After J.C. Penney rolled out a plucky yet random ad campaign, a scaled-back lineup of promotions and an “everyday low prices” plan, clerks at the retailer’s Washington Square location were all smiles. They scurried up to offer help to customers. They wore bunny ears, passing out smaller versions of fuzzy accessories to kids. And they gushed about their new “fair and square” prices.
“Isn’t it great to pay only $2 for something?” one cashier asked a customer as she bagged up a child’s shirt.
“Yes, I was surprised,” admitted the woman, who looked a little dubious about the bunny-ear thing.
Surprise is a common response to the strategy. As is a little confusion. And for some, complete ignorance.
It’s not hard to understand why Penney’s new chief executive, Ron Johnson, who joined the retailer from Apple Inc., was charged to do something. Penney’s sales have declined from $19.8 billion in 2008 to $17.2 billion in 2011, while competitors including Macy’s, Nordstrom, Kohl’s and Target have gained ground, either in sales or on the cool-factor gauged by celebrity and designer partnerships.
Kohl’s has landed media personalities Lauren Conrad and Daisy Fuentes, designers Vera Wang and Dana Buchanan, and singers Jennifer Lopez and Marc Antony. Seattle-based Nordstrom has customer service, topped recently with the confidence-oozing department store chain’s decision to let customers surf its computers and tablets as they check prices and quality. A Web blitz on Target’s new line with Italian designer Missoni last fall crashed the discounter’s site and sold out almost immediately from stores.
J.C. Penney’s new “fair and square” plan cuts prices by 40 percent from what they were a year ago. The idea was to get off the promotional treadmill, away from the steady stream of specials, coupons and doorbusters that drain retailers’ profits. Yet what seems to undermine that strategy is that sales aren’t completely going away. Each month, the retailer selects certain items to discount further, and on the first and third Friday of each month, it holds clearance sales with even lower prices it calls “best.
Hundreds laid off
Johnson has said the strategy was needed to reboot consumers who won’t “even pay attention” until they see markdowns of 40 percent. Because of that, he told The New York Times, Penney’s has continued to mark up items — a $10 item marked up by $18 in 2002, say, was increased by $30 last year — and still prices that customers actually paid for items with that price tag ranged from only $15.90 to $15.95.
But such moves come at a cost. J.C. Penney announced Thursday it had laid off 600 employees, or about 14 percent of the staff at its Plano, Texas, headquarters and plans to eliminate 300 call center jobs later this year. Overall, Johnson said, he aims to reduce annual expenses by $900 million by the end of 2012, including $200 million from the headquarters, $400 million from store operations and $300 million from advertising.
“I’m just not sure what J.C. Penney is,” said John Whisler, one of the founders of Portland-based Kitchen Kaboodle, which launched its own “everyday low prices” strategy in 2009 to survive the recession.
J.C. Penney’s offers “everyday” low prices. Believe ’em?
I had no idea Penney’s made a change; haven’t shopped there in years.
I love Penney’s new pricing plan!
I care more about quality than low prices.
I don’t believe any retailers claims to have “everyday low prices.”
“Is J.C. Penney’s Sears? Is it Sears plus? Sears minus?,” he said. “It seems like a store that sells a lot of T-shirts and jeans.”
That’s the thing with “everyday low prices”: People need to know exactly what you’re selling and its value. That helps customers know why they should trust your prices and abandon their coupon-clipping tendencies.
At least one analyst has said Penney’s plan is solid. She said its revenues likely will flag through year’s end, but eventually will bounce back as customers understand the changes.
However, Kitchen Kaboodle owner Whisler, said his chain of home goods stores saw an immediate uptick in revenues as customers embraced his chain’s new “everyday low prices.” That could be because Whisler’s stores were widely regarded as a longtime local business with quality products.
“If Penney’s is really going to pull this off, they have to differentiate their clothing,” said Joseph Cote, a marketing professor with a specialty in consumer behavior at the Washington State University Vancouver campus.
“If a customer feels Penney’s clothing is no better than Macy’s, than why shop at Penney’s?” he asked. “Especially now with the market so artificially tweaked by the recession, you’ve got people relying heavily on those coupons and discounts.”