JC Penney tweaks pricing strategy again

NEW YORK (AP) - July 26, 2012

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 courses.

Penney on Feb. 1 began using a three-tier pricing approach that called for lower everyday prices, monthlong sales and period sales events. Now, starting Aug. 1, Penney will eliminate one of the tiers and bring back the word "clearance." The company also plans to tweak its advertising to better communicate the pricing to customers.

The moves come at a time when shoppers - and investors - were growing increasingly confused with Penney's pricing strategy, which was spearheaded by new 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 it posted a bigger-than-expected quarterly loss and a 20 percent drop in revenue on poor reception from shoppers for its pricing strategy.

The change also calls in to question just how patient Main Street and Wall Street will be with Johnson, a long-time retail executive who was brought in with high hopes that he'd transform Penney with the same magic that he used to make Apple's stores and Target's cheap chic strategy successful in his previous roles at those companies. The pricing strategy is a tough sale to shoppers who have come to expect deep blockbuster deals and investors who are looking for Penney to turnaround its business quickly.

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 not to wait for sales, and said 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. It also will keep period clearance sales, but will change the name of them to "Best Price" to "Clearance." And it will get rid of "Month Long" deals.

To go along with the new pricing, the company will add new advertising. That will include inserts in newspapers every Friday during the back-to-school season will talk about specific products like jeans. A TV ad will tout free haircuts the stores will offer students during the back-to-school season.

That's in contrast to the ads that are part of Penny introduced previously to introduce its new pricing plan. The "fair and square" brand campaign featured TV ads that featured dogs and kids and bright colors - but little explanation of the Penney's pricing.

"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. Penny still has products they love, at exceptional value, every day."

Penney is hoping the new pricing and advertising will help stem growing concern about whether the pricing strategy can help the retailer turn around its business.

The first sign that Penney's new pricing plan wasn't resonating with customers came last week when Macy's CFO Karen Hoguet told analysts that sales were rising at her company's stores that share malls with Penney stores.

Then, 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.

Investors, who had sent Penney shares soaring 24 percent to about $43 after Johnson announced the pricing plan in late January, have been down about 37 percent since the beginning of the year. On Thursday, shares slipped 49 cents, or 2.2 percent, to $21.51 in midday trading. Then, earlier this month, Standard & Poor's Ratings Services lowered the retailer's credit rating further into junk status, saying changes have yet to take hold.

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