I’m a pretty humble person but I have to toot my own horn once in a while. This is in reference to my post dated Sept. 8, 2011. Click here The store I referenced in that post happened to be JC Penny’s. What an irony!
At least one of the big boys has apparently ”run out of gimmicks” and seen the light. I’m reading the Yahoo News Site and I run across the following: JC Penny gets rid of hundreds of sales. Wow! Do you think they read my blog? All kidding aside, here’s the article:
NEW YORK (AP) — J.C. Penney is permanently marking down all of its merchandise by at least 40 percent so shoppers no longer have to wait for sales to get bargains.
Penney said Wednesday that it is getting rid of the hundreds of sales it offers each year in favor of a simpler approach to pricing. Starting on Feb. 1, the retailer is rolling out an “Every Day” pricing strategy with much fewer sales throughout the year.
The plan, the first major move by Apple executive Ron Johnson since he became Penney’s CEO in November, is different from Wal-Mart’s iconic everyday low pricing. Unlike Wal-Mart, Penney’s goal isn’t to undercut competitors, but rather to offer customers more predictable pricing.
“Pricing is actually a pretty simple and straightforward thing,” Johnson told the Associated Press during an interview ahead of the announcement at the company’s Plano, Tex. headquarters. “Customers will not pay literally a penny more than the true value of the product.”
Penney’s plan comes as stores are struggling to wean Americans off of the profit-busting bargains that they have come to expect in the weak economy. The move is risky, though, 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 strategy will work:
— 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 “Month-Long Value.” For instance, jewelry and Valentine’s Day gifts would go on sale in February, while Christmas decorations would be discounted in November. Items that don’t sell well would go on clearance during the first and third Friday of every month when many Americans get paid. Those items will be tagged “Best Prices,” 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 “Month-Long 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 $19 or $20.
— New advertising. Ads began airing Wednesday with a shopper screaming “No” to discounts as they look in their mailboxes, a pile of coupons and big sales signs. The company also has a new spokeswoman (talk show host Ellen DeGeneres) and logo (a red outline of a box that features JCP in the corner.) And a 96-page catalog will be mailed each month to 14 million customers, along with other promotional efforts.
The 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 make per square foot, according to John Bemis, head of Jones Lang LaSalle Inc.’s retail leasing team.
But 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 younger customers even though its added hip brands like Mary-Kate and Ashley Olsen’s teen clothing collection called Olsenboye. The stores also have been by Johnson himself describes as “tired.”
For the 11 months through December, Penney’s revenue at stores opened at least a year — an indicator of a retailer’s health — rose 0.7 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.
The new pricing caps months of speculation about what Penney’s future might look like under the leadership of Johnson, a former Target Corp executive and the mastermind behind the success at Apple Inc.’s stores.
Johnson, who joined the company’s board in August, already has put his stamp on the retailer. He has tapped former colleagues at Apple and Target to join him at Penney. That includes Target’s top marketing executive Michael Francis to be Penney’s president.
Johnson also is borrowing from the playbook of Apple, which shuns discounting and focuses on selling products and offering services.
In December, Penney said it will have homemaker doyenne Martha Stewart develop mini-shops starting next year. And during Wednesday’s meeting, Penney executives outlined plans to in the next two years add Main Street, a series of 80 to 100 brand shops in stores similar to the Martha Stewart ones. It also plans to open areas in all stores called Town Square, a place that will offer services and expert advice, similar to Apple’s Genius bars.
Perhaps the biggest challenge for Penney is to sell shoppers on its new pricing. For years, Penney, like many other stores, has propped up price. The intent: to make it look like shoppers are getting great discounts when items go on sale.
Penney has been an especially big promoter. Last year, the company, which offered 590 sales events last year, nearly three-quarters of its revenue come from merchandise that was discounted by 50 percent or more.
That’s more than double the retail 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 a decade 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, Johnson 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.
“I have been struck by the extraordinary amount of promotional activity, which to me, didn’t feel like it was appropriate for a department store,” Johnson says. “Once you start to promote, the only way to beat a promotion was to make it bigger.”
Walter Loeb, a New York-based retail consultant, says Penney’s new pricing is “visionary” and revolutionary.”
But Charles Grom, a retail analyst at Deutsche Bank, says it will be difficult for Johnson to change shoppers’ buying habits. Macy’s, for example, cut back on coupons a few years ago, only to reverse courses after sales fell.
I’ve known for a long time that this had to happen. I watched them create the discount monster and I’ve been watching them stretch reality further and further to keep the monster fed. They finally hit the point of diminishing returns with the percentages they can discount and still be believable and, quite frankly, profitable.
Don’t be fooled by their statement in the article about customer’s insatiable appetite for discounts. The big retailers absolutely 100% created those insatiable appetites over the years. Customers at one time were very happy with seasonal sales and occasional promotions. And during those times, they were getting true value for prices paid.
Notice in the article also how the new CEO states that customers won’t pay 1 penny more than the true value for merchandise. To me that implies they have been marking the merchandise above true value. Whoops! Gee, I wonder if the others do the same thing?
I think what is bringing this out is the current state of our economy. The middle class shopper has been hardest hit by the current economic trends. They are being more careful about spending their money and it’s making them analyze their expenditures more carefully. They also don’t want the headache of figuring out those complicated discounts as I mentioned in my previous post. Their lives are being complicated enough in this economy and they don’t want more complication when doing something as simple as shopping.
The retail consultant in the article that said Penny’s new pricing is “visionary” and “revolutionary” is correct in reference to today’s world, but don’t be misled, it is not a new concept!
Anyway, it’s a major move forward towards improved customer service. The big question is; do they have the patience, and guts to hang in with this new policy long enough for customers to change their buying habits back to where they should have been all along? It sure would be nice if they did!
By the way………I Told You So!