JCPenney: New Pricing Strategy May Hurt Sales for Some Time?

In Industry News, Reports, What's New by Accessories Staff1 Comment

Retail Math: A JCPenney's ad explaining its new price strategy

Plano,TX—JCPenney has warned its shareholders that its new “everyday low price” strategy, which began Feb. 1, could hurt sales for some time and that there’s no guarantee the top-to-bottom shakeup would even work.

Analysts have been scrutinizing the department store’s plan ever since Ron Johnson, the ex-Apple retail chief, now JCPenney’s ceo, announced the changes in January. The new plan eliminates coupons, heavy discounts and promotions in favor of a three tiered strategy: everyday low prices at about 40% less than a year ago, month-long sales on select items and twice a month clearance events.

But would consumers, who may be so used to high/low price comparisons and off-price promotions, accept the new vision for JCPenney, analysts questioned.

‘Prolonged Decline in Sales’?

In its 2011 annual report filed on Wednesday with the Securities & Exchange Commission, the company noted: “There is no assurance that we will be able to successfully implement these strategic initiatives, which may result in an adverse impact on our business and financial results. In addition, the changes to our pricing strategies announced in January 2012 could result in a prolonged decline in sales. There can be no assurance that our new pricing, marketing and merchandising strategies, or any future modifications of our strategies, will be successful or result in improved operating results or productivity.”

JCPenney reported it swung into a fourth quarter loss in February. For fiscal 2011, the retailer’s comparable store sales edged up only 0.2%, while total sales decreased 2.8% to $17.26 billion.

While JCPenney has stopped issuing forecasts and monthly sales comparatives, Johnson told analysts in February that the store’s February sales are down from last year as the company shifts into its new pricing strategy.

The retailer has a new logo, new marketing and advertising and a new spokesperson, Ellen DeGeneres, but won’t start implementing its new brand shop concept until this summer along with its Town Square service and advice center, modeled after Apple’s Genius Bar.

The changes resulting from the new strategy will apparently go more than surface deep, too.

‘Moderate’ Plans for New Stores, Too

“Our transformational plan involves the re-imagining of some of our business practices and may result in a restructuring of our traditional vendor arrangements, including the sharing of certain costs and expenses,” the company said in the report.

Noting that economic and even climate changes could adverse affect its sales, JCPenney also said it planned to “moderate the number of new stores that we plan to open in the near term.” Moreover, it’s difficult for third party developers to obtain financing for new sites, the company added.

“The failure to expand by successfully opening new stores, or the failure of a significant number of these stores to perform as planned, could have an adverse impact on our future growth, profitability and cash flows.”

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