Wednesday, January 29, 2014

Exclusive: JCP hikes prices for bigger discounts later

JCPenney’s prices are on a climbing roller coaster, and the ride is about to get bumpier.

The cash-strapped retailer is quietly jacking up prices on everything from jeans to kitchen appliances — a risky move designed to make room for steeper, more eye-catching discounts this year, sources told The New York Post.

CEO Mike Ullman — scrambling to undo damage by his predecessor Ron Johnson, who sent sales tumbling two years ago when he banned coupons and sales events — hatched the stealthy strategy this month with especially lofty markups in the jewelry department, sources said.

The idea: to prop up margins for splashy Valentine’s Day discounts of 40 to 60 percent on engagement rings, pendants and ear studs — up dramatically from the 20 to 30 percent that was typical last year through the holidays.

“Ullman is trying to get back the old JCPenney customer, and that customer wants to see 50 and 60 percent off,” said Mark Cohen, a professor at Columbia Business School. “Taking off 20 or 30 percent doesn’t even get you noticed.”

Penney is pursuing the price hikes despite previous rants against “fake prices” by Johnson — a former Apple exec who was ousted last spring. The worry, insiders say, is that shoppers could get miffed if they begin to notice that the original prices have been raised.

JCPenney officials didn’t immediately respond to requests for comment Wednesday.

According to one source, prices on key jewelry items are being hiked an average of 40 percent. In some cases, the increases are more dramatic.

A half-carat diamond ring set in white gold was listed on Penney’s Web site early Wednesday with a retail price of $1999.98.

That’s up 60 percent from mid-December, when an apparently identical ring with the same product number was advertised in circulars with a regular price of $1245, discounted to $996.

In the weeks leading up to Christmas, Penney likewise hawked an assortment of gold earrings at $160 a pair, down from a regular price of $200. Early Wednesday, apparently identical earrings were listed at a retail price of $449.98 — up a whopping 225 percent from last month.

“They had us up all night changing the prices on everything,” a jewelry-sales associate told The Post.

Price increases are hitting products throughout the stores, but they’re being rolled out gradually to make them less conspicuous, according to sources briefed on the plans.

National brands like Levi’s and Nike are still locked into pricing pacts cut by Johnson, but others such as Carters baby clothing were recently approved for increases, sources said.

Price hikes for some departments, including bedding and home decor, aren’t currently planned for a wide rollout as Penney looks instead to shore up margins through improved product sourcing, according to insiders.

Still, Penney already has raised the initial markups on some of its hottest-selling items.

In a holiday circular last month, a pair of Arizona boot-cut jeans had been advertised at $19.99, down from
a regular price of $34. On Penney’s site early Wednesday, however, the same pair was discounted to $24.99, with retail listed at $42.

Some shoppers might get annoyed by Penney’s new policy, but it’s likely to work in the near-term, says Kurt Jetta of TABS Group, a retail consulting firm.

“Consumers are looking at prices based on the discount, which is much more digestible than having to memorize the pricing on hundreds and thousands of products,” Jetta said.

Still, he warns that price hikes of more than 10 percent will get noticed and risk turning off shoppers in the longer term.

“If they’re raising prices into the 20-, 30-, and 40-percent range, you’ll see it start to corrode their sales,” Jetta said.

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