NEW YORK (AP) - J.C. Penney is changing its pricing - again.
Just six months after the
mid-priced department store chain got rid of the hundreds of sales it
offered each year in favor of everyday lower pricing, it is reversing
course.
Penney on Feb. 1 began
using a three-tier pricing approach that called for consistently lower
daily prices, month-long sales and periodic discounts on merchandise
throughout the year. But starting Aug. 1, Penney will eliminate one of
the monthly sales and bring back the word "clearance." Penney also plans
to tweak its advertising to better communicate the pricing plan to
customers.
The moves come at a time
when shoppers - and investors - have voiced confusion over Penney's
pricing strategy, which was spearheaded by CEO Ron Johnson when he took
the helm in November. In May, Penney's stock plunged nearly 20 percent
in its biggest decline in four decades after the retailer posted a
larger-than-expected quarterly loss and a 20-percent drop in revenue on
poor reception from shoppers for its pricing strategy.
The change also calls into
question how patient Main Street and Wall Street will be with Johnson, a
long-time retail executive who has been lauded for being the mastermind
behind the success of Apple's retail stores and Target's cheap-chic
strategy. The pricing plan is presenting a challenge for Johnson because
it's turning out to be a tough sale to shoppers who have come to expect
deep discounts and investors who are looking for Penney to turnaround
its business quickly.
Brian Sozzi, chief equities
analyst for research firm NBG Productions, said since Johnson's
strategy is long-term, investors likely will give him at least until
2013 to prove himself.
"With a visionary type of
strategy like this you have to take a lot of painful medicine upfront,"
he said, adding that Johnson "is essentially trying to change the
consumer mindset."
Johnson, who asked
investors to be patient during a meeting with them in May, said he's
confident that the pricing strategy will work. Johnson has acknowledged
that Penney has a long way to go to convince shoppers that they don't
have to wait for sales to get low prices at Penney, and he said this
week that Penney's first-quarter sales drop is "the price we're paying
to get integrity back."
"We thought simplifying 590
unique sale events into three types of pricing would be easier, but it
turns out ... customers and others found the pricing a little
confusing," he said. "Now we're going from 590 to 3 to 1: The first
price is the right price."
Under the new system,
Penney is keeping "Every Day" low prices that are consistently 40
percent lower than regular prices before the company eliminated sales.
That level of pricing has account for about 70 percent of sales since
the company began the new strategy, Penney said
It also will keep its
periodic discounting events, which make up 15 percent of sales, but
increase their frequency to every Friday. The company will also change
the name of them from "Best Price" to "Clearance." And Penney will get
rid of "Month Long" deals, which account for 15 percent of sales.
Johnson said the new approach should make the pricing plan easier for customers to understand.
"We thought: 'Why are we trying to teach customers new language to shop?'" he said. "We're just trying to be straightforward."
To go along with the new
pricing, the company will tweak its ads. That will include inserts in
newspapers every Friday during the back-to-school season that will
highlight specific products like jeans. A TV ad will tout free haircuts
that the stores will offer students during the back-to-school season.
The new ads are in stark
contrast to the spots that Penney rolled out at first to introduce its
new pricing plan. The "fair and square" brand campaign featured TV ads
with dogs, kids and bright colors - but little explanation of Penney's
pricing.
In one TV spot, for
instance, a dog continuously jumps through a hula hoop that a young girl
is holding. The text reads: "No more jumping through hoops. No coupon
clipping. No door busting. Just great prices from the start."
"In some ways marketing
during the first six months entertained versus educated," Johnson said.
Now, "the most important thing is to educate consumers on the price
changes and make sure the core customer understands J.C. Penney still
has products they love, at exceptional value, every day."
Penney, based in Plano,
Texas, is hoping the tweaks to its pricing plan and advertising will
help stem growing concern about whether Johnson's plan will help the
retailer turn around its business.
The first sign that
Penney's pricing strategy wasn't resonating with customers came in May
when Macy's CFO Karen Hoguet told analysts that sales were rising at her
company's stores that share malls with Penney stores.
A week later, J.C. Penney
Co. reported that it lost $163 million, or 75 cents a share, in the
three months ended April 28, compared with a profit of $64 million, or
28 cents a share, a year earlier. Revenue dropped 20 percent to $3.15
billion for the quarter as customer traffic slipped 10 percent.
Meanwhile, revenue at stores open at least a year - a comparison used to
measure a retailer's health - fell 18.9 percent. That's much steeper
than the 11.4 percent drop Wall Street was expecting.
A day after Penney reported
the disappointing results, its stock fell 19.7 percent, or $6.57, to
close at $26.75. That's the largest percentage drop for the company
since at least January 1972, when FactSet's daily stock price records
begin.
Investors, who initially
sent Penney shares soaring 24 percent to about $43 after Johnson
announced the pricing plan in late January, since have pushed them down
about 37 percent since the beginning of the year. On Thursday, shares
rose 21 cents to close at $22.21.
And earlier this month,
Standard & Poor's Ratings Services lowered the retailer's credit
rating into junk status, saying changes have yet to take hold
J.C. Penney reports second-quarter results Aug. 10.
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2012 The Associated Press. All rights reserved. This material may not
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