 percent to $9.1 billion.

Analysts expect Penney to post a loss of 17 cents on sales of $4.22 billion for the fourth quarter. They expect the company's annual sales to fall by 23 percent, or nearly $4 billion, to $13.3 billion for the latest year. Revenue at stores opened at least a year - a measure of a retailer's health - are expected to drop 25 percent, in line with the third quarter, according to analyst polled by research firm FactSet.

Meanwhile, investors have sent shares down more than 55 percent from a peak of $43 in the days after the plan was rolled out in February. Shares slipped 18 cents to $19.17 on Monday.

"A year ago, we were launching a major transformation and didn't know what to expect," he said. "Today, I know what happened. Our team has a year's worth of history. This is going to be a great year because the new JCP is coming to life for customers."


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27 Comments

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jp1952mp

As someone that worked CUSTOMER SERVICE...that needs to be brought back with Adults that do not stand there behind what Few Registers there are so they can get out on the Floor and Assist the Customer..That is where the Money Comes from...The Customer...18.5 yrs..i should know...and they had best be people people.

those glossy catalogs i throw in the garbage....I want a bedding catalog . JCP use to have the Best Bedding , Prettiest of any Comp. i do Not Want to see all these Teen Age Items..

I have 2 Grandchildren.. One a boy 6 months old, girl 18 months. The clothes were terrible so i went to Belk,Macy's . All stores sell Carters . I do not know who orders the clothing even for women but JCP was always classy even in 2009.

i am going to voice what i heard the Customer tell me in 2009....even though they liked the items; price is too high ; Where are the Catalogs ( women drove to the Mall to get and parked in the fire lane to run in and get a Bedding Catalog ); and I worked in the men's dept. )
Women would say they have NO clothing for my age , just these young ones that want to let it all hang out...

Mr. Johnson, So many people love this company ! Do not let it go under . sincerely, retiree

February 11 2013 at 10:29 AM Report abuse rate up rate down Reply
James M

Damn lip service by Dapper Dan aka Ronnie, sorry, this is neatly ignoring JCP is now stock with glorified over priced higher MSRP prices, to clear higher profits. It is about fad vs style and no value. Seeing jeans that have a MSRP of $40 for $20, old JCP, is not the same as selling a pair with a MSRP of $160 for $60 when the quality is the same except Justin Timberlake's name is sewed in them. JCP is now tooled up for a very small customer base of magazine driven fad clothing, those that have to be told what to wear. The wholesale firing of its older employees tells me this is a company geared for 19-20 year olds and doesn't deserve my money on Chinese made celebrity clothing. I truly believe the roaming iPad checkout people will be in some kind of turtle neck uniform as Ron's next move..

Like the last sale offer from Ron, it went in the trash. I have cancelled my credit card with them, had the rewards thing has been canceled, yet I still get posted mail from this company.

What some posters don't get, I will tell you str8, the old JC Penny's is totally gone, Ron just kept the name, you can't get back old customers to a store that no longer exists. How is it people are missing this? Ron should have closed all doors on a Friday and opened Monday under a totally different name. And this is why it will fail.

I will not be back, 35 years plus shopping with them.

February 03 2013 at 6:24 PM Report abuse rate up rate down Reply
aloha.nui.loa

I want JCP to succeed. This is an American Corporation. I would have taken a different approach. I would have offer the CEO job to best store manager in the country for under 1 million of pay. Next I would have seeked out every American Made product in this country, stocked the stores and developed a NEW modern JCP american made catalog. I would sell everything online american made that sears would sell plus. Then I would advertise JCP An American Corporation selling American Made. Bring back the crazy sale coupons etc. Instead the shareholders paid this johnson guy millions, screwed up the sale thingy, taken out catalog dept., have lousy online processing and internet fiasco and have angered customers. I shop monthly at JCP and spend quite abit a year at penneys. I have offered this advice in their surveys and in the store. I want them to succeed. I have shopped at penneys since the 60's. And was a kid model and attended their kid grooming and manner classes. Bad management is the problem

January 29 2013 at 1:12 PM Report abuse rate up rate down Reply
Jomstead31

SORRY!!! I apologize for the multiple post, computer glitch - was told post wasn't accepted, so I edited it a bit more and then attempted to re-post and it posted both of them!!

January 29 2013 at 12:55 PM Report abuse rate up rate down Reply
Jomstead31

Having everyday low prices was/is a good plan - in theory. The idea to turn JCP into pseudo trendy mini boutiques inside one store when the mainstay JCP shopper is a typical middle of the road normal human - usually a working person who may or may not have a family, well, that was not such a good idea.
The change in sales - ummm, duh!! They have a marketing team (several of them!!) and they did not understand that most people shop when they need something.?? Fire a few of them and add a few normal mothers from average income homes to that team!! When do people shop: School clothes - usually in August/September. Coats - when it gets cold in that region, Swinsuits - not usually a big sale item in January!! THINK!! I know critical thinking is a lost skill, but for goodness sakes!! Here's some important info: The average person doesn't have enough money to just shop for the fun of it and buy, buy, buy!!

Your average person does not spend their days browsing trendy boutiques. They don't have time!! And the time they have is valuable. They go in, look about a little while, then they find what they need/want and get out. Time and price are major issues - not browsing about!! You want your shoppers to be able to find what they are looking for - and don't detour them to many times, because they will leave frustrated and empty handed!! You want to have a sale, put some thought into what sales will draw people in and when!!

Then, just to make things more messy (good scientists will tell you that you should only have one variable in a good experiment if you want decent results!!), when JCP went with this plan, they made so many changes at once, that as old customers experienced so many changes that they didn't expect/like, they went to another store.

JCP changed their sales, added the mini kiosks, roaming cashiers instead of a set checkout location, dropped standby lines they had carried for years and replaced them with fluff and trendy products, changed pricing labeling etc. In so doing they lost their dependable repeat customers in their desperate grab for new customers - who were supposed to flock in or good products at a fair price (people looking for a deal).

Some Problems: Alienation of customer base. The best deal, low value, disposable styles of clothing are already stocked by other big name businesses. Sales totally confusing. Trendy isn't what JCP was ever known for. Dependable, serviceable and decent quality products that did not fall apart after a few weeks/months was their niche, etc....

I could go on, but darn, the CEO and his board need lessons in basic business principles and how to make implement changes successfully. Old man Penney would be rolling in his grave. I've shopped there my entire life. I even worked for JCP part time for 3 years about 30 years ago while my husband went to grad school and it seems like this CEO was not even given the basic JCP values talk they gave us back then.

January 29 2013 at 12:52 PM Report abuse rate up rate down Reply
Jomstead31

Having everyday low prices was a good plan - in theory. The turn JCP into pseudo trendy mini boutiques indside one store when the mainstay JCP shopper is a typical middle of the road normal human - usually a working person who may or may not have a family, well, that was not such a good idea.
Your average person does not spend their days browsing trendy boutiques. They don't have time!! And the time they have is valuable. They go in, look about a little while, then they find what they need/want and get out. Time and price are major issues - not browsing about!! You want your shoppers to be able to find what they are looking for - and don't detour them to many times, because they will leave frustrated and empty handed!!
Then, just to make things more messy (good scientists will tell you that you should only have one variable in a good experiment if you want decent results!!), when JCP went with this plan, they made so many changes at once, the old customers experienced so many changes the didn't expect/like, they went to another store.

JCP did away with sales, added the mini kiosks, roaming cashiers instead of a set checkout location, dropped standby lines they had carried for years and replaced them with fluff and trendy products, changed pricing labeling etc. In so doing they lost their dependable repeat customers in their desperate grab for new customers - who were to flock in hoping for good products at a fair price (people looking for a deal).

Problems: Alienation of customer base. The best deal, low value, disposable styles of clothing are already stocked by other big name businesses. Trendy isn't what JCP was ever known for. Dependable, serviceable and decent quality products that did not fall apart after a few weeks/months was their niche.

I could go on, but darn, the CEO and his board need lessons in basic business principles and how to make implement changes successfully. Old man Penney would be rolling in his grave. I've shopped there my entire life. I even worked for JCP part time for 3 years about 30 years ago while my husband went to grad school and it seems like this CEO was not even given the basic JCP values talk they gave us back then.

January 29 2013 at 12:43 PM Report abuse rate up rate down Reply
jacquiandcraig

Ugh! You don't always have to change the habit of existing shoppers when you attract new ones. I would NEVER, EVER shop at the old JCP. E-VER. It was a madhouse with one coupon-crazed sale after another full of people who'd trash the store while searching for a bargain. IT. WAS. AWFUL. Since the change, I've shopped at JCP more in the last year than I have my entire life. I only hope that by bringing back the sales they don't bring back the insanity of the past.

January 29 2013 at 12:25 PM Report abuse rate up rate down Reply
aerofanz

I don't understand the need for people to have coupons. You either like the price or you don't. Don't you realize that the price before the coupon is more than likely inflated? And who likes rushing in for the one day ONLY sales and carrying around all those foolish coupons? Some people are not that bright when it comes to spending their money.

January 29 2013 at 12:22 PM Report abuse rate up rate down Reply
SMMandley7

Sales, shmales. Put some MERCHANDISE back in the stores, for crying out loud!

January 29 2013 at 12:07 PM Report abuse +1 rate up rate down Reply
enigmaticxone

If I had had so poor a performance in my job, I'd have been fired months ago. But Johnson just keeps on going, taking no responsibility for his mis-step and even implying that his policy's failure is somehow the consumers fault - they couldn't recognize a good deal when it smacked them in the face so they "need a little help' to recognize JCPs prices are good deals. I used to buy a lot of men's clothes at JCP, but in the last few years, their merchandise quality has sunk to Junk status. I won't even buy there now even if they are deeply discounted. I can do better at Kohl's and online from merchandisers who still offer value and good quality. If JCP wants to save itself, it needs to dump learn to survive on a narrower margin and dump all the cheap merchandise from the far east and start buying good quality products from this hemisphere, hopefully America specfically.

January 29 2013 at 12:00 PM Report abuse +1 rate up rate down Reply