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J.C. Penney revamps strategy to include major markdowns

After a poor holiday season, the department store chain will adopt a simple pricing strategy and do away with the hundreds of sales it has sprinkled throughout the year.

January 26, 2012|By Shan Li, Los Angeles Times

After a poor holiday season, J.C. Penney Co. is revamping its strategy by retooling its store format, marking down its merchandise and simplifying its promotions.

"We are rethinking, we are reimagining, and if we find we have picked up some bad habits through the decades, we will leave them far behind," Chief Executive Ron Johnson told industry analysts Wednesday.

The retailer will adopt a simple pricing model and do away with the hundreds of sales it has sprinkled throughout the year. The three-pronged strategy involves permanently slashing prices on all products, offering monthlong sales on select items, and clearance deals on the first and third Fridays of each month.

Johnson said Penney's previous strategy of rampant promotions created confusion among shoppers and a wait-and-see mentality. For example, the retailer ran 590 unique promotions in 2011, but the average customer went to a Penney store only four times that year.

The result: Almost 73% of its revenue is made from products sold at a discount of 50% or more, he said, and only 0.2% of revenue comes from goods bought at full price.

The lesson was very simple, Johnson said: The customer "knows the right price."

Dubbing its new strategy "fair and square," Penney will examine what prices shoppers actually pay for items and tweak the price accordingly. For example, a towel that is priced at $10 but is sold for $3.30 after coupons will be priced at $4, Johnson said.

Aside from pricing, the format of Penney stores will also change with the creation of distinct retail spaces within its stores that feature different brands. The retailer has already partly adopted this model with its mini-boutiques for cosmetics maker Sephora and displays for fashion brand M by Mango.

"Our stores are tired; they haven't been updated," Johnson said, who likened the department store experience to "almost like we are selling clothing by the pound."

Penney has suffered in recent years as the recession slammed its middle-income customers and shoppers turned to trendier rivals such as Macy's and Target. The retailer struggled during the crucial holiday season and resorted to large discounts to attract customers and clear its shelves.

Johnson, formerly an executive at Apple Inc., took the helm in October as Penney's chief executive.

Since then, Johnson has been shaking up the retailer. In October, Penney spent $267.5 million to buy Liz Claiborne brands and fashion-jewelry brand Monet. Last month the company acquired a 16.6% stake in Martha Stewart Living for $38.5 million.

J.C. Penney shares fell 32 cents, or 0.9%, to $34.28 on Wednesday.

shan.li@latimes.com

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