JC Penney Changes Pricing Strategy -- Again

Retailer Begins Raising Prices to Lower Them for Sales; VP-Strategic Marketing Exec Decamps for Home Depot

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Things are going from bad to worse at JC Penney.

The retailer lost its VP-strategic marketing to Home Depot, marking the third high-profile marketer to exit in the past 10 months. At the same time, the retailer said it would return to a strategy of raising prices on brands it owns and then discounting them as a way to lure back bargain-conscious shoppers and boost profits.

That strategy flies in the face of CEO Ron Johnson's master plan for the department store. In unveiling his plan in early 2012, Mr. Johnson mocked that approach -- one long employed by competitors -- as he told investors and media that he'd discovered JC Penney sold only one in 500 items at full price. That strategy entailed some 590 promotions annually.

"While our prices continue to represent a tremendous value every day, we now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the register," Daphne Avila, a JC Penney spokeswoman told Reuters.

Back in early 2012, Mr. Johnson didn't mince words in declaring his former boss, Steve Jobs, would have called the level of promotions employed by JC Penney "insanity."

"At some point you, as a brand, just look desperate," Mr. Johnson said at the time.

As the pricing changes roll out, JC Penney is also contending with several holes in the marketing department. Lisa DeStefano-Orebaugh, JC Penney VP-strategic marketing, has departed to become VP-marketing and brand management at Home Depot. Greg Clark left as senior VP-creative marketing in October. He was named chief marketer at Jones Group, which markets brands like Nine West and Anne Klein, last week. And Michael Francis departed as JCPenney's merchandise and marketing chief in June and is now chief global brand officer at DreamWorks Animation.

To fill those holes, CEO Ron Johnson has brought onboard Sergio Zyman, the polarizing former chief marketer at Coca-Cola, as an adviser. Mr. Johnson said he sought Mr. Zyman's help last year and that the executive "has a unique ability to understand customers and to develop strategies that will succeed on rapid-fire test and response."

Still, Mr. Johnson continues to handle some of Mr. Francis' duties, said Kate Coultas, a JC Penney spokeswoman.

Mr. Johnson has acknowledged that marketing missteps such as sending customers less mail and failing to communicate the new everyday-low-pricing strategy contributed to the company's plunging sales. The upbeat, colorful marketing that rolled out in the first year of Mr. Johnson's tenure made people rethink JC Penney and was entertaining.

But Mr. Johnson conceded JC Penney didn't reach the core customer and didn't build the business. He also believes the brand was spending too much money on TV and not enough on print.

"Our marketing didn't connect very well with our customers last year," Mr. Johnson said on a conference call with analysts earlier this year.

In 2012, JC Penney's sales plummeted 25%, even as its measured media spending jumped 14% to $504 million.


With contributions from Bloomberg News

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