In 2012, J.C. Penney turned to “everyday low price” and away from sales – and it turned off shoppers.
“It was a catastrophic move when Penney’s moved away from coupons,” said Burt Flickinger III, a retail analyst and managing director of New York City’s Strategic Resource Group.
Sales at the department-store chain dropped 26 percent in-store and more than 30 percent online, he said.
Its major quarterly losses throughout the year made a strong case for special promotions, from sales to coupons, experts said.
“Traffic is the lifeblood of all retailers,” and for many, coupons and discounts are a draw,” said Bill Martin, founder and executive vice president of ShopperTrak, a Chicago-based firm that tracks spending at 40,000 stores across the country.
Martin said their research consistently shows an increase in spending when retailers offer deals.
“It’s not by accident you have huge turnouts on Black Friday,” he said. “People are looking for high value for little dollar.”
Other retailers have learned from J.C. Penney’s no-markdown strategy, and won’t be implementing the model, experts believe.
“Bon-Ton believes coupons and special promotions are important in attracting customers to shop with us by creating excitement and traffic,” said Mary Kerr, the store’s vice president for investor and public relations.
Bon-Ton President and CEO Brendan Hoffman said the company’s strategy involves “our simplified promotional offerings using our coupon to clearly frame the deal.”
Kerr added that “during the holiday selling season, we offered online specials every day, which kept the customer coming back to us on a daily basis. We believe in doing what is best for our customers by offering them more value for their purchases.”
At Macy’s, sales and coupons define the business.
“Macy’s is a promotional department store and customers love our sales and the value they get at Macy’s,” said Jim Sluzewski, Macy’s senior vice president of corporate communications and external affairs.
“Discounts and specials are part of Macy’s DNA, and they will continue in 2013, especially in challenging economic times. Customers spend their dollars carefully and want to be sure they are getting the best possible deal,” he said.
Flickinger said Bon-Ton, Macy’s and other retailers have benefited from J.C. Penney’s losses. He said J.C. Penney’s lost traffic was redirected to its competitors.
Furthermore, the malls and shopping centers where J.C. Penney’s is an anchoring or co-anchor store suffered due to the loss of business.
“The precipitous plunge hurt the shopping centers’ owners because the customer count declined so dramatically at Penney’s,” he said.
J.C. Penney’s aim was to make pricing more predictable and wean shoppers off heavy month-long discounts that were gnawing the struggling company’s profits.
Its new CEO, Ron Johnson, who implemented the new pricing strategy, expected that consumers would be slow to embrace the idea but was surprised at the deep losses.
“Job No. 1 is to return to growth next year. Let’s make no mistake about it. This is a year where we said we are willing to let the sales drop to establish a new base for the new JCP,” he told the Associated Press. “We have to return to growth.”
Flickinger said J.C. Penney did not sufficiently test it new pricing strategy before going nationally.
“We’re hoping for the best for Penney’s, but we’re very concerned about the future of the company. We’re hoping they make it but the outcome is very much in doubt,” he said.
Flickinger also said its new pricing is only 40 percent off, when in the past consumers had enjoyed 50 to 70 percent off with its old markdowns.
“Penney’s everyday low prices were significantly higher than its promotional prices, so there was a significant shift to Penney’s competitors.”
Shoppers also had become accustomed to J.C. Penney’s month-long discounts and it was part of the company’s brand strategy. Its abrupt departure from that was detrimental, experts said.
“It’s important for retailers to stick to a strategy that is complimentary to their brand promise,” said Martin of ShopperTrak. For example, shoppers expect to buy $1 items at the dollar store as they expect to spend top dollar at Neiman Marcus, he added.
“I think J.C. Penney has got a plan in place and they are working on it,” Martin said. “They are as motivated to drive traffic as anybody else.”
J.C. Penney’s plan is changing as it learns from shoppers’ rebuff.
While sales and coupons are still absent, it did bring back its “clearance” racks, which has shown some signs of increased traffic, according to some analysts. The chain has started displaying price tags of the “suggested” price from clothing and other manufacturers, to show consumers’ savings, along with Penney’s “everyday” price. And the company will continues its big sale on Black Friday.