January 25, 2012, 2:00 PM

J.C. Penney maps a new path

The retailer will cut prices, reduce promotions and overhaul store design.

Lead Photo

Ron Johnson

J.C. Penney Co. Inc. CEO Ron Johnson today presented a four-year plan that he says will establish J.C. Penney as America’s favorite store. His plan includes making big investments to improve the experience consumers have while shopping in Penney’s more than 1,100 retail stores, lowering and simplifying product pricing and revamping its marketing approach—all designed to give consumers a reason to come to a Penney’s store rather than shop online. 

“For the retail store to win in the digital world it has to do things that can’t happen online on your iPhone or iPad,” he said this morning in a presentation to investors and media.

Johnson said J.C. Penney will make its stores and the experience customers have in those stores more relevant to customers’ wants and needs. He said the changes coming to stores will carry through to JCP.com, but did not offers details on any changes to the chain’s e-commerce site. The web accounted for 8.8% of J.C. Penney’s total sales during the first three quarters of 2011. J.C. Penney is No. 20 in Internet Retailer’s Top 500 Guide.

That Johnson only mentioned J.C. Penney's online operation in passing highlights the plight its stores are facing, says Nikki Baird, managing partner with research and advisory firm Retail Systems Research LLC. "J.C. Penney's been one of the biggest online retailers and one of the most aggresive in cross-channel and digital communications to customers. That Johnson is focusing so much of his effort on stores I think reflects the level of crisis that exists around stores," she says. "Stores are definitely the problem, and they're the biggest, most expensive and time consuming to fix."

Consumers will start seeing the changes Johnson outlined in Penney’s stores Feb. 1. Those include Penney’s new “fair & square” pricing strategy, which sets lower everyday prices for products. Johnson said a sales analysis revealed that 72% of J.C. Penney revenue comes from selling products that are discounted 50% or more from their original prices. “[The consumer’s] already told us there’s a price she likes to pay,” Johnson said.

The new everyday prices are in line with what consumers are already paying when discounts are factored in. For example, consumers paid an average of $3.30 after all discounts for a particular bath towel that had a regular price of $10 last year. The new pricing strategy resets the regular price for that towel to $4, Johnson says. The retailer also will feature “best price Fridays” on the first and third Friday of each month during which merchandise that needs to be cleared out will sell for less. When J.C. Penney needs to move existing towel stock to make room for new colors, for example, the old towels will be sold for $2 each only on those Fridays. The stores will have no clearance sections, Johnson says. 

The new price strategy will enable J.C. Penney to greatly reduce the number of promotional campaigns it runs annually to 12 from 590. The 12 campaigns will correlate with the calendar and change on the first of each month. Johnson says the cacophony of sales promotions only served to confuse customers about when they could get the best deals and didn’t compel them to visit the store. “J.C. Penney spent over $1 billion [on marketing last year] and the customer ignored us 99% of the time. Steve [Jobs] would have called this insanity,” Johnson said, referring to the late CEO of Apple Inc. and his former boss. “At some point you, as a brand, look desperate if you have to market that much.”

Johnson said the reduced promotional calendar also will let clerks focus on serving customers rather than retagging items and replacing store signage every time a promotion changes. Changing the experience consumers have in Penney’s stores is another major part of the retailer’s new strategy. The retailer will expand the store-within-a-store concept to other brands it carries, such as apparel brands Izod and Arizona Jean Co. J.C. Penney already operates brand-specific stores for cosmetics retailer Sephora and Spanish apparel brand Mango. The retail chain also will bring in new brands for the mini-shops, including a youth-focused line called L’Amour from designer Nanette Lepore and a Martha Stewart mini-store that'll sell products aimed at helping consumers live well. The plan is to have approximately 100 mini-shops in each J.C. Penney store by 2015. “Shops work,” Johnson said. “Our tolerance for complexity has gone to nothing. Endless seas of racks are not what consumers want today.”

The tighter connection J.C. Penney establishes with brands could also help it online, says Ken Wisnefski, CEO of search engine optimization and services firm WebiMax. For example, a consumer who runs a search engine query for Martha Stewart might see natural search results pointing to her association with the retailer and convince her to visit. Lower  prices, meanwhile, might draw attention in comparison shopping engines from consumers using them to find the lowest available prices. "I think Penney has recognized they are not the shining star in retail. They've decided to do more things from a creative standpoint to get traction on other retailers that have that extra name recognition, and part of that is by associating themselves with bigger brands," Wisnefski says.

Stores will also prominently feature a social area in the center of the store—Johnson called it a “town square”—that is intended as a place for consumers to gather. Johnson did not reveal what the town square section would contain.

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