J.C. Penney pins future on new, three-tiered pricing strategy and in-store shops

New York City -- Ron Johnson, CEO of J.C. Penney, unveiled his ambitious vision for the chain’s future on Wednesday. The chain is looking to transform itself with a three-pronged pricing structure, far less promotional clutter, and a revamped layout whereby the entire store will be merchandised into a series of 80 to 100 in-store brand shops. J.C. Penney’s entire fleet will be updated by 2015.

"The department store is the number one opportunity in retail today,” Johnson told analysts, reporters and suppliers at a presentation in New York. “We are going to rethink every aspect of our business, boldly pursue change, and create long-term shareholder value, as we become America's favorite store. Every initiative we pursue will be guided by our core value to treat customers as we would like to be treated - fair and square.”

Indeed, J.C. Penney’s new pricing model is dubbed "Fair and Square.” It is designed to offer appealing initial prices that are not confused by multiple promotions, deep discounts and daily sales. 

"The customer knows the right price," Johnson said. "To think you can fool a customer is kind of crazy."

Johnson said J.C. Penney's 590 unique promotions (in 2011) were confusing and failed to draw shoppers. To draw home the point, attendees at the presentation were confronted with loud noises and multicolored price tags before reaching the clean white space (complete with moving clouds) where the event was actually held.

The new three-tier model starts Feb. 1. It includes "Everyday" low pricing daily, with initial prices that are 40% lower from where they start now; "Month-Long Values," or discounts on select merchandise on a monthly basis; and "Best Prices," or clearance deals that will happen on the 1st and 3rd Fridays of every month as the chain makes room for new merchandise. And to make things even more simple, all prices will be expressed in flat dollar amounts without cents.

The same philosophy is being applied to promotional efforts. In 2011, the chain invested $1 billion to promote its 590 events. Under the new strategy, there will be 12 monthly events, each of which will receive $80 million in marketing support and include a 96-page direct mail piece with a heightened editorial emphasis.

Johnson said J.C. Penney will put realistic prices on everything in its stores and get rid of the “gimmicks.”

"People are disgusted with the lack of integrity on pricing," Johnson said.

But Johnson’s plans for Penney’s extend beyond pricing. He will overhaul Penney’s interior layout by transforming the space into a series of in-store specialty shops for specific brands, similar to the Sephora and MNG by Mango boutiques found in J.C. Penney stores now. Two to three shops will be installed monthly over a four-year period. The chain currently has 30 shops in development, with the first 10 slated to launch next fall. It plans to reach its goal of 80 to 100 by 2015. The chain has developed a 5-ft.-by-5-ft. fixture that will allow it to easily put up permanent-looking walls for the new shops, according to Johnson.

In another change, some 10,000 sq. ft. in the center part of the store will be devoted to a "Town Square" area, debuting in 2013, which will feature a series of changing services. The revamped store interior also will merge the physical and digital worlds.

New brand marketing includes a monthly book, beginning in February, which will be sent to millions of Americans. It will feature 96 pages of highlights for the month. The chain is also rolling out an entirely new look for stores in terms of signage and presentation. And it unveiled a new logo featuring a square frame with “jcp” in the corner. The square frame imagery will be evident throughout all of J.C. Penney’s marketing.

Finally, J.C. Penney has hired comedian Ellen Degeneres to promote its new strategy in television advertisements.

“Beginning on February 1, our customers will see immediate changes that give a sense of how we will transform J.C Penney over the next four years,” said Michael Francis, president, J.C. Penney. “It will be a breath of much-needed fresh air and give them reasons to visit J.C. Penney more often than ever before. Our objective is to make our customers love to shop again and across J.C. Penney, we're very excited about the changes to come."

What do you think of J.C. Penney's new strategy? Does it make sense? Leave your comments below.

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