Penney's shopper
Penney's shoppers can count on low prices all the time. Image: ktoine/Flickr/CC BY

Discount stores have become a favorite for many in this sluggish economy. Now add J.C. Penney to that list of places you can go and always find a bargain. The long-enduring department store has announced that it will be eliminating most of its sales and marking down all merchandise by at least 40 percent — for good.

Eliminating hundreds of sales

By eliminating hundreds of sales, the retailer said Wednesday, it will be able to keep prices low all year long. The simplified three-tiered pricing strategy will concentrate on everyday low prices, monthly discounts on certain items and clearance sales on traditional paydays: the first and third Friday of every month. The new pricing strategy will begin at all J.C. Penney stores on February 1.

While the strategy is reminiscent of Walmart’s “everyday low pricing,” its goal is not to undersell other retailers. Rather it is looking to be predictable and reliable.

Profits slipping

The new strategy is an attempt to turn around the flagging department store chain. J.C. Penney has become less and less profitable as its core market — middle class shoppers — have been beaten down by the economic crisis. J.C. Penney’s gross profit margin has decreased over the last six quarters, including a dismal holiday shopping season.

A bold strategy

The strategy is a bold one, put in place by Ron Johnson, J.C. Penney’s new CEO, who took over in November. Johnson, a former Target executive, also masterminded the Apple Store.

Last year, about 72 percent of J.C. Penney’s income came from sales, with merchandise marked down by as much as 50 percent. J.C. Penney runs the risk of aliening shopping enthusiasts who anticipate sales events. Weaning its shoppers off the excitement of transient discounts in favor of reliable daily ones will be the hardest test of the new strategy.

Not the first

Macy’s tried a similar strategy a few years ago by eliminating coupons in favor of discounting all prices. But the retailer was forced to reinstate the coupons when profits began to slide.

Charles Grom of JPMorgan Chase said:

“Shopper fatigue has been building for several years with the advent of the Internet and the ability for shoppers to compare prices. 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.”

However, many others may appreciate the reliability, as well as the more-honest pricing system that doesn’t routinely inflate prices in order to artificially manufacture sales.


New York Magazine
Daily Finance

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