J.C. Penney revives "mark-up to mark-down" tactic to boost sales

NEW YORK (Reuters) - J.C. Penney Co Inc JCP.N said it had resumed a marketing strategy of raising prices and then discounting them on its own brands in a move to protect profit margins and win back the bargain-conscious shoppers it lost last year.

The entrance of a J.C. Penney store is pictured in Arcadia, California March 1, 2013. REUTERS/Mario Anzuoni

The U.S. retailer began changing the price tags on merchandise earlier this month and should be done in the next few weeks, spokeswoman Daphne Avila said in a statement emailed to Reuters on Tuesday.

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

“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,” Avila said.

Under the strategy, an Arizona crewneck T-shirt that had an “everyday” price of $5 now has a $6 pricetag to allow Penney more room to offer a markdown and arrive at the same price, the spokeswoman added.

Chief Executive Ron Johnson said in February that Penney would resume the use of discounts and sales for items under its own brands after the company reported a 25 percent drop in fiscal year sales. He did not give any details.

Last year, Penney cut back on marking up prices only to mark them down after Johnson said the tactic cheapened the brand and only created an "illusion" of savings. The strategy is common practice in retail and is used by Penney's rivals, including Macy's Inc M.N and Kohl's Corp KSS.N.

Penney adopted an “everyday low price” approach, the cornerstone of Johnson’s plan to reinvigorate the 111-year-old retailer, but the number of shoppers coming into stores fell 13 percent in the year ended February 2.

Johnson has since acknowledged it was a mistake to get rid of markdowns and coupons.

Penney will stick with the everyday low pricing approach at in-store branded boutiques, including PVH Corp's PVH.N Izod and LVMH's LVMH.PA Sephora, spokeswoman Avila said.

Editing by Miral Fahmy