J.C. Penney moves away from “Fake Pricing”

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J.C. Penney made news in the fall when it hired Ron Johnson, the man who ran Apple’s retail division.  It is Johnson’s intent to change the way that J.C. Penney promotes its products and what he intends says a lot about how retailing is done, how it may be done and the costs involved. 

Stephanie Clifford in her New York Times article, “J.C. Penney to Revise Pricing Methods and Limit Promotions,” reports that “[Johnson’s] first steps as chief executive would be to get rid of the nonstop promotions at the store and move to three kinds of prices (everyday, monthly specials and clearance).”

J.C. Penney is not the first to move to fewer promotions but his stated reasoning is startling in its honesty and should be fascinating to anyone who sells or consumes.  Here is how he puts it: “Though retailers use promotional pricing to attract shoppers… the method used … “fake prices” — artificially inflated prices that are on near-constant markdowns.”

Johnson goes on to say that, in the case of J.C. Penney, their cost of goods has stayed roughly the same ($9 to $10) since 2002.  “During that period, though, Penney increased the average price tag to $36 from about $27. Yet even as the price tag rose, customers ended up paying less because of coupons or sales.” according to Mr. Johnson, “…72 percent of Penney’s revenue came from products sold at a discount of 50 percent or more.”

 So here is what they are going to do.  They are going to reprice all of their products to reflect the actual retail.  In the case of “…a T-shirt that was priced last year at $14, but sold closer to $6 after promotions, will now be priced at $7.”

In addition to flattening the pricing, the company will eliminate most promotions (590 last year) and will


reduce its cost of marketing from $1 Billion to $80 million per month.

Consumers are going to have to move from seeing J.C. Penney as the place to go for promotions to the place to go for everyday low pricing.  That’s going to take some time.  I hope Johnson gets it.

 

 

 

 

2 thoughts

  1. ALL companies price this way….and I mean ALL companies, especially retail companies!!!
    This is NOTHING new, it has been going on for DECADES!!
    THIS IS STANDARD BUSINESS PRACTICE!!!
    It is especially true of “discount” retailers between November and the end of December.
    Retailers like WalMart will hike up prices around August through November at least 50% or MORE……then around “Black Friday” they will “discount” items heavily, so you think you are getting a good deal, when in fact, you are paying FULL standard retail price!!
    I have been in retail for many years, and this has been going on since retail business began.
    THEY MARK IT UP, TO PUT IT ON SALE, AND STILL GET THE FULL RETAIL PRICE FOR IT!.
    The ONLY TRUE discounts you get is from the clearance sections after a season is over with. Out of date or out of season items will be sold at a real discount, in order to get them out of stock and off the floor, so regular priced stock can be placed out on the floor.

  2. I hope JCP can turn the store around. This store has been a source of good-looking professional petite women’s business wear at affordable prices. And somehow the name JCP seem like an American icon.

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