UPDATE 1-Penney reverts to old pricing approach for private brands

Wed Mar 27, 2013 4:41pm EDT

* Brings back industry wide "high-low" pricing tactic

* Latest reversal after struggling turnaround

By Phil Wahba

NEW YORK, March 27 (Reuters) - J.C. Penney Co Inc is in the process of raising prices on millions of its own branded items to protect profit margins, as it reverts to a strategy of offering discounts in an effort to win back the bargain-conscious shoppers it lost last year.

The move marks a return to a standard pricing tactic in retail also used by rivals like Macy's Inc and Kohl's Corp -- called "high-low" in the industry. Penney Chief Executive Ron Johnson tried to eliminate the strategy on the grounds it cheapens brands and simply creates an "illusion" of savings for a shopper.

But as he tried to move Penney to an everyday low price approach, Johnson was quickly confronted with the reality of how Penney's longtime customers shop: they love a deal and need a price comparison on a tag to understand they are getting one. Without it, they'll go elsewhere. And they did.

Last fiscal year, sales fell 25 percent, while the number of shoppers coming into Penney stores was down 13 percent in the year ended Feb. 2. Johnson has acknowledged it was a mistake to get rid of markdowns and coupons.

"While our prices continue to represent a tremendous value every day, we now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the register," spokeswoman Daphne Avila said in a statement emailed to Reuters late on Tuesday.

Penney's private brands include St. John's Bay, jcp, Stafford and Arizona. They generate more than half of its revenue.

An Arizona crewneck T-shirt that had an "everyday" price of $5 now has a $6 price tag, allowing Penney more room to offer a markdown and arrive at the same price.

The U.S. retailer began changing the price tags on merchandise earlier this month and should be done in the next few weeks, Avila said.

Still, the markups and markdowns will not be as steep as they were before Johnson became CEO in 2011.

PRICING STRATEGY

The move was the latest concession Johnson has made. Last year, he began re-introducing coupons, and in February, Penney held a Valentine's Day sale. Johnson said in February that Penney would resume the use of discounts and sales for items under its own brands but did not elaborate how.

"They continue to have a muddled pricing strategy," said Craig Johnson, president of Customer Growth Partners, but adding that the move was needed. "They've got to build the traffic up."

"Everyday low price" is an approach that promises consumers they will get a low price anytime without having to shop around or wait for sales. It can lead to steadier, more predictable demand for products.

Ron Johnson made "everyday low price" the cornerstone of his plan to reinvigorate the 111-year-old retailer, which also includes refashioning its 700 largest stores into emporia holding boutiques for various brands.

Penney will stick with the approach at in-store branded boutiques, including PVH Corp's Izod and LVMH's Sephora, because sales are doing well without discounting.

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