JCPenney reverts to "mark-up to mark-down"

JCPenney (NYSE:JCP) has put the final nail in the coffin for its "Fair and Square" pricing policy. The $17 billion chain has confirmed it is now replacing price tags on its house-branded merchandise with tags containing higher prices, so the products can later be marked back down, Reuters reported on Tuesday (March 26).

That "mark-up to mark-down" tactic is common among JCPenney's competitors, including Macy's (NYSE:M) and Kohl's (NYSE:KSS). But JCPenney CEO Ron Johnson vowed in early 2011, a few months after the chain hired him away from running Apple's retail stores, that shoppers were too smart to be fooled by that approach. Johnson cut out that tactic, drastically reduced the number of sales and promotions, and eliminated the use of coupons.

After a year of plummeting sales, most of that no-sales policy is now disappearing. According to JCPenney spokeswoman Daphne Avila, stores began changing price tags on merchandise this month and should be done within a few weeks. However, merchandise in the chain's shop-within-the-store boutiques for brands including Sephora and Izod will continue not to use the "mark-up to mark-down" approach. Those boutiques have the highest sales per square foot of any area of a typical JCPenney store, Johnson has said.

On the other hand, JCPenney's private-label brands generate more than half its revenue. The chain's overall sales have dropped by 25 percent in the past year.

To be clear, Johnson was brought in by JCPenney's board to do for that chain what he did for Apple Stores. That may have been impossible in the first place, and it's easy to imagine that Apple's customers are too smart for prices being inflated just so they could be discounted, while JCPenney customers just aren't that bright. (Anyone who has ever seen the most fanatical of pay-anything Apple fans knows that's not always the case.) It was a gamble Johnson was hired to make.

Unfortunately, Johnson also made some very expensive investments, including remodeling of every one of the JCPenney's 1,100 stores and a complete overhaul of the chain's IT systems -- all of which was to be paid for by the profits when the gamble paid off.

The pricing experiment may have been worth the calculated risk, at least if JCPenney can manage to reverse course and convince customers it really does believe in sales, coupons and discounts. It may even have been a wise effort if the chain's board believed there was no more conservative way to jump-start growth. But spending the profits before the experiment has shown any signs it will ever start to pay off? That really is gambling.

For more:

- see the Reuters story

- see this Bloomberg story

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