“Fair and Square” Pricing: Is J.C. Penney Wise?

There have been lots of companies that have received makeovers from ambitious CEOs in the past decade. But the reason J.C. Penney’s transformation has received so much attention is because it’s not headed by your average everyday ambitious CEO. Its new leader is Ron Johnson, creator of the Apple Stores, one of the most successful retailers in the past decade. 

On paper, Johnson’s ideas—doing away with non-stop sales, and transitioning to “everyday values”—make sense. (Though jewelry at present seems to be the only product that hasn’t been transitioned to the new strategy; when I visited the Penney’s store in Herald Square in Manhattan about a week ago, its jewelry cases were still festooned with “25 percent off” signs.) And yet, I remember over a decade ago, a relatively large jewelry chain also tried to transition to “value pricing.” And it didn’t work, and that company eventually filed for Chapter 11. The problem was, customers just got confused.

Of course, J.C. Penney possesses a lot more resources than that particular business, and has spent a small fortune on an advertising campaign informing the public of its new strategy. Johnson should be applauded for doing something different in the tired department store sector. Yet, what has given some pause is not his ideas, it’s the dramatic way they are being rolled out. Shouldn’t they have been at least tested first? There is no guarantee that consumers will respond favorably, as even Penney admitted in its latest financial filing. Talking to salespeople and clerks at the Herald Square store—which cries out for a makeover—I asked one what the reaction was. “Mixed,” she said. “A lot of people like the coupons and sales. But once we explain it, they say: Oh, I get it.” Another told me she has also seen mixed reactions.

By contrast to how Penney is doing this, look at how Sterling—never considered the most adventurous retailer—has drastically transformed its inventory. Here was a company that for years sold mostly generic products, and De Beers-sponsored industry brands like “Journey.” Then, about a decade ago, it added the Leo Diamond. Then came its first real blockbuster brand, Jane Seymour’s Open Hearts collection. Now, differentiated product accounts for 26 percent of its inventory. But it was done in an evolutionary, not a revolutionary, manner.

In the end, there may be a balancing act here. The new strategy risks alienating the chain’s core customer–“little old ladies like my grandmother who still cut coupons out of the paper and always wait for sales,” in the words of one of our commenters. And yet discount fever afflicts not just people who shop at department stores; the whole country has become sales-and-coupon-crazy in the last few years. And given that we are still looking at a slow recovery, that’s a tough trend to reverse.

Plainly put, changing J.C. Penney’s stores may be easy. It’s changing the mindset of the American customer that may be a lot harder. 

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JCK News Director

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