RPT-Penney tries to clarify message on pricing change

Tue Jun 5, 2012 1:42pm EDT

* CEO: dropping use of term 'month-long value'

* Says pricing strategy helps attract vendors

* Shares down 1.5 percent at midday

By Phil Wahba

June 5 (Reuters) - J.C. Penney Co Inc is bringing back the word "sale" in its advertising in hopes of stemming a sharp slide in business.

The department store operator has been trying to wean shoppers off the long-used hundreds of sales events and coupons - as part of a strategic overhaul by Chief Executive Ron Johnson. The chain blames the way it has communicated the strategy for contributing to a steep drop in sales in the first quarter.

Johnson said he recognized that shoppers did not understand the advertising of the new pricing model.

"It's just been kind of confusing," he said Tuesday at a Piper Jaffray investor conference in New York that was also webcast.

The new strategy includes some items on sale for an entire month rather than the shorter-term sales events of past.

But the retailer has avoided using the word "sale," instead calling the events "month-long values." That didn't work.

"We're moving away from the word 'month-long value' because no one really understood that, to calling it what we intended to do, a sale," Johnson said.

In April, Penney started running ads called "Do the Math," trying to show that everyday pricing cost less than a sale and a coupon.

Last month, Penney reported same-store sales during the first three months of the new pricing model fell a far worse-than-expected 18.9 percent. It also posted a large net loss and cut its dividend.

Johnson said the new pricing has allowed Penney to attract more vendors that will help it expand its customer base over time.

In August, Penney will start remodeling stores into what eventually will become homes for 100 separate shops.

Johnson, respected in the retail industry for building up Apple Inc's stores before he joined Penney last year, reiterated his belief that things would improve later this year as more shoppers understand Penney's transformation.

But that could take time, given how the retailer's core customers have been trained for years to look for sales.

"They realized the word 'sales' drives consumers to stores," said Alexander Chernev, associate professor of marketing at the Kellogg School of Management at Northwestern University in Evanston, Illinois.

"Even if you redesign your stores, you still have to drive traffic to stores."

Johnson is banking on Penney's new product lines and the stores' new looks to draw shoppers.

"There'll be one year of sales going down that sets the stage for a year of take off," Johnson said at the conference.

Penney's shares were down 1.5 percent to $24.90 at midday. They have fallen 42.3 percent from a 52-week high in February.

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