JC Penney Re-thinks Its Terminology, Embraces 'Sales' Again
It's time to call a spade a spade.
At least that was the message from JC Penney CEO Ron Johnson earlier today. Speaking at the Piper Jaffray Consumer Conference in New York, Mr. Johnson told investors the company would be moving away from the term "month-long value" in favor of the simpler "sale." It's the latest marketing adjustment since the retailer reported a dismal first quarter.
"No one really understood [month-long value]. What we intend to do is a sale; we run 12 a year," Mr. Johnson said. "That's a messaging change within our vision for how we want to compete. ... The back half will be better, the customer will understand, and there will be a lot of purchasing."
Mr. Johnson continues to stand firm that JC Penney's new pricing strategy is the right approach for the retailer, even as he admits consumers have been confused. But based on Mr. Johnson's remarks, it's clear he's looking for a middle ground. He didn't shy away from the word sale or the word clearance, using both repeatedly. It's a notable shift for the retailer that annoyed consumers with its "No!" campaign, which derided sales, just a few months ago.
Some have questioned why JC Penney didn't bother to test its new pricing model before rolling it out nationwide, a criticism Mr. Johnson responded to. "We did not believe to increase our cost structure to run a test , which is going to take time, was a prudent decision," he said. "We just decided let's get on with our future, which means let's get the pricing right; let's get our expense rate right; let's get our brands there, so we can go forward."
Despite soft sales and slow traffic, Mr. Johnson said vendors are still onboard with the plan. He said JC Penney now has access to every appliance and cookware manufacturer, because it has "price integrity," something that had been absent. He said that between 2002 and 2012, JC Penney's average retail prices rose 40%, from $27 to $36 , even as the revenue from each item fell to $14 from $15. The average discount it took to entice customers went from 38% to 60% during the same period.
"For a vendor, they like a much more steady business model they can optimize," Mr. Johnson said. "[Vendors] are focused on presenting their brands and marketing their brands with integrity. They don't love a year where the sales are going down, because they ship less, and that 's hard for them. But they see the future, and they're very excited about it."
Mr. Johnson also reiterated that advertising expenses would be down by "a couple hundred million dollars" for the year, as the company moved from 590 events a year to 12. Bigger budgets will be allocated to back-to-school and holiday seasons, however.
Mr. Johnson says the retailer will continue to spend to "get the pricing message across." But looking to 2013 and beyond, he believes JC Penney could advertise less. "We've got a model that isn't as advertising dependent," he said.
According to the most recent ad-spending figures from Ad Age 's DataCenter, JC Penney was the 25th-largest national advertiser, with $1.32 billion devoted to U.S. marketing. The retailer parted with longtime agency Saatchi & Saatchi in December and is now working with a variety of smaller agencies like Peterson Milla Hooks and Mother .