J.C. Penney banks on permanent 40% markdowns

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

The company 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 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 percent 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 figures 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 percent, while competitors like Macy's Inc. rose 5.4 percent, and Kohl's was up 1.1 percent. 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 Corp executive and the mastermind behind the success at Apple Inc. stores 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 percent of its revenue come from merchandise that was discounted by 50 percent 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 percent of its inventory at a promotional price, up from 15 to 20 percent 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 percent off to get shoppers to buy 10 years ago, it now takes discounts of 60 percent, Penney says.

At Penney, the regular price on an item that costs $10 to make rose 43 percent, 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, 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."

[pennyran]

I wanted to cry today after entering my local JC Penny Store on 2-2-12. I truely felt as if something sacred had been taken from me. I had received an email on my phone from JC Penny's; and assumed it was a coupon, which I dearly LOVE--I am redecorating my bathroom and JC Penny's is MY store--I say that with a personal ring to it--I have been shopping Penny's since I was a child; my grandmother could not afford to shop for me at Davidson's or Riches back in the day and the old JC Penny Outlet at Belmont Hills in Smyrna Ga is where I got my clothes and you couldn't tell them from the name brand clothing every one else wore. I got married and purchased my wedding dress at the JC Penny's outlet mall by the Atlanta Farmers Market in 1987. 25 years later it is still pressed and in wonderful shape. This past Christmas I would safely assume I did 70% of my gift shopping at Penny's.

When I walked into the store on 2-2-12--I was at first struck by was that were no sale adds up front and several associates were standing around looking kind of lost. I knew something didn't "feel" right" about my favorite store; but I had not opened my email from Penny's yet--still thinking it was a coupon and had no clue of the stores restructure. I then went over the men's clothing, thinking to pick up some T-shirts that I had bought in January for my husband. I picked up the shirts I had purchased a few weeks ago, and the first thing I noticed was the large price increase. I was very confused.

I walked away from the clothing and headed to the escalator to go upstairs for curtains and bathroom decor which was why I had even made the trip to Penny's to begin with. The first thing I noticed were the gloves, hat and scarves I bought for my daughter at Christmas and instead of being clearanced--they were at a higher cost than I paid for them in December. I made it upstairs like I was in the twilight zone and saw another customer, she shook her head and said "can you believe what they have done to this store? I am headed to Sears"
I was still confused--but when I saw my mixer I bought the last week of December for 19.00 sitting on the shelf for a much higher price--I started looking for an employee.

While looking for a sales associate, I saw my sheet set, 50% higher than what I paid for it . I glanced at the curtains and CRINGED! About that time a sales associate asked if she could help me and I practically cried asking her what in the world had happened to the store. She explained the no more coupon, the flat walmart like pricing and no more sales. I grabbed my IPHONE and opened the message I thought was a coupon to find the very details she was speaking of.

Have the people at the TOP in the corporate office of JC PENNY"S lost their minds? The sales clerk then tried to explain everything is priced lower--I opened my purse looking for receipts and explained which items I had bought at the same store over the past few months for less than the new low price! She explaind to me how much cleaner the store is, "everything just got so messy during those door busters, and all the sale adds were left laying all over the store for us to clean up every night" After telling me this, I then asked for her to look around and see how many customers she could see upstairs other than me?

NONE!

I left Penny's and walked into Sears--there were towels on sale for 3.99--big plush towels--there were clearance items at great deals, sheets and bath decor.

I went to Bed Bath and Beyond; uploaded my 20% off coupon from my phone for that store--spent a small fortune on itrems that I would have purchased at Pennys before and drug all my bags back into Penny's because that is where I had parked. As I was leaving, one employee asked if she could help me find something--I held up my bags and said "NO thank you..Bed Bath and Beyond and Sears took care of me"

Penny's customer base was the coupon moms, middle class door buster junkies and those looking for a bargain in a bad economy. Walmart has narrowed its clothing section down to almost NOTHING--if walmart cant sale clothes at that flat rate and no sale pricing strategy--why in the world would a clothing store such as JCP think it would be a good idea for them to implement it?

All I know for certain is that after a lifetime of shopping JCP--I wont be back.

I got online looking for ways to contact the corporate offices of JCP--called a phone # and was told they do not allow them to give out email addresses? Really? I hate to see what I am sure will be the beginning of the end of Penny's--if I want cheap stuff at a flat price I am going to Target--not fighting the mall crowds to shop at Penny's which is transforming itself into a target or walmart store.

[jmrainey]

The advertizing you are running is with out a doubt the worst ever aired. I must comment that I have never seen as bad. You better have a good look at your marketing department as these ads and your new program is going to put you in BK.
I can only hope a professional marketing company wasn't paid for this work. At least they are easily fired. If your in house created this plan, replace the whole group and be sure you include the VP of marketing for approving.
The advertizing you are running is with out a doubt the worst ever aired. I must comment that I have never seen as bad. You better have a good look at your marketing department as these ads and your new program is going to put you in BK.
I can only hope a professional marketing company wasn't paid for this work. At least they are easily fired. If your in house created this plan, replace the whole group and be sure you include the VP of marketing for approving.

[httpwwwnews]

I went into Penney's in November looking for some pants. All I saw was clothes for teens or elderly ladies. The prices were appalling. I looked at socks, looked like 60% more than other stores...There was nothing I wanted to wear there, especially for the prices they were charging.
I was so turned off that I didn't even go in while Christmas shopping. Sure hope they get better clothes in my size and reasonable prices.

[Jaylah54]

So, in other words, JCP has been overpricing their merchandise by 40%. Gee, I wonder why sales are down?

[AnnieDanny]

Part of the problem with JC Penny and Sears: they're in the MALL, and I never ever go to the mall. The mall is expensive. It's huge. And it's not close by.

[Zann-Zel]

I'm glad they're doing this. I get tired of stores where the price tag might say $50 but you've got to check the sign and check the sale and when you're done its only $20. JUST put $20 on the tag and be done with it!

[cattiej]

add: I think I know a thing or two about being a customer at J.C. Penny's.

[cattiej]

Shopped at Penny's for 60 years..glad they are changing the prices as I have always hated the $9.99 price tags and anything else that had the $.99 added to the price. If Penny's would have had questionaires at the entrace of the stores or on their websites, many of us could offer good suggestions to keep Penny's in business. This STILL can be done so I hope someone from Penny's is reading these comments. I really like the curtains, bedspreads, towels area of our local Penny's but I wish they didn't have the drape/curtain displays so close together..it's like walking in maze that you can't find yourself out of. Also, hire help that really want to work in retail. Take the time to teach them how to sell and also how to interact with customers. Not all customers are nasty, some are having a bad day, may be ill and have many reasons for not being real friendly. You get more with sugar than you do salt. Pay the employee's a decent wage so that everytime I go to the Penny's store I don't see a new face and someone who doesn't know anything about the products I want to look for. Absolutely NO talking on the cellphone and no talking to your friends that come into the store to visit you. When you wait on a customer, look them in the eye and talk only to them, not your friend stand at the counter and you yaking about what you did last night. Have you new employee's become customers and go around like a customer would and try to buy some item and see how they are treated and how they treat the workers. Make all employee's wear a name badge at all times while working. Workers should dress in nice clothing and not blue jeans. Not high heeled spike shoes and not grubby tennis shoes. I could go on because having been a customer for 60 years and buying for myself, my husband and 4 boys, you might say I know a think or two about being a customer at J.C. Penny's. Have a good day everyone and thanks for reading my comment.

[yarnplay]

Oh Puhleeze, the only thing this will do is drive people to Macy's. Mr. Johnson misses the point of "shopping", it's the fun of finding the best perceived deal. By the way, Macy's has racks of "everyday value" priced items that are exempt from coupons because the price has been lowered. Nobody touches the stuff until it goes to clearance, where a coupon can be applied.

These aren't I-items Mr. Johnson, where there is single brand recognition. There are so many retail outlets to chose from, why would you take JCP out of the race by eliminating the fun factor. When you joined JCP I thought it would be to improve their online presence. This is just incredibly naive. The program extreme couponing is a hit for a reason. Rethink this.

[addict42]

The middle class is vanishing and stores like Macy's, JCPenney, Kohls and Sears will disappear with them leaving Wal-Mart and Target for the poor, and Saks, Nordstrom and Neiman Marcus for the rich. It's just a matter of time. Smaller stores that catered to the middle class like Gap and Banana Republic are suffering horrible too.