The Price Is Righter

J.C. Penney's new CEO believes he can revive the struggling department store by tapping into shoppers' frustrations with sales gimmicks

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Go to the mall these days and it's hard not to feel as if you're being messed with, which is why J.C. Penney's recent not-going-to-take-it-anymore ad rings true. You may have seen it: consumer upon consumer screaming "No!" as coupons flood out of a mailbox, crowds mass before dawn for a Black Friday--esque sale and store windows are stocked with items that are now 62% off. Too bad you bought them at full price, sucker.

The ad is staged and exaggerated, but the frustrations are real. To be a shopper--and not walk away screaming--is to come to grips with the reality that unless you are using shopbots and taking on bargain hunting as a full-time job, as some have, you are almost never going to get the lowest price.

So when Penney's newly appointed CEO, Ron Johnson, declared in mid-January that most of the original prices in his store have long been "fake" and inflated, the only surprising thing was that he had the guts to admit it. More surprising: Johnson said he was going to make changes.

Instead of facing infinite discounts and promotions--there were 590 different "sales" at Penney alone in 2011--the department store's shoppers will now see just three price categories. One will represent discounted seasonal items that change monthly. Another is clearance merchandise marked down on the first and third Fridays of each month. But the majority of goods will be offered every day at 40% or 50% less than the prices Penney used to charge. In retail parlance that's called EDLP, as in "everyday low price."

It's a radical shift for a promotional department store like Penney. The "fair and square" makeover also includes a new logo, store upgrades and in-store boutiques that will feature fewer brands.

The big discount chains Walmart and Target have long staked out EDLP, but mostly we live in a promotional, markdown world. And all those Sunday circulars, flash deals and holiday sales events--which seemed more intense than ever last year--have turned shopping into retail combat. According to the management-consulting firm A.T. Kearney, more than 40% of the items we bought last year were on sale. That's up from just 10% in 1990. Penney has been a notorious discounter, with nearly three-quarters of revenue coming from goods sold at 50% or more off list price--whatever that is--and less than 1% from full-price merchandise.

If anyone is equipped to transform Penney, it's the new CEO. Johnson joined the retailer in November, arriving from Apple, where for the past decade he presided over the computer company's huge retail success. Apple loves price maintenance and loathes heavy discounting and sales gimmicks. Johnson believes Penney's customers will appreciate pricing clarity, not to mention sleeping in. "I don't think customers like having to come to a store between 8 and 10 a.m. on a Sunday in order to get the best price on swimwear," he said.

But iPads are not underwear or makeup. "My intuition is that, in the long run, the changes won't be effective," says Kit Yarrow, consumer psychologist and author of Gen BuY: How Tweens, Teens and Twenty-Somethings Are Revolutionizing Retail. "A discount gives shoppers the incentive to buy today. Without that, there's no sense of urgency for people to purchase things that, frankly, they probably don't need."

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