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Pinching Pennies at J.C. Penney Inc.

J.C. Penney (NYSE: JCP  ) is raising prices! For a retailer that's clinging to life by a thread because it's finding it difficult to attract customers, it seems sheer lunacy to increase prices, as that would surely keep customers away, right?

No worries: The department store chain is only raising costs now so that it can cut them later on.

Sources report that Penney is quietly raising prices ahead of St. Valentine's Day so that it can provide blotto blowouts in time for the next holiday rush. The New York Post says the department store has been advertising discounts of as much as 40% to 60% on jewelry, a popular item for the day of love, cuts that are much steeper than the 20% to 0% discounts it previously offered. But in the run up to the sale, the chain is raising its prices, which will presumably preserve its margins.

This is the sort of idiocy former Penney CEO Ron Johnson was trying to stop when he switched store policy to low, everyday pricing. Customers, though, abandoned the retailer in droves, heading for Macy's (NYSE: M  ) and Kohl's (NYSE: KSS  ) , which continued to offer the artifice. Where revenues for Penney's two rivals were up almost 5% and 2.5%, respectively, in 2012, the time period in which the policies were implemented; they plunged more than 24% at the troubled chain. It's clear Johnson overestimated the intelligence of the consumer, and for that he was excoriated and ultimately ousted.

Listen -- there were a lot of problems with many of the policies Johnson implemented, or, perhaps more correctly, in how he implemented them. For example, rather than testing them in limited, sample markets, he rolled them out immediately nationwide in what could best be described as a shock to the system. The result was the patient nearly died, and it still might unless current CEO Myron Ullman can reverse course.

But some of the emergency measures Johnson undertook were necessary. People seem to forget that when Ullman was leading the company before Johnson took the reins, the department store was already hemorrhaging sales, and the former Apple executive believed strong measures were needed to reverse course. Maybe his biggest sins were in thinking clothes could be sold like computers and in believing his customers would rationally react to the new pricing policies.

He remodeled J.C. Penney stores to make the layout a more Zen-like experience. Instead of racks upon racks of clothes, he cleared out the aisles and created store-in-store "boutiques," opting for brand-name designers instead of house favorites. Cash registers were eliminated in favor of employees walking around with iPads to assist with checkout, which undoubtedly had its stodgy customers walking around wondering where the heck they go to pay for the stuff. Eventually they just left the store and didn't buy anything. Or return.

The flat pricing policy also fell flat. Accustomed as they were to using their sharp elbows needed to get those big discounts, the customer felt in an alien landscape when there was nothing special about buying a T-shirt for $6 that was marked $6. The customer indicated that he or she would rather spend $6 on a shirt that with a $10 price tag.

And that's what Ullman is doing now, bringing back the fake pricing its customers (and Wall Street pros) said they wanted. The Christmas shopping season got off to a bang in November with big doorbuster sales, and though by all appearances it fizzled out by the time the holiday actually rolled around (as it seemingly did across much of the retail landscape), Penney is bringing it back in time for its customers to express their love for the store, it's pricing policies, and their sweethearts.

Whether this Valentine's Day scheme will work remains to be seen, as we're still waiting for some concrete evidence it panned out for Christmas, but whatever J.C. Penney's critics will say about this period, it won't be that it didn't give the customers what they wanted. 

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Read/Post Comments (7) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On February 02, 2014, at 1:04 AM, jihbeach wrote:

    I was just in this store about an hour ago and it makes me so angry. They are using all sorts of "tricks" that are very irritating to customers. I have been trying to support them, but they have almost gone too far.

    They have moved all of the catalog sales back to the top floor (a change from going to any register and then having to wait up to a 1/2 hour for someone to bring it to you), but, instead of having the dedicated register near customer service, as in the past, it is now the same register for the housewares department. You must wait in line with regular customers who need assistance with pots and pans or, like tonight, have 20 towels, plus other assorted housewares. This is a ridiculous waste of time since you have ALREADY PAID FOR YOUR ORDER! Also, they have moved it to a very inconvenient area of the store so that you are forced to walk completely through the furniture and housewares sections just to reach the counter.

    On that top floor, they only have 3 registers. THREE! The one in housewares/catalog, one in the very back, as far away from the outside doors that you can get, and one buried in a another corner of the boys department, as far opposite from the housewares/catalog department as you can get. They used to have a bank of registers near the doors, but they feel they MUST FORCE YOU to parade through their entire upstairs inventory before you can make a simple purchase. And, with so few registers, there are also long lines.

    They no longer have gift boxes available at the register, forcing you to go upstairs, to the catalog department (again) and wait in the housewares/catalog line (again) just to get a box AFTER THEY HAVE YOUR MONEY. Then, of course, they didn't HAVE any boxes. There is no longer a Customer Service department.

    Now, for the first time, they are using the very deceptive pricing of Buy One, Get One 50% Off, which is NOT A SALE. You are getting 25% off 2 pairs of already overpriced merchandise. This is a cheap sales trick and more typical of low end discount stores in the mall.

    If they are trying to piss off their customers, they are doing a great job. I have tried to call the Manager but they haven't returned my call. I have tried to support this store as we don't have very many options in our town, but they are making it so difficult that I have to plan my trips on days when I can handle the irritation and inconvenience.

  • Report this Comment On February 02, 2014, at 4:48 PM, shawni wrote:

    I miss the fair and square pricing. I do not like shopping only on weekends with coupons and their prices are even higher with a coupon than they were with the F&S pricing.

    Good God, please bring it back, maybe I will shop more again. We have a perfectly good JCP card with a paid off balance waiting to be used but I will be darned if I am paying $38 for a pair of jeans that I could get under the F&S pricing for $22.

    I have been a loyal shopper of JCP but I barely have time to breathe on weekends so it is inconvenient for me to try to use coupons. I only shop clearance anymore and they just recently stopped accepting coupons for clearance too.

  • Report this Comment On February 02, 2014, at 4:50 PM, shawni wrote:

    Yet the same people go to the Evil Mart of Wall to save 10 cents on frozen dinners (with no coupon) so please dont tell me that we are a coupon driven society all the time.

  • Report this Comment On February 02, 2014, at 5:31 PM, lucyd wrote:

    was loyal to JCP for decades but don't like the games they want you to play now with coupons and sales; they are getting to be worse than Kohls...tried ordering online and now they charged me $8 shipping charge for me to drive to the store to pick up the grandmother knew Mr. Penney.....he was a fine man....glad he's not here to see what has happened to his company.

  • Report this Comment On February 02, 2014, at 5:33 PM, lucyd wrote:

    they also need to bring back quality merchandise....most of what I have seen in JCP now I would never purchase; could buy at Walmart for less

  • Report this Comment On February 03, 2014, at 8:30 AM, Stevec7 wrote:

    I really need to remember that anything from the Motley Fool is a waste of my time to read.

  • Report this Comment On February 03, 2014, at 9:26 AM, Roddy6667 wrote:

    Neither Ullman nor Johnson understand the retail experience. The Penney's customer is not looking for the best price. They are looking to participate in a drama, a kind of dance that is done for amusement and entertainment. The seller lies to the customer about the price really being marked down. Everybody knows that it was marked up before and that nobody ever paid that price. The customer suspends belief and pretends that he is getting a tremendous bargain and buys the product. The store gets the sale and the buyer gets some kind of gratification, and the product. The play-acting is a value-added service.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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Related Tickers

9/2/2015 4:01 PM
JCP $9.32 Up +0.06 +0.65%
J.C. Penney Compan… CAPS Rating: *
KSS $50.89 Up +0.37 +0.73%
Kohl's Corp CAPS Rating: **
M $58.62 Up +0.67 +1.16%
Macy's, Inc. CAPS Rating: **