Remaking J.C. Penney Without Coupons

Here’s a riddle: How do bargain hunters know they’re getting a bargain if there’s no hunt? The answer is, they don’t. That’s just one of the lessons Ron Johnson has learned in his six months as chief executive officer of J. C. Penney. Johnson developed Target’s “cheap chic” persona before moving to Apple, where he created the world’s most profitable stores. Now he’s trying something really hard. He wants to wean Penney’s middle-market customers from a steady diet of coupons and almost constant discounting. So far, they’re not buying. “The transition has been tougher than we anticipated,” Johnson said during a May 15 presentation to investors.

Johnson’s strategy was deceptively simple: quickly replace Penney’s relatively high list prices—which it aggressively discounted—with lower everyday “fair and square prices.” The early results of that grand experiment have been dismal. The department store chain, with 1,100 U.S. stores, had overall revenue of $3.2 billion in the first quarter, and lost $163 million during that time. Sales at stores open more than a year fell an average 19 percent. The number of people coming into Penney stores dropped by 10 percent, and the number of those who bought something fell, too, by 5 percent.