JCPenney Brings Back Sales, but What’s the Deal with Those ‘Suggested’ Prices?

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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.

(MORE: Epic Retail Fail: Where Did the Target + Neiman Marcus Collection Go Wrong?)

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.

(MORE: Can You Sue a Store for Having Too Many Sales?)

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.

18 comments
Seola1
Seola1

I'm surprised the Penney's marketing was a failure.  Honestly, I saw way more people in there the several times I went during their new setup than I had ever before.  I hadn't been since before Christmas but if they've scrapped it, I might go and peruse to see if there's still people in there now.

justlitloldme
justlitloldme

oh wait until JCP trys to install self check outs. That should have you running to the store....... NOT. Yup that's the next bright idea. 

JCP is turning into a ghost town and most malls are struggling to stay afloat. 

padgettsemi
padgettsemi

I was rooting for this to work but man oh man, the power of psychology.

blessedgeek
blessedgeek

It is just like miracles. Miracles are like special offers. If everybody gets miracles everyday, then normality becomes rare. And then normality would become considered "miraculous:.

WilliamBrown1
WilliamBrown1

For the last 20 years, I divide the posted retail price by 8 or 10 to get the imagined cost of the item to the retailer. Then I figure if the item is worth more than that to me and how much more. Many packaged items can be divided by 20. Remember, low priced cars lose 25% of their selling price (lower than the posted price) when you sign the paperwork in the dealership. Full size cars lose 40% on the spot. The people at JCP are confused. They have not walked in a shopper's shoes with very little funds to spend. Once they do, they will find each procuct has "curb appeal" to be measured.

Ira01002
Ira01002

In clothing and many other retail items, historically there was a doubling of wholesale prices that is referred to as "keystone;" and then legitimate discounts are taken off of that. If a large retailer buys at a volume discount below wholesale, or takes other discounts for paying early, they usually still mark it up from the worst wholesale price. And many retailers added a cushion, so that their 20% off was really 10% off, or even the full keystone. But it's now so out of hand that ridiculous markups seem normal. Had Penney's gone the route of the most transparent car dealers, showing the price they paid, and then a reasonable markup, that may have been a more impressive strategy, still appealing to a population of discount hunters. 

NickDressler
NickDressler

I think it's important to note that the new "sale" prices are NOT off the MSRP price on an item; they're on the everyday price jcp established in February of last year - further discounts on top of the already low everyday price jcp establishes that is on average at least 40% lower than the MSRP.

HohoGreen
HohoGreen

@NickDressler 

HAHA!! Tell that to all the people who bought xmas gift from Kohls or other stores. JCP management becoming the butt of all jokes at business schools... Nice JOB 

" How much for that ? "" 20.00" " Man, don't get JCP on me yo"

lookingforbargains
lookingforbargains

My goodness, Time magazine --  thank you so much for such an informative article on the complex issue of retail shopping!   Who would ever have thought that retail stores (including JCPenney) sometimes put (or have the manufacturer put) a "manufacturers' suuggested retail price" on an item only to end up selling most of their inventory of this item for less due to sales, specials, twofers, discounts etc.  Well, I never!!!

teej617
teej617

I always thought the "Sale plus coupon" price was close to the actual cost of the item, but I loved the psychological boost of buying a $70 handbag for 50 percent off and then more with a $10 coupon. I did all my Christmas shopping at JCP in 2011 and none in 2012.

debifarrin
debifarrin

@teej617 

Why would a retailer sell an item at a price close to the actual cost of the item?  The whole point of a retail business is to turn a profit, Goodwill gets it's merchandise for free from the general public and then puts an outrageous price on the donated item. I never hear any remarks about this practice, why is that?

Seola1
Seola1

@debifarrin  Actually, there's a quiet revolution coming on that, I've seen a lot more people going against Goodwill because for the longest time people were sucked in by the name and they are starting to realize they don't actually do anything.  (For the record, Goodwill claims their "program" is "hiring people to give them hands on cashier experience" - which is what any other company does where you run a register.

HohoGreen
HohoGreen

@teej617 

Found some sweet deals at Kohls with coupon , Kohls cash!  And no I don't work for Kohl's, with more of my stuff bought from Kohls for cheap I'll support them any day.

Seola1
Seola1

@HohoGreen@teej617Except Kohl's on it's BEST sale with Kohl's cash too is about 25% more than anyone else in the area.  Kohl's is slick, real slick - and a ripoff, a real ripoff.  Take your smartphone in, look at the item you want with the barcode scanner and see how much cheaper it is everywhere else.

StephanieKranich
StephanieKranich

I did all my shopping with the $10 coupons in 2011 too. Those were the best.