J.C. Penney Co. is switching to a two-tiered pricing system and promoting price matching for the first time as Chief Executive Ron Johnson alters a strategy that flopped with customers and caused sales to plunge.
The change to a system of everyday low prices and clearance items will take effect Aug. 1, as will the price-match guarantee, said spokeswoman Kate Coultas.
Johnson, the former head of Apple Inc.’s retail operations, in January introduced a three-tiered pricing system of regular prices, monthlong sales on seasonal items and two “best prices” promotions each month. The strategy didn’t catch on: first-quarter sales fell 20 percent, the biggest quarterly drop since the period that ended in October 2004.
“A change in the pricing policy was absolutely necessary,” said Bernie Sosnick, an analyst at Gilford Securities. He has a hold rating on the stock.
While the monthlong sales didn’t excite shoppers, ?“ ‘Clearance’ is a word they understand.”
J.C. Penney will match similar local competitors’ current advertised prices on identical items if customers show the ad at checkout, Coultas said. The program doesn’t include Sephora cosmetics or the retailer’s salon, optical, portrait or custom decorating departments, she said in an email.
Private and exclusive brands accounted for 55 percent of merchandise sales at J.C. Penney in 2011 and 2010. Outside of that, much of the merchandise is items such as Nike Inc. footwear or Levi Strauss & Co. denim that is manufactured at suggested prices, so J.C. Penney’s business model “doesn’t lend itself to direct price competition,” Sosnick said.
“It’s not a grocery store or a Best Buy,” he said. “I find it hard to imagine as a consumer what I would match.”
Price-matching will be helpful for J.C. Penney’s credibility as the retailer reduces its assortment of private-label products, said Liz Dunn, a New York-based analyst at Macquarie Group.
“It definitely adds a layer of pricing integrity and conveys value to consumers, but then it also puts the onus on the consumer to kind of go out there and see if they can find a better deal,” Dunn said. “It’s a marketing tactic, but it’s one that other retailers use, and use successfully.”
Johnson said last week that the retailer was working on simplifying its pricing.
“Our pricing has been kind of confusing, our marketing overreached, so we’re going to bring that back,” Johnson said July 18.
J.C. Penney stock closed up 21 cents to $22.21. It has dropped 37 percent this year.