J.C. Penney to change pricing structure again
Plano, Texas — J.C. Penney said Thursday it is once again tweaking its pricing structure, changing course just six months after introducing a three-tiered everyday pricing strategy.
The retailer said that, beginning Aug. 1, it will eliminate one of the tiers and bring back the word "clearance." To avoid the kind of confusion the company created last February when it changed pricing without properly communicating the new strategies with its customers, Penney said it will tweak its advertising to make sure the changes are clear to consumers.
While some analysts seem encouraged that new CEO Ron Johnson is re-examining some of the sweeping changes he made when he took the wheel in November, others wonder if he will be given enough time to effect his promised turnarounds.
Johnson expressed confidence that the pricing strategy will work.
"We thought simplifying 590 unique sale events into three types of pricing would be easier, but it turns out that customers and others found the pricing a little confusing," he said. "Now we’re going from 590 to 3 to 1: The first price is the right price."
Under the new system, Penney is keeping "Every Day" low prices that are consistently 40% lower than regular prices before the company eliminated sales. It also will keep periodic sales, but will label them as “clearance.”
Survey: Paycheck cycle remains pronounced
Most Americans are locked in a struggle to make ends meet, which is why Walmart’s message of saving people money so they can live better is resonating stronger than ever.
Just how bad is it out there? That’s what the Certified Financial Planner Board of Standards and the Consumer Federation of America wanted to know. The organizations’ this week released discouraging results from their annual financial planning survey that show the number of people living paycheck to paycheck is up, there is a high degree of pessimism about the future, and household net worth levels are below where they were 15 years ago when the study was first conducted.
“Saving enough money for future goals like retirement and kids’ college, while also maintaining an adequate emergency fund and staying out of serious debt, has always been a challenge,” according to the study. “This was true even in the more favorable economic climate of 1997, when Princeton Survey Research Associates International first surveyed household decision‐makers about these topics. In 2012, with high unemployment, stagnant incomes and reduced net worth, those challenges are even greater.”
The median family, the theoretical family that is richer than half of all American families and poorer than the other half, had a net worth of $77,300 in 2010 compared with $126,400 in 2007 according to the Federal Reserve statistics cited in the study. This means the average family has no more wealth today than it did in the early 1990s, wiping out nearly two decades of economic gains.
As a result, in 2012, households where people live from paycheck to paycheck (38%) outnumber those where people feel financially comfortable (30%). Fifteen years ago, when economic conditions were much more positive, those percentages were reversed.
A lot of the gloom stems from the decline in housing prices because for most Americans their home is their largest asset. However, one fourth of those who responded to the survey said they owe more than their home is worth.
A copy of the study with complete details on the thorough methodology is available by clicking here.
Class warfare and the politics of food
Assessing the strength of the American consumer has become something of a national past time, especially during an election year. And as conflicting data points paint a picture of a lumpy economic recovery both presidential candidates can find something in retailers’ sales results that lend credence to their arguments.
Walmart is thought to be performing well, at least that is the expectation of those who have bid the company’s share price up to a new 52-week high. Score one for the Mitt Romney camp. It could be argued that Walmart’s resurgence is due in part to economic weakness caused by the failed policies of President Barack Obama. If the economy were better and more people had jobs, they wouldn’t be so dependent on Walmart’s low prices to get by paycheck to paycheck.
What then to make of the situation at Whole Foods this week where the company reported exceptionally strong results. Team Obama can make the case that affluent Americans are doing just fine as evidenced by Whole Food’s 8.2% same-stores sales increased for the third quarter ended July 1, and therefore they an afford to pay more in taxes.
Walmart’s perspective on the state of the lower end consumer won’t be available for a few more weeks, but for now Whole Foods results aren’t helping Romney’s camp make the case that Americans are struggling.
The nation’s leading purveyor of healthy foods surprised analysts, again, late Wednesday when it powered through their estimates and the company’s own guidance. In addition to the 8.2% comps increase, total sales increased 14% to $2.7 billion, net income increased 32% to $117 million and earnings per share that rose 27% to 63 cents were two cents better than analysts forecast. It was the fifth consecutive quarter in which same-store sales exceeded 8% and the 16th consecutive quarter in which he company’s earnings have exceeded analysts’ consensus estimate.
“In an economic environment that is proving to be difficult for many retailers, we are thriving and pleased to report another quarter of strong growth and excellent results for our stakeholders,” said Walter Robb, co-CEO of Whole Foods. “Our accelerated growth plans are on track, and we believe we will continue to gain market share through further differentiating our shopping experience, improving our relative value positioning, and reinforcing our position as America’s healthiest grocery store.”
Based on its third quarter strength and comps that are up 9.7% during the first three weeks of the company’s fourth quarter, Whole Foods increased its full year earnings per share forecast by five to seven cents to a range of $2.51 to $2.52. The company also went so far as to forecast earnings and same-store sale for the coming fiscal year, despite uncertainty around food and commodity costs in the wake of a severe drought in the Midwest and energy prices which could prove volatile in 2013. Nevertheless, Whole Foods said it expects earnings for its new fiscal year beginning in November to range from $2.83 to $2.87 and comps to increase from 6.5% to 8.5%.
Whole Foods also plan to increase new store openings with between 28 and 32 stores in the works. The company ended the third quarter with a total of 329 stores in the United States, Canada and the United Kingdom. A record nine new locations opened during the quarter with six more planned for the fourth quarter it will bring the number of openings for the full year to 25.
“Over the long term, the company considers 1,000 stores to be a reasonable indication of its market opportunity in the United States as the Whole Foods Market brand continues to strengthen, consumer demand for natural and organic products continues to increase, and the company’s flexibility on new store size opens up additional market opportunities,” the company said in a statement.
On top of what appears to be abundant expansion potential and tremendous sales and earnings momentum, Whole Foods is sitting on a pile of cash. The company ended the quarter with roughly $1.5 billion in cash and equivalents, roughly double the prior year level.