.

SmartMoney Blogs

Real-Time Advice
Our real-time advice on how market shifts and news impact you and your money

As Penney Drops ‘Sale,’ Will Shoppers Save?

J.C. Penney’s new pricing strategy led to losses last quarter, but experts say it may eventually be a hit with consumers.

Getty Images

The retailer reported an $87 million loss today, in part due to heavy costs tied to its new pricing strategy. Fourth-quarter revenues fell about 5% to $5.43 billion, its second consecutive quarter of declining sales. Earlier this month, J.C. Penney moved to a new three-tier pricing model, discounting all merchandise by at least 40%. In addition to those baseline discounts, shoppers will see special monthly deals and clearance offerings the first and third Friday of each month. The plan was the first major initiative from former Apple executive Ron Johnson, who took over as Penney’s chief executive in November. In the earnings call, Johnson called the new strategy a “blueprint for becoming America’s favorite store,” and said 2012 would be a year of transformation for the retailer.

It’s too early to tell how consumers are responding, says Paul Swinand, an equity analyst for Morningstar. “January is such a slow month in that segment of retail,” he says. “Consumers aren’t really doing more than browsing for bargains.” But retailers have been trying to wean consumers off discounts for months, with little success. J.C. Penney’s strategy is likely to be a tough sell for customers facing rising prices on staple goods, a lackluster job market and other economic woes — especially when there are still splashy sales from competitors including Kohl’s, Target and Sears. “Consumers have come to rely on sales as a marker of good deals,” says Kit Yarrow, a professor of psychology and marketing at Golden Gate University in San Francisco. “They use the original price to calculate the value. Without a sale, there isn’t that trigger to make a purchase.”

That may shift as J.C. Penney continues to remake its image, says Jim Bieri, an independent retail analyst based in Detroit. According to the latest American Customer Satisfaction Index, released earlier this week, Penney’s is second only to Nordstrom in customers’ perception of service and item quality. The brand is likely to try to continue to create excitement around its selection, he says, with more in-store partnerships along the lines of Sephora, Martha Stewart Living and Liz Claiborne, as well as low-priced lines from popular designers. And early reports indicate that those “every day” prices actually are pretty low, which could win business from smartphone-toting shoppers using price-comparison apps.

Comments

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (5 of 6)

View all Comments »
    • I work at JCPenney. If I had to put a number to it, I would say that close to 90 percent of our shoppers love the new pricing. Mathilda, I’m not sure what you saw, but my store has lots of leather shoes. Best price Friday’s on the 1st and 3rd Friday of every month are crazy busy. As far as the article, the new pricing didn’t go into effect until February, which is the start of the fiscal year, so that had nothing to do with sales in the fourth quarter.

    • How to monetize your searching skills, find out at makecash25DOTCom

    • JCP no-sale prices are low, but the merchandise feels cheap. Reminds me of K-mart junk when I was a kid.

      I took my 11 year old there to buy dress shoes. $30 for a vinyl pair of shoes. Stopped to look at the ladies’ shoe clearance rack – NONE of them were leather.

      JCP is now competing with Walmart and Payless Shoes, but without sales to draw people in. I have no reason to ever go there again.

      A very sad day for a brand that once indicated some level of quality.

    • Mr. Johnson and JCP will also see the results of asking their shoppers to accept JCP’s partnership with a new spokeswoman.

About Real-Time Advice

  • How breaking news — in the markets, Washington, and around the world — affects you and your money. Have a question about how current events may change your financial future? Email us at ask@smartmoney.com.

.