Consumers punish Penney's new pricing
- Article by: ANNE D'INNOCENZIO
- Associated Press
- May 15, 2012 - 8:56 PM
NEW YORK - Turns out, J.C. Penney shoppers don't prefer predictable pricing over blockbuster bargains -- at least not yet.
The department-store chain on Tuesday reported a larger-than-expected first-quarter loss largely because customers were turned off by the retailer's new plan to get rid of big sales throughout the year in favor of everyday low pricing.
The idea of the strategy, which was rolled out on Feb. 1, is to discourage shoppers from waiting for the nearly 600 sales Penney used to offer each year. But the move has backfired: It seems many faithful Penney customers have stopped shopping altogether.
Wendy Ruud, 49, used to visit the Penney store near her home in Boca Raton, Fla. every two weeks. But Rudd hasn't been back to the store since early this year when she stopped getting coupons from the retailer in her e-mail inbox.
"The closest J.C. Penney is about a half hour away from me," said Ruud, who has been shopping more at Target and Wal-Mart. "If I don't get a special discount, it's not worth the trip."
The lackluster reception to Penney's new pricing strategy underscores how difficult it is for a company to change the way consumers behave. Industry watchers say Penney faces an uphill battle in attempting to shift the mindset of its shoppers, who increasingly have become accustomed to and spoiled by fat discounts during the economic downturn.
"Consumers want deals, and they're willing to wait for them," said C. Britt Beemer, chairman of America's Research Group, a consumer research firm. "When you train customers to shop at big discounts, that customer is not going to change."
J.C. Penney, based in Plano, Texas, lost $163 million, or 75 cents a share, in the three months ended April 28, compared with a profit of $64 million, or 28 cents a share, in the year-ago period.
Revenue dropped 20 percent to $3.15 billion for the quarter as customer traffic slipped 10 percent. Meanwhile, revenue at stores opened at least a year -- a figure used to measure a retailer's health -- was down 18.9 percent. That's a much steeper fall than the 11.4 percent drop Wall Street was expecting.
Ron Johnson, a former Apple Inc. executive who became Penney's CEO in November, acknowledged that the first quarter was "tougher than anticipated." At a meeting with analysts and investors on Tuesday, Johnson said that he expects 2012 to be a difficult year.
"We had to make the bold step," in pricing, he said. "It's one big year we have to go through. It's really hard, but we'll get through it."
Penney shares soared 24 percent to about $43 after Johnson announced the strategy in late January. But since mid-February investors have sent shares back down to around $34. After Penney reported the first-quarter results after the markets closed on Tuesday, its shares fell 12 percent to $29.30 in after-hours trading.
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