Penney Surrenders, Goes Back to Hi-Lo Pricing

Discussion
Mar 29, 2013

For cautious observers, it may still be too soon to say that the entirety of the ambitious J.C. Penney reinvention is a failure, but one element of it clearly is. Earlier this week, Penney acknowledged the company is going back to Hi-Lo pricing after its switch first to everyday low pricing (EDLP) and then a modified EDLP approach failed to lift sales.

"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," Daphne Avila, a spokesperson for the department store chain, told Reuters earlier in the week.

Back in January, Ms. Avila told Bloomberg News that Penney’s reintroduction of sales to modify its EDLP approach "in no way signifies a change to our pricing strategy, but rather an evolution of it."

Is a return to Hi-Lo pricing enough to at least get J.C. Penney back to where it was before it changed to EDLP? Are there other steps the chain has taken that make you think there is still hope for Penney?

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17 Comments on "Penney Surrenders, Goes Back to Hi-Lo Pricing"


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Dick Seesel
Guest
9 years 1 month ago

Based on my reading of JCPenney’s announcement earlier this week, the chain plans to raise prices on private brand goods (such as JCP, Worthington, Arizona and so on) in order to put them on sale. Meanwhile, it plans to continue its strategy of comparing branded goods’ prices to their MSRP. This is a “half-pregnant” pricing strategy that will only confuse the bargain-hunting consumer even further. And if JCP jacks up the prices of private label merchandise too far (for example, pricing a $6 tee at $10 in order to promote it at 40% off), its credibility goes out the window.

Is this enough to turn the tide? It’s hard to tell, but clearly the volume drop in 2012 made the original strategy unsustainable in terms of driving sales and margins. Even though the comp-store comparisons ought to be a walk in the park during 2013, it really depends on whether the new shops and merchandise content resonate both with the core bargain-hunter and the Millennial trend consumer that JCP wants to attract.

Herb Sorensen, Ph.D.
Guest
9 years 1 month ago
The problem here is that EDLP is CLEARLY the most rational retail model, based strictly on economics. And, over time, for a store whose sales are more “habitual” than “surprise/delight,” the store will pull ahead of the competition. However, JC Penney is NOT a store that is as driven by economics for the shopper in quite the way a Walmart or supermarket is. The missing component at Penney’s is what I call the “casino nature” of the store. And even though it is uneconomic for the shopper, just like gambling in Vegas, the shopper always hopes THEY will win in the casino nature Hi-Lo store. They are encouraged in this belief by the proven success of the card counting predatory shoppers who can and often DO WIN in the Hi-Lo casino shopping store. A real problem for someone like Johnson in this situation is that he comes from a company environment, not that is fundamentally economically unsound (obviously!) but rather one that has enjoyed margins (from first mover advantages.) Apple is reminiscent of a comment… Read more »
Gene Detroyer
Guest
9 years 1 month ago

The more JCP changes their strategy the worse their prospects. JCP must be something and something different than everyone else. Otherwise, they are going to be a poor also-ran and should now consider how best to get out of the business.

I was encourage with their “store-within-a-store” concept…harkening a bit the European model. I was slightly encouraged with EDLP.

If you can’t be #1 you MUST be something different. And, you have to give time for the new strategy to work.

David Biernbaum
Guest
9 years 1 month ago

Every day low pricing didn’t work for Penney because they didn’t “sell” it to the consumer the right way. Now they are back to where they were before the failed experiment and they still need a new plan in order to survive and thrive. Until they come up with something better that they know how to sell to the customer base, I’m going to remain pessimistic about their longevity.

Ed Rosenbaum
Guest
9 years 1 month ago

I get the sense that after centuries in business Penney’s should know who their customers are and what they want. How could what appears to have been sensible and formerly successful management continue to miss the mark each time they went to the customer with a “try us now” approach?

Every few months we are commenting on their “new” approach to sales.

Bob Phibbs
Guest
9 years 1 month ago

Ackerman and Johnson have jeopardized one of America’s iconic brands and made it a laughing stock. Another story—this one that they are raising prices only speeds up the need for Johnson to go.

It isn’t the department store model that’s flawed, it’s an ADD non-strategy that’s driving shoppers away.

Worst. Makeover. Ever.

Gene Hoffman
Guest
Gene Hoffman
9 years 1 month ago

Confusion destroys illusions. Illusions can be finite. J.C. Penney shot itself in the foot when it abruptly tried to change who it was into what it wanted to be: the Apple of the consumer’s eye.

Unfortunately its consumer base wanted the hocus-pocus to continue and didn’t appreciate the “inspired” change. Many jumped ship, found acceptable new outlets and some are unlikely to flock back to the ol’ J.C. Grade: D-

Hope may be good for a retailer’s breakfast, but it is a poor supper. That reminds me of this conclusion that’s beyond confusion:

“Hope, like the gleaming taper’s light,
Adorns and cheers our way;
And still, as darker grows the night,
Emits a lighter ray.”

David Livingston
Guest
9 years 1 month ago

No, JCP is finished and has been for a long time. I would not blame the CEO. He took over a company that was hopelessly beaten. He tried what he could. Expectations were never high. Now that this horse is out of the picture, its time for the jockey to put away his whip. Further attempt to revive the company would be considered needless abuse.

Doug Fleener
Guest
9 years 1 month ago

I’ll give them credit. The only thing worse than making a huge mistake is sticking with one. I hope they can win their customers back.

I was in a store last weekend and I have to say I think the in-store experience is much better than it has been for years. The store wasn’t cluttered, a descent amount of help on the floor, and not a bad product selection. Too bad there were considerably less shoppers there than at Macy’s.

Cathy Hotka
Guest
9 years 1 month ago

This whole thing is baffling.

JCP cuts the clutter, adds fabulous merchandise, sparkles up the store, slashes prices, and loses gobs of money.

So presumably they raise prices, re-introduce irrelevant merchandise, and become America’s darling?

Someone explain this to me.

Lee Kent
Guest
9 years 1 month ago

I have said this before and i’m going to say it again. Pricing is not the problem! Have you visited a JCP store lately or looked at their web site? If i were a brand advisor, they would get an A+. The stores are current, interesting, cool, even somewhat hip as is the web site.

So what is the problem? That’s not who the JCP customer is! They built a new brand with some good potential, but forgot who their current customer is. I would suggest they spend their money appealing to the customer the new brand was built for.

Arthur Rosenberg
Guest
Arthur Rosenberg
9 years 1 month ago
Many old time customers have blogged their perceptions that as prices on private label apparel have decreased so has quality. How then can JCP raise these prices so they can lower them for promotions? Most thought Ron Johnson had several good and innovative ideas when he announced implementation just over a year ago. Unfortunately even with all those stores nationwide, he refused to test those notions and develop a plan. When traditional shoppers appeared to be turned off by his rush of new policies, Johnson still refused to test in at least a few of the many markets JCP serves, even after associates and industry stalwarts increasingly called for at least some form of testing. ‘Laying off’ nearly 20,000 employees in just over a year and cutting compensation for others has likely cost the retailer at least that number of customer families and damaged overall employee morale. Johnson’s testimony at the recent Martha Stewart/Macy’s trial was as embarrassing as Stewart’s. It is almost as if this disaster is part of a plot created by Eddie… Read more »
Ed Dennis
Guest
Ed Dennis
9 years 1 month ago

At this point in time, who cares? I think the best thing I have seen out of Penney in 20 years is their recent advertisement comparing their product to others at a considerably cheaper price. Have they abandoned this already? If I were a Penney landlord at this time, I would be very, very afraid!

Craig Sundstrom
Guest
9 years 1 month ago

In a way, I have to admire all these corporate spokespersons—”Bagdhad Bob”s of the C-suite—who are regularly forced to say the most implausible things without bursting into tears (of either laughter or shame…take your pick).

Back to the question: will JCP be “back to where it was before”? No, because it has only 2/3 of the customers it did before; and of course it’s now losing money (something which was only a long-term prospect before the…er…innovations took hold). I’m not willing to join David and the other pallbearers—yet—but it’s hard to see how this ship can be righted…let alone made to sail again.

William Passodelis
Guest
9 years 1 month ago

They are in a bad place at this point. It will take some time for the old JCP customer to return. They actually have some great new merchandise and the store-within-a-store concept is, I believe, good. I hope they have enough liquidity to hold on. JCP is such a great iconic American retailer—it would be a shame to see it go away.

Robert DiPietro
Guest
9 years 1 month ago

It’s over! JCP tried to reinvent themselves and went away from Hi-Lo and using 50% off or more sales to drive traffic. I applauded the move and was hoping for a remake of an icon. I was excited to see them win with a new look, new pricing and hopefully new customers. Well, its GAME OVER. The customer is not coming back.

Mike Osorio
Guest
Mike Osorio
9 years 1 month ago

First, I am glad to see them return to hi-lo pricing. The consumer always wins and Ron has finally recognized and given it to the consumer’s mentality in mid-price retailing.

Second, I disagree with some of the comments that say JCP will suffer from changing their pricing strategy and that they must be different in this regard since they are not #1. The reality is, their point of difference will not be pricing. But it may be the euro-feel shop-in-shop concepts that are proving compelling to the consumer. Or service. Or how they choose to compensate staff. Or something else. It just won’t be price.

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