They're back: J. C. Penney adds sales

The pricing strategy has been a key part of Johnson's plan to reinvent Penney, which had failed to change with the times as its competitors updated their stores to make them cool places to shop. The plan includes adding hip new brands such as Joe Fresh and replacing racks of clothing with small shops-within-stores by 2015. But this isn't the first time the pricing strategy has been tweaked.

When it was rolled out in February 2012, the plan entailed permanently slashing prices on everything in the store by 40 percent. Instead of the 600 or so sales and coupons it used to offer, Penney decided to have just 12 monthlong sales events on some merchandise. And there would be periodic clearance events throughout the year.

But the new pricing plan wasn't well received on Wall Street or Main Street, so six months after launching it, Johnson ditched the monthlong sales, saying that they were too confusing to shoppers. Johnson says Penney has learned that people don't shop on a monthly basis, but rather they buy when they need something for say, back-to-school or during the winter holidays. And during those times, he says, they're looking for even more value.

"I still believe that the customer knows the right price, but they want help," he says.

Penney declined to say how many sales events it will offer going forward, citing competitive reasons. But the company says the figure will be well below the nearly 600 that it used to offer. The company says the discounts will vary depending on the sale. From Feb. 1 through Feb. 14, for instance, shoppers will get 20 percent off some jewelry for Valentine's Day. One example: half carat diamond heart pendants on sale for $96, below Penny's everyday price of $120.

Penney says the decision to add tags or signs on much of its merchandise that shows the "manufacturer's suggested retail price" alongside Penney's "everyday" price was a result of his realization that shoppers want a reference price to consider. National brands were also asking Penney to show the suggested price to shoppers, he says. Penney began showing the suggested manufacturer's price on Izod men's merchandise last fall, and was encouraged by the response.

Burt Flickinger, a retail consultant, says the move could help Penney because manufacturers' suggested retail prices can be as much as 40 percent higher than what retailers wind up charging. The practice is common in the home appliance industry but spotty in the department-store industry because stores generally hike prices up even more to give shoppers the illusion of a big discount, he says.

"The strategy will be helpful for shoppers to understand lower prices," Flickinger says. "At the same time, it will be tough to get consumers back in the store from competitors."

But Craig Johnson, another retail consultant, says adding the suggested manufacturer's price is just a gimmick. "The objective of this exercise is to maximize the perceived value for the purchase," he says.

Johnson says that for Penney's own store brands like Arizona and Worthington, the team will research other stores and will submit supporting data to its legal team for approval before it advertises comparison prices, using certain criteria. For example, they'll make sure the fabric used is of the same quality as its rivals. For jewelry, Penney is using the International Gemological Institute, a third-party appraiser.

"There are no makeup prices here," Johnson says. "It's all about trying to communicate what it's worth to the customer."

Penney will not show comparison prices for merchandise that is part of exclusive partnerships with brands such as Nicole Miller and Mango, however. The company says it's difficult to offer such references.

To promote the strategy, Penney on Wednesday will begin launching TV, print and digital ads. One TV ad compares a $9 polo shirt under its store brand Arizona with $19 "elsewhere." ''Two polos, same color, same vibrant, same details, same swing, same swagger, different prices," the ad says.

Going forward, Johnson reiterated that he expects Penney to return to sales growth sometime in 2013. That would be a welcome change for Penney, which has had steep sales and profit losses since the new strategy was launched.

For the first nine months of its current fiscal year, Penney lost $433 million, or $1.98 per share compared with a loss of $65 million, or 30 cents per share in the year-ago period. Total sales dropped 23.1 percent to $9.1 billion.

Analysts expect Penney to post a loss of 17 cents on sales of $4.22 billion for the fourth quarter. They expect the company's annual sales to fall by 23 percent, or nearly $4 billion, to $13.3 billion for the latest year. Revenue at stores opened at least a year — a measure of a retailer's health — are expected to drop 25 percent, in line with the third quarter, according to analyst polled by research firm FactSet.

Meanwhile, investors, who pushed Penney's stock up after Johnson announced the pricing plan in late January of 2012: have sent shares down more than 55 percent from a peak of $43 in the days after the plan was rolled out in February. Shares slipped 18 cents to $19.17 on Monday.

"A year ago, we were launching a major transformation and didn't know what to expect," he says. "Today, I know what happened. Our team has a year's worth of history. This is going to be a great year because the new JCP is coming to life for customers."

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