A year ago, JCPenney promised an end to “fake prices” and the usual retailer mind games played to make customers think they’re getting a deal. Now that the ambitious attempt to wean customers off endless discounting and markdowns has proved to be a disaster, JCPenney has relented and will begin running sales again. Let the games begin (again).
When JCPenney was heavy into the discounting game, less than 1% of its revenue came from people buying stuff at the list (nonsale) price. Lately, instead of posting list prices that almost no one pays, the retailer has been displaying “manufacturer’s suggested retail prices” (MSRP) that are even more meaningless — because shoppers never for a second face the possibility of paying such prices.
“Everybody loves a bargain, even when it is a phony one,” says Edgar Dworsky, founder of watchdog site Consumer World.
Last year, in a major overhaul of store policy, and in a challenge to standard retailer practices in general, JCPenney stated it would get rid of such phony bargains. New CEO (and Apple-store veteran) Ron Johnson promised a fresh new “fair and square” approach that eschewed what he admitted were “fake prices,” according to an article in the New York Times. The story also noted:
From 2002 to 2011, the average cost that Penney paid for an item stayed about the same, from $9 to $10. During that period, though, Penney increased the average price tag to $36 from about $27. Yet even as the price tag rose, customers ended up paying less because of coupons or sales.
Dworsky says the idea advanced by Johnson was “wonderful.” The only problem is, we apparently want our made-up markdowns. Revenue has plummeted since Johnson took the helm, and UBS analyst Michael Binetti said it may have fallen a whopping 30% in the most recent quarter, which is the time most retailers show their best performance.
To stop the flow of red ink, JCPenney just announced it is reversing course and will host regular sales again. “Moving forward we’ll provide additional savings on popular items that are important during key events and holidays,” says company spokeswoman Kate Coultas. For instance, the store is running a 20% off jewelry promotion to coincide with Valentine’s Day.
The retailer is delivering what customers want — big reductions, even if they’re off prices pretty much nobody paid in the first place. Last week, the New York Post called out JCPenney for putting what was described as “phony suggested retail markups” on some clothing it sells.
The newspaper cited anonymous suppliers who claim that the struggling department store wants them to provide “fake prices” that can be displayed in stores. “They’re saying, ‘I want a letter on file saying you have suggested this is the retail price,’” an unnamed manufacturing executive reportedly told the Post.
The Post did clarify that the retailer isn’t looking for “artificially high” prices. But still, if nobody ever pays a price that’s being listed, isn’t the figure artificial?
(MORE: JCPenney’s Not-So-Black Friday)
Coultas denies that any such thing is happening. “We are not involved in setting the MSRP price,” she says. “Each manufacturer independently establishes their suggested retail price.”
The retailer does acknowledge that it began listing MSRPs on brands such as IZOD and Levi’s last fall, and that in the future it’ll be displaying more suggested prices that shoppers will never pay. “Because [listing MSRPs] successfully resonated with customers, we plan to expand this effort by showing the MSRP comparison on additional national branded items,” the retailer’s statement says.
JCPenney isn’t the only company engaged in this practice. The markup-markdown game is rampant among big retail chains. One discount-crazed retailer, menswear specialist Jos. A. Bank, was sued last year essentially on the grounds that it hosted so many sales that the list prices were allegedly “misleading, inaccurate and deceptive marketing.”
JCPenney rival Kohl’s is one of the worst offenders. In 2000, it had to pay $500,000 to settle charges of deceptive marketing brought by the Kansas attorney general. A 2002 investigation by the Boston Globe found that some items were on sale from the very first day a new Kohl’s store in Medford, Mass., opened its doors, and a CBS hidden-camera investigation in California conducted around the holidays last year “found items marked up as much as $100 from earlier prices and then put on sale.” In some cases, the “sale” prices were actually higher than the earlier prices.
Is all of this — or any of it — legal? In its deceptive-pricing guide, the Federal Trade Commission (FTC) states, “A retailer who advertises a manufacturer’s or distributor’s suggested retail price should be careful to avoid creating a false impression that he is offering a reduction from the price at which the product is generally sold in his trade area.”
This sounds good, but Dworsky says enforcement by the FTC or at the state level is “spotty.” So, as usual, we’re back to the usual advice that accompanies a “buyer beware” warning: do your comparison shopping, and don’t just assume that something is a deal just because the retailer says so.