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J.C. Penney will simplify pricing with permanent markdowns

NEW YORK — J.C. Penney Co. is permanently marking down all its merchandise by at least 40 percent so shoppers no longer have to wait for sales to get bargains.

Penney said Wednesday that it is getting rid of the hundreds of sales it offers each year in favor of a simpler approach to pricing. Starting Feb. 1, the retailer is rolling out an "Every Day" pricing strategy with many fewer sales throughout the year.

The plan, the first major move by former Apple executive Ron Johnson since he became Penney's CEO in November, is different from Wal-Mart's iconic everyday low pricing. Unlike Wal-Mart, Penney's goal isn't to undercut competitors, but rather to offer customers more predictable pricing.

"Pricing is actually a pretty simple and straightforward thing," Johnson said. "Customers will not pay literally a penny more than the true value of the product."

Penney's plan comes as stores are struggling to wean Americans off of the profit-busting bargains that they have come to expect in the weak economy.

Here's how Penney's pricing strategy will work:

• Sale prices become everyday prices. The company will use sales data from last year to slash prices on all merchandise at least 40 percent compared with the previous year's prices.

• Fewer sales. The retailer will pick items to go on sale each month for a "Month-Long Value." For instance, jewelry and Valentine's Day gifts would go on sale in February. Items that don't sell well would go on clearance during the first and third Friday of every month, when many Americans get paid.

• Simpler pricing. Penney will use whole figures when pricing items. In other words, you won't see jeans with a price tag of $19.99, but rather $19 or $20.

The strategy, unveiled at Penney's investor meeting Wednesday, comes as the retailer tries to turn around its business. For the 11 months through December, Penney's revenue at stores opened at least a year — an indicator of a retailer's health — rose 0.7 percent, while competitors like Macy's rose 5.4 percent, and Kohl's was up 1.1 percent.

In December, Penney said it will have Martha Stewart develop mini-shops starting next year. Tightening the Stewart connection to Penney has created tension. Macy's, which also carries Stewart products, filed suit to enforce its exclusive deal with the home decor doyenne after J.C. Penney recently agreed to purchase 17 percent of her Martha Stewart Living Omnimedia.

Penney has been an especially big promoter. Last year, the company, which offered 590 sales events last year, saw nearly three-quarters of its revenue come from merchandise that was discounted by at least 50 percent, more than double the retail industry average.

At Penney, the regular price on an item that costs $10 to make rose 43 percent, from $28 in 2002 to $40 in 2011. But because of all of its sales and other promotions, what it actually ended up selling for rose only 15 cents, from $15.80 to $15.95 during that same period.

J.C. Penney will simplify pricing with permanent markdowns 01/25/12 [Last modified: Wednesday, January 25, 2012 10:03pm]
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