ISSUE NO. 69 10/24/12

Since taking over J.C. Penney, CEO Ron Johnson's vision has been the catalyst for some significant changes. Now, two new transformations are in progress for the mid-price department store: a new two-tier pricing structure to replace the unsuccessful three-tier structure of earlier this year as well as a roll-out of a store-within-a-store format.

In January, Johnson, a transplant from Apple Inc.'s retail operations, implemented a three-tier pricing system in which there were regular prices, month-long sales on seasonal items and two "best prices" promotions each month. Ultimately, shoppers found the strategy confusing and first-quarter sales dropped by 20%. "A change in pricing policy was absolutely necessary," said retail industry analyst Bernie Sosnick, of Gilford Securities. J.C. Penney moved to a system of everyday low prices and clearance items, effective August 1st. In addition, there will be a price-match guarantee for shoppers who show local competitors' ads on identical items as checkout.
The "store-within-a-store" concept turns the retailer into a set of branded shops that offer a series of different experiences under the J.C. Penney roof. There will be three formats: boutique (750 square feet), shops (between 750 and 1,400 square feet) and stores (over 1,400 square feet). The first rollout focused on denim. Levi's, Arizona and Buffalo brands have their own carve-outs in 683 stores across the country, followed by an Izod shop, a Liz Claiborne store and a shop for the JCP men's and women's brand.

In the last year, J.C. Penney has undergone several significant changes, from gaining new managers (and losing them) to a new pricing structure to a sophisticated store-within-a-store format. As shoppers respond to these changes, for good or ill, the rest of the retail world should take note of their reactions. For instance, shoppers might really like the new format. If so, that's something other marketers should take to heart. Also notable is that J.C. Penney didn't stick to a clearly unsuccessful pricing strategy. This speaks well for its management. Instead of doubling down on what hasn't worked in the past, the retailer is admirably working to reinvent itself. For now, J.C. Penney is down but not out, yet.

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"J.C. Penney Adds Two-Tier Pricing as Johnson Alters Course," Bloomberg Businessweek, 7/26/12

"JC Penney Launches ‘Shops' Concept with Levi's Store," Advertising Age, 7/23/12

J.C. Penney, Levis, pricing structure, store-within-store

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