Article Link – Penney’s Pricing Strategy takes a Toll on Sales
Ron Johnson’s bet on JCP’s new retail strategy will not come without its costs. Analysts on Wall Street are expecting JCP’s revenues to drop by “seven percent this fiscal year”. This is worse than the previously forecasted two percent drop because analysts believe “shoppers accustomed to seeing big discounts [will] go to rivals like Macy’s Inc.”. Same-store sales are expected to drop nine percent – lower than the four percent drop that was originally anticipated.
Penney’s new strategy is simple – three tiers:
- “Everyday” prices that are 40% lower than what they were charging a year ago;
- Month-long sales on select items; and
- Clearance events during the first and third Friday of each month (to coincide with employee payroll distributions)
Though the street expects dire consequences for JCP’s stock in the short term, it also believes that Ron Johnson’s plan will pan out in the longer term by eliminating “unprofitable promotions and [improving] its profit margins overall”.
If successful, this will be a major change in retailing because suddenly the promotional activity will decrease and other retailers will also have to find ways to attract customers… but this is going to take time.
– Walter Loeb, New York-based retail consultant
JCP is expected to offer more details on its performance when it reports its quarterly earnings results in May.
My View: This is a long-term bet, not a strategy that will yield postive returns in the next six to 12 months. Ron Johnson is not trying to change his strategy – he is trying to change the rules of the retail game. His bet is riding on a revamp of the entire retail experience.
Disclaimer: I do not own, or plan to buy any JCP stock in the next 48 hours.