JC Penny (JCP) stores are changing their profit philosphy and their new structure will roll out in Mondak region stores on February 1, 2012. The company has stores in Sidney, Montana as well as Williston, Bismarck, and Minot, North Dakota.
The stores will roll out a new and somewhat surprising price structure that permanently lowers prices across the board by 40%. Instead of sales flyers and coupons with cumbersome, changing, and often overlapping dates the new structure will have just three pricing levels. Red are the new everyday 40% lower prices; White will be a select set of items collectively on sale for a calendar month; and Blue will be special mark downs on the first and third Friday of the month set to the time of the month when the majority of American workers collect paychecks.
At first glance, chopping full retail prices by 40% might seem an odd thing to do. JC Penny Chief Executive Officer Ron Johnson, however, has both data and experience to back up the move. Johnson, who has an MBA from Harvard, joined JCP last spring with a history of turning around once industry leaders and bringing them back into the forefront of their retail niche. He was responsible for the resurgence of Apple prior to taking the Pennys helm and before that turned Target and Mervyn's around.
Johnson told investors this week that after studying price points, discount structure, and average retail costs the data showed that the over a ten year period the average price of wholesale department store goods was mostly stable. The data showed the average point of sale retail price was also mostly stable. What changed was steep increases in the retail price tag for new items on the floor. Sidney Store supervisor Vicki Lursen explained simply that these days “No body will buy anything at regular price.”
Essentially, for a $10.00 item, in 2002 JCP charged $28.00. In 2011, they charged $40.00. Johnson then looked at with sales, coupons and markdowns, how much did the customer actually pay for the $10.00 item? In 2002 they paid $15.80 and in 2011 they only paid 16 cents more, $15.96 average retail. In addition to the saving labor costs from constant pricing changes and decreased bookkeeping with a streamlined pricing system, Johnson said “The customer knows the right price. She's only going to pay the right price. To think that you can fool a customer is kind of crazy.” He also pointed out that while it may look like a 60% increase in profit potential, it is not real if the customer is not paying it. In fact, fewer than 1 out of 500 units are being purchased at full price.
This is how the new price structure will look. In 2011 a St. John's Bay woman's tee shirt at full retail price would have cost $14. Under the new system, the regular or red price will be $7.00. If it is included in the month-long sale collection or White price, the cost will be $5.00 and if it is on one of the pay-day sales days (the 1st and 3rd Friday of each month) also known as Blue price it will be $4.00.
Lursen and Cluster Store Manager Kathy Roberson who is based in Williston, ND have a lot of confidence in the new price structure. Both said believe JCP has done their research and the price conversion is nearly complete. They are just now waiting on the official roll out
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