Pricing Lessons Learned From J.C. Penney's
The Ron Johnson era at J.C. Penney’s has ended, leaving behind an important lesson for retailers of all sizes: Customers love a sale.
Johnson took over as CEO of Penney’s in 2011 with a resume that included a stint as senior vice president of retail for Apple. He came on board to reinvigorate a brand that has been around since 1902, when James Cash Penney opened his first dry goods store in Wyoming. On April 8, the company’s board voted Johnson out, in an effort to stop ongoing losses. In 2012, Penney’s revenue dropped 25 percent, to $13 billion.
Johnson implemented a “fair and square” pricing strategy that did away with the retailer’s constant markdowns and coupons in printed circulars. Penney’s instead began offering "everyday" value pricing. This was intended to constantly give customers the best deal around, with some extra-reduced pricing on select items for a month at a time.
While Johnson spruced up stores, created boutique departments, and introduced designer labels to the sales floor, something else was happening. Sales continued to drop at Penney’s stores nationwide. Retail analysts say the everyday value pricing was a foreign concept to regular customers, who were accustomed to seeking out bargains, coupons, scratch-off discount cards, and "doorbuster" specials.
“Naturally, the assumption is that their everyday pricing represents more of a markup than any sale price would, so you still would wait for the sale,” says Penney's shopper Melissa St. John of Raleigh, N.C. “It’s not economics; it’s psychology.”
The new pricing policy was put into place quickly, without a test run, and the first prices that changed were those of merchandise already hanging on J.C. Penney’s racks.
“Right after they switched over to their new pricing that was supposed to be better or lower, I was there,” says shopper Amy Brown of Wake Forest, N.C. “And, out of curiosity, I picked off a price sticker to see what was under it. Lo and behold, the new ‘lower’ price was, in fact, higher than the original. I’m a once-loyal shopper turned very disappointed non-shopper.”
Jasmine Bashaj, founder of So Rad baby and toddler clothing, says big chains have inspired customers to bargain shop. “The bigger stores are competing for business to become bigger and bigger,” Bashaj says. “Think of how many box stores there were in the 1980s — maybe none?”
So Rad, based near Toronto, sells its luxury products online and in stores internationally. “As a customer, I look for price breaks, too,” Bashaj says. “But I think customers need to educate themselves about products and where they come from and their actual value.”
J.C. Penney now has a new CEO, who isn’t really new: Former chief executive Mike Ullman has been rehired. Company insiders quoted in the Wall Street Journal said they expected to scrap Johnson’s failed strategy and return the chain to more traditional department store pricing. Meanwhile, J.C. Penney is offering customers additional discounts on purchases in stores and online.