Value Chain

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J.C. Penney gets rid of hundreds of sales
Penney's new CEO unveils new pricing strategy to investors, borrowing from Wal-Mart's playbook By Anne d'Innocenzio, AP Retail Writer | Associated Press – Wed, Jan 25, 2012 6:00 PM EST

NEW YORK (AP) -- J.C. Penney is permanently marking down all of its merchandise by at least 40 percent so shoppers no longer have to wait for sales to get bargains. Penney said Wednesday that it is getting rid of the hundreds of sales it offers each year in favour of a simpler approach to pricing. Starting on Feb. 1, the retailer is rolling out an "Every Day" pricing strategy with much fewer sales throughout the year. The plan, the first major move by Apple executive Ron Johnson since he became Penney's CEO in November, is different from Wal-Mart's iconic everyday low pricing. Unlike Wal-Mart, Penney's goal isn't to undercut competitors, but rather to offer customers more predictable pricing. "Pricing is actually a pretty simple and straightforward thing," Johnson told the Associated Press during an interview ahead of the announcement at the company's Plano, Tex. headquarters. "Customers will not pay literally a penny more than the true value of the product." Penney's plan comes as stores are struggling to wean Americans off of the profit-busting bargains that they have come to expect in the weak economy. The move is risky, though, because shoppers who love to bargain-hunt may be turned off by the absence of sales. "The big question on investors' minds will be: 'How customers will react to a single price point versus a perceived discount under the old strategy?'" says Citi Investment Research analyst Deborah L. Weinswig. Here's how Penney's pricing strategy will work: — Sale prices become everyday prices. The company will use sales data from last year to slash prices on all merchandise at least 40 percent or lower than the previous year's prices. So, a woman's St. John's Bay blouse regularly priced at $14.99 could have the "Every Day" price of $7. — Fewer sales. The retailer will pick items to go on sale each month for a "Month-Long Value." For instance, jewellery and Valentine's Day gifts would go on sale in February, while Christmas decorations would be discounted in November. Items that don't sell well would go on clearance during the first and third Friday of every month when many Americans get paid. Those items will be tagged "Best Prices," signalling to customers that's the cheapest price. — New tags. The retailer used to pile stickers on price tags to indicate each time an item was marked down. But now each time an item gets a new price, it gets a new tag too. A red tag indicates an "Every Day" price, a white tag a "Month-Long Value" and a blue tag a "Best Price." — Simpler pricing. Penney will use whole figures when pricing items. In other words, you won't see jeans with a price tag of $19.99, but rather $19 or $20. — New advertising. Ads began airing Wednesday with a shopper screaming "No" to discounts as they look in their mailboxes, a pile of coupons and big sales signs. The company also has a new spokeswoman (talk show host Ellen DeGeneres) and logo (a red outline of a box that features JCP in the corner.) And a 96-page catalog will be mailed each month to 14 million customers, along with other promotional efforts. The strategy, unveiled at Penney's investor meeting on Wednesday, comes as the retailer tries to turn around its business. Heavy discounting has hurt department stores like Penney. The group generates an average of about $200 per square foot, less than half the $550 or $600 stores like Victoria's Secret and Lulu lemon make per square foot, according to John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team. But Penney has been a laggard even among department stores as its core middle-class customers have been among the hardest hit by the weak economy. It's also failed to attract younger customers even though its added hip brands like Mary-Kate and Ashley Olsen's...
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