Big changes in store for J.C Penney shoppers

The retail news of the week is the reinvention of J.C. Penney.   The retailer's new CEO announced it will revamp its pricing and promotional strategy next month.  At the same time it will transform the shopping experience by rolling out the concept of store-within-a-store.  We'll see the first of these in Fall 2012 and the roll out will be complete in 2015.  I'm going to focus on the pricing and promotional strategy in this post.

The mid-price chain of some 110 stores has struggled, turning in the worst performance among department stores over the last five years according to the New York Times.  As Paco Underhill notes, department store shoppers are aging and younger ones are not replacing them. Mid-price department stores are in an especially touch spot, saddled with aging mall locations, stiff competition from the high end and low end, and little to differentiate them.  The intense competition yielded the couponing and discounting wars that the new JCP ads spoof.

JCP is stepping away from the couponing madness to offer consumers a great price everyday.  Coupons and price promotions were were the lifeblood of JCP. The retailer reports that it ran 590 sales  last year, and that more than 70% of its revenue was discounted at 50% or more.  Next month JCP will go cold turkey, significantly curtailing the number of promotions it offers.  JCP  will cut the everyday retails by about 40% on most items.

This sounds great--shoppers will know they are getting a good value and JCP will save a boatload on labor, since no one has to put up those signs and re-tag discounted merchandise.  Advertising costs are also expected to decline, as the retailer will not need to to promote the incessant sales.

Overall, though, I think JCP is onto something here.  JCP wins if it can get its existing shoppers--those who know, love and trust JCP-- to buy more on each trip to JCP or to come to JCP just one more time a year.  Those shoppers are critical to the success or failure of JCP, and how they change their behavior will determine the future of the chain.

However, I have some concerns about the everyday-low-price strategy.  In an era when consumers are laser focused on bargains, how will they know what a good value is?  Consumers are notoriously bad at being able to assess the value of an item without context clues (see my post on anchor pricing).  Will the lower tag price give consumers the impression that the quality of the goods are lower? Will consumers prefer to get a pretty good deal on a lot of items at JCP?  Or do they  love the hunt and want an outstanding deal with a coupon on one item at Macy's or Kohl's?

Wall Street is enthusiastic about the changes--the stock price went up over $6 last week, when the broader market didn't fare nearly as well.  I'm not ready to buy JCP stock yet though!  It will be fascinating to see if the JCP consumer is as receptive to the changes.  What do you think?