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J.C. Penney finds no sales leads to low sales
Question of the Day
NEW YORK — J.C. Penney is bringing back sales.
The struggling department store chain this week will begin adding some of the hundreds of sales it ditched last year in hopes of luring back shoppers who were turned off when the discounts disappeared.
Penney also plans to add new price tags or signs for more than half of its merchandise to show customers how much they’re saving by shopping at the mid-priced chain — a strategy used by a few other retailers such as home decor chain Crate and Barrel and the company that owns TJ Maxx, HomeGoods and Marshalls. For store brand items such as Arizona, Penney will show comparison prices from competitors.
The moves are a departure for Plano, Texas-based Penney on the eve of the one-year anniversary when it vowed 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.
The bold plan has been closely watched by others in the retail industry, which is notorious for offering 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 profit losses. After losing more than half of its value, Penney stock is trading at around $18. And the company’s credit ratings are in junk status.
CEO Ron Johnson, who rolled out the pricing plan shortly after taking the top job in November 2011, said in an interview last week that 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 Mr. Johnson, who previously masterminded Apple Inc.’s retail stores and Target Corp.’s 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 that Mr. Johnson is backpedaling. Walter Loeb, a New York-based retail consultant, said Penney’s top executive “is now realizing that he has to be more promotional to attract shoppers.”
The pricing strategy had been a key part of Mr. Johnson’s plan to reinvent Penney from the ground up that also included adding hip new brands such as Joe Fresh and replacing racks of clothing with small shops-within-stores by 2015.
But the plan wasn’t well received on Wall Street or Main Street, so six months after launching it, Mr. Johnson ditched the monthlong sales, saying that they were too confusing to shoppers. Mr. Johnson in the interview said Penney since 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 says, they’re looking for even more value.
“I still believe that the customer knows the right price, but they want help,” he said.
Burt Flickinger, a retail consultant, says 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 an illusion of a big discount, he says.
“The strategy will be helpful for shoppers to understand lower prices,” Mr. Flickinger said. “At the same time, it will be tough to get consumers back in the store from competitors.”
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