JC Penney Opts Out of the Discounting Arms Race

Depending on your viewpoint, JC Penney announced Wednesday that it is migrating down—or up—the multibrand retail chain. In the course of announcing some poor quarterly results covering the holiday season, CEO Ron Johnson said the retailer will remake itself to look less like a standard department store and more like a big-box retailer. The change includes everything from a “boutique” shop merchandising makeover, to a simplified “everyday low pricing” strategy, and even to a logo redesign that, to my eyes, resembles that of Target: the brand initials inside a geometric shape, in this case a square rather than a bulls-eye.

Put aside the Old-Glory-meets-Tommy-Hilfiger logo change, Penney’s second in a year. And put aside the “store within a store” orientation. To me that simply makes Penney more like every other department retailer, but then I prefer my clothes and kitchen goods without ads on them, whether Ralph’s or Martha’s.

What do you feel about the pricing philosophy?

The new system is actually built on three tiers: “fair and square” regular prices; month-long price promotions on selected items; and then low, low pricing on the first and third Fridays on items that need to be shifted to make room for new inventory.

In explaining the pricing hierarchy, Johnson pointed out that under the current structure, Penney sold only one in 500 items at full price but made 72% of its revenue from items that had been discounted at 50% or more.

Under this new pricing approach, Johnson says, Penney’s promotions will shrink from almost 600 a year, at an average of $2 million per campaign, to 12. Rather than spending that money in spot promotions, the company now intends to spend $80 million a month advertising its full range of products.

As Penney’s “Enough Is Enough” ads stress, the new strategy is meant to cut through the ad clutter, whether it’s a flood of discounts and circulars in mailboxes and newspapers or the kind of “Midnight Madness” sales that had retail employees skipping Thanksgiving dinner so customers could get a three-hour head start on Black Friday.

Just evaluating the pricing strategy alone, do you think J.C. Penney will be able to separate from the crowd via these scheduled, carefully timed price promotions? Will they be able to compete with the megastore retailers who are already identified with low prices, but who will still have the freedom to run up add-on discounts on the fly?

In a broader sense, do you think consumers—who are still feeling poor—are nevertheless succumbing to deal fatigue, worried that they’re “missing out” on a better price somewhere? As Robert Passikoff from BrandKeys tells my colleague Jim Tierney at Multichannel Merchant, that approach may not help Penney appeal to dedicated bargain hunters, who already have the online and mobile tools to find deals. But is there a large contingent of shoppers who might spend more with a single trusted retailer like Penney if they could be sure of getting at least a competitive price?

With so many discount offers flooding letterboxes, email inboxes, mobile messaging, and in-store and social channels, have retailers begun to exhaust the appeal of the deal? Are we breeding consumers who are paralyzed by fear that they’re not getting the best deal out there?

Please let us know what you think of Penney’s price revamp, and whether you think other retailers will follow suit in declaring an end to the discount arms race, saving the cost of these constant scattershot promotions. Or will they play it to their own advantage by discounting even deeper.