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Why Everyday Low Pricing Might Not Fit J.C. Penney

Why Everyday Low Pricing Might Not Fit J.C. Penney
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J.C. Penney’s move away from frequent promotional discounts to everyday low pricing caught many Wall Street analysts, retailers, and consumers by surprise. Virtually overnight, the retailer, which offered about 590 sales promotions last year, abandoned a strategy it had followed for decades to join the ranks of retailers that offer low everyday prices. The sudden change—followed by a first-quarter loss—isn’t necessarily the right strategy for J.C. Penney.

The retailer’s decision calls for a transition from the “high-low” pricing popular among apparel retailers such as Macy’s, Nordstrom, and Kohl’s—which involves frequent deep discounts from relatively high base prices—to the “everyday low pricing” popular among mass retailers such as Wal-Mart , Home Depot, and Target. J.C. Penney justifies the move by pointing out that less than 1 percent of its revenue comes from items bought at full price, whereas nearly three-quarters of the merchandise it sells is discounted by 50 percent or more. Its managers reason that the base prices are meaningless and it’s a more sensible strategy to lower prices to the point at which the highest levels of sales and profit are likely to occur.