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J.C. Penney gets rid of hundreds of sales
Question of the Day
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.”
By Michael P. Orsi
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