Just in time for Valentine’s Day gift-buying season, J.C. Penney is jacking up list prices just so that it can slash them and make the sale price seem more impressive.
Many retailers engage in what’s known as “price anchoring.” That’s the retail-world term for setting a high list price to anchor in a perception of value for a product. Because these anchor prices are often so high that almost no customers actually pay them, and because they exist mainly so that the inevitable sales and markdowns appear larger and more tempting, there’s another term frequently applied to the strategy: fake pricing.
In recent years, J.C. Penney, the old, struggling department store chain, has had a rollercoaster-like relationship with the tactic. In early 2012, the new CEO Ron Johnson—a veteran of Target and the Apple Store, then considered the company’s best hope for a successful turnaround—promised an end to fake prices in its stores. In lieu of absurdly high original prices that no one would pay thanks to coupons galore and eye-catching markdowns, Johnson pushed a “fair and square” everyday pricing policy, in which list prices were cut dramatically and discounts were almost nonexistent.
The strategy failed to resound with J.C. Penney’s sales-hunting, coupon-loving core customers, and Ron Johnson was ousted as CEO last spring. Within weeks, J.C. Penney’s old playbook had largely returned, including the reintroduction of fake prices and coupons. Overnight, the list prices for some items rose 60% or more, though when discounts were factored in, the pricing changes often amounted to a wash for customers.
The return of such pricing has been seen as marginally successful in wooing back some J.C. Penney loyalists who felt alienated by Johnson’s vision. Overall, though, the department store chain has remained in rough shape, with subpar sales and many doubtful that the company can be saved.
Now, apparently because the reintroduction of fake prices hasn’t moved the needle enough, J.C. Penney pricing appears to be becoming even faker. According to J.C. Penney staffers and price checks cited by the New York Post, the department store has been hiking list prices skyward, particularly for jewelry and other goods that will likely be in demand as Valentine’s Day gifts. “They had us up all night changing the prices on everything,” one J.C. Penney jewelry salesperson said.
In many cases, original prices were increased 10% to 30%, though sometimes the price hikes have been far bigger. For instance, in December, a pair of gold earrings was officially listed at $200 but was available at the sales price of $160. Recently, however, the list price for that same pair of earrings shot up to $450. Though the new discounts represent a larger percentage markdown off the original price compared to the holiday season, consumers will ultimately often be paying more than they would have for the same items a couple months, or even a couple weeks ago.
Hedgeye retail analyst Brian McGough said that the strategy of “raising prices to allow for discounting to protect gross margin … makes sense” for J.C. Penney. Yet the move is not without risk: “the obvious risk here is that sticker shock will keep some customers away.”
We’ll have to wait and see if that happens. For now, one thing’s for sure: Investors are certainly moving away from J.C. Penney. On Thursday, JCP stock was trading for under $6 per share, a new low.