The new JCPenney sounds so appealing on paper. Earlier this year, the retailer announced that “fake prices”—inflated big time to make markdowns seem more tempting—would disappear, to be replaced with a “fair and square” structure in which original prices started at least 40% lower to begin with. There would no longer be any need to corral coupons or show up at stores at 4 a.m. to get the best prices. Sounds terrific, right? So far, though, the reaction among consumers to the newly made-over JCPenney is that there’s not much need to show up at the stores at all.
On Tuesday, when JCPenney released its first quarter results, company CEO Ron Johnson—the retail rock star responsible for the success of the Apple Store—released a statement announcing that, among other things, “Customers love the new JCP they discover in our stores.”
The numbers circulated in the release tell quite a different story:
Comparable store sales for the first quarter declined 18.9 percent. Total sales decreased 20.1 percent, which includes the effects of the Company’s exit from its outlet business. Internet sales through jcp.com were $271 million in the first quarter, decreasing 27.9 percent from last year.
Overall, the company reported a $163 million net loss in the quarter. Customers sure have a strange way of showing how much they “love” the new JCP.
One of the reasons JCPenney is getting less love is that, now that coupons and short-lived discounts have disappeared, many shoppers don’t feel compelled to visit. There’s just no sense of urgency. “The closest JCPenney is about a half hour away from me,” said one woman, who used to hit JCP twice a month but hasn’t been to the store since the chain stopped sending her coupons, in an Associated Press story. “If I don’t get a special discount, it’s not worth the trip.”
Johnson says that the sales slump can be fixed by “educating” JCPenney customers better: “We have work to do to educate the customer on our pricing strategy and to drive more traffic to our stores,” the CEO said in his released statement.
It seems as if the company’s executives need to learn a few things about their customers as well. Execs admitted as much after its first quarter results became public. Via BusinessInsider:
“We did not realize how deep some of the customers were into [coupons],” said [JCPenney COO Michael] Kramer.
JCPenney CEO and Apple retail God Ron Johnson weighed in on it too. “Coupons were a drug,” he said. “They really drove traffic.”
The problem, from JCPenney’s perspective, is that coupons still are a drug for shoppers. JCPenney may now be “drug-free,” so to speak, but there are dozens of other places consumers can get that “Wow! What a deal!” high that only comes as a result of coupons and dramatic short-term markdowns. Finding a store that engages in these practices—and has merchandise that’s very similar to JCPenney—is usually as simple as looking to the left or right of JCPenney at the mall.
Nonetheless, according to Johnson, even as “sales and profitability have been tougher than anticipated during the first 13 weeks” of the retailer’s makeover, “we are confident in our vision to become America’s favorite store.”
Some analysts still foresee a future in which JCPenney’s gambit works out splendidly and winds up being copied by other retailers in the long run. The company has been cutting costs and making changes that few shoppers notice—getting rid of sales commissions, for instance—which should improve JCPenney’s bottom line.
The consensus, however, seems to be that the JCPenney makeover is shaping up as a major flop, largely because stubborn shoppers just aren’t buying into the concept—and they’re unlikely to do so, no matter how much they’re “educated.” Here are one analyst’s insights, per the AP:
“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.”
JCPenney’s efforts to introduce “fair and square” pricing, to end the games involving sharp markups inevitably followed by dramatic markdowns, and to wean customers off of coupons and discounts are all noble and good. Who doesn’t like the idea of being treated in “fair and square” fashion, after all? Unfortunately for JCPenney, while shoppers may like the idea of predictable pricing in theory, in practice anything that’s predictable becomes boring. It lacks excitement. However contrived and manipulative, coupons and flash sales build excitement, and no excitement typically means no sale.