Ron Johnson discusses JCPenney’s new strategy
NEW YORK—JCPenney CEO Ron Johnson detailed some of the retailer’s new pricing strategy, a new logo (seen here) and a new store merchandising plan today in New York City. “Beginning February 1, we will have ‘Fair and Square Pricing,’ making every day a great day to shop,” Johnson said.
He added, “The department store is the number one opportunity in retail today. We are going to rethink every aspect of our business, boldly pursue change, and create long-term shareholder value, as we become America’s favorite store. Every initiative we pursue will be guided by our core value to treat customers as we would like to be treated—fair and square.”
The new pricing strategy will mean simpler price tags that are replaced when prices change (instead of adding a sticker with the new price on existing tags) with round numbers, like $10 instead of $9.99.
“I have not spoken to a single person in the vendor community who thinks Penney’s new strategy will work,” wrote industry consultant Fred Rosenfeld in the January issue of MR, adding that he thought it was a bold move and a great strategy. “Clearly the JCP board is giving this new team carte blanche to make changes. What’s more, the OTD concept is just plain stupid. That said, I think Penney’s new strategy will result in 18 months of negative (12 to 15 percent) monthly comps before it succeeds. When I expressed this opinion to one of my hedge fund clients, he was shocked and said, ‘We’ll give Johnson six months.'”
Below is a video of a new television spot JCPenney will be airing.
But Johnson also said that the retailer will still be doing “monthly promotions,” on a regular schedule, “Rather than inundating the customer with a relentless series of sales, coupons, rebates and retail gimmicks.” Those 12 monthly sales will be targeted to items that are typically sought during those particular months, the company said.
“By setting our store monthly and maintaining our best prices for an entire month, we feel confident that customers will love shopping when it is convenient for them, rather than when it is expedient for us,” Johnson explained.
Johnson, along with JCPenney president Michael Francis, who joined the retailer from Target in October, also announced a reinvention of the “store experience” that would include merchandising the store “in a series of 80 to 100 brand shops, rather than the confusing and seemingly endless racks common in department stores today.”
Looking at JCPenney’s numbers, some change is desperately needed. The retailer swung to a third quarter loss of $143 million in November, compared to a $44 million profit the previous year. According to the Associated Press, 72 percent of JCPenney’s revenue last year came from items marked down to 50 percent off or more in a total of 590 different sales—more than double the average in the industry. The AP added that while the wholesale cost of goods for JCPenney rose 43 percent between 2002 and 2011, after all the retailer’s promotions, the OTD prices barely moved.
But the changes may have a negative impact on JCPenney’s workers. According to a report by the New York Post this week, JCPenney may be on the verge of laying off thousands of employees across its 1,200 stores. In a statement obtained by the Post, the retailer emphasized the normal termination of seasonal workers, but the Post‘s sources said that permanent staff, both in the stores and the company’s Plano, Texas headquarters, would be affected as well.
