January 23, 2012
Penney to Switch to EDLP?
According to reports, J.C. Penney will shift from a high-low pricing model to something closer to everyday low pricing (EDLP) as a central thrust of its reinvention under new CEO Ron Johnson.
Discount signs for in-season merchandise will be eliminated, staff at some of Penney’s New York stores told Dow Jones Newswires. Instead, price reductions will have been made before the items are placed on the floor. Also, the department store operator is expected to shift away from cents on price tickets in certain cases as part an overall push to provide a simpler way for customers to determine exactly how much each product costs. For example, an item that cost $19.99 under the old system will now be $20. Clearance items are still expected to carry J.C. Penney’s "Red Zone" designation and will have signs on top of the racks clearly highlighting the percentage off, staff told Dow Jones.
Mr. Johnson, who formerly led Apple’s retail division, is expected to announce the program to investors at a meeting Jan. 25. The pricing method is said to be similar to the one used by Target, where Mr. Johnson was vice president of merchandising before joining Apple. In October, Michael Francis, Target’s marketing chief, was appointed president of Penney.
Retail observers told the Chicago Tribune that Penney will have to make its shopping experience more exciting and further increase its portion of exclusive merchandise or continually face price wars against its high-low pricing rivals such as Macy’s and Kohl’s. Its recently-announced deal to build boutiques for Martha Stewart was seen as one step in this direction. Penney may also alienate its core clientele of price-conscious shoppers who expect mark-downs, observers said.
"If Penney moves to an everyday low price concept, they’ll lose a portion of those customers who only respond to price," said Roger Goddu, a former Target executive, told the Trib.
Charles Grom, an analyst at Deutsche Bank, called the move "radical," but necessary. He told Dow Jones, "Today’s shopper is more savvy than ever and retailers need to transform in order to compete more effectively — potentially discarding old habits to drive traffic."
BrainTrust
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Discussion Questions
Discussion questions: Should Penney switch to an EDLP model? How will Penney’s stores and marketing have to be reinvented to enable the EDLP model to succeed?
Poll
Will JCP be bucking a trend? Absolutely. But as far as I’m concerned, price is a lousy differentiator anyway.
The company will have to differentiate in another way — hopefully on interesting products and positive customer service.
And if we get to say adios to “door busters” as a result of this, I will personally shake the man’s hand.
Penney needs excitement and differentiation more than anything else. I’d have done more work there first, before switching to EDLP. Maybe there are other strategies waiting in the wings, set to be rolled out. I hope so.
Methinks J.C. Penney will now be walking around in the marketplace with a good but leaky umbrella.
The “best” is the enemy of “good” … and the best EDLP model already exists. Give me some energized excitement, JCP!
I sure wish I understood this retail world better! If these observations are totally irrelevant, please blame it on my a) ignorance, b) naivete, c) slow neuro-processing, d) this being Monday or e) all of the above.
If going to “EDLP” is an example of “radical” thinking then lord help us all. Isn’t that a pretty common well-worn strategy? Another example of “radical” thinking is that shopping has to be more exciting and actually offer the customer something different from everyone else. The pricing round-up to whole numbers is simply an admission that we’ve been treating customers like they have the IQ of a hockey puck. (Actually if it’s handled right this is the best idea of them all. Some day gas stations will follow suit.) Oh, and then the ultimate of horrors…the realization that some people AREN’T meant to be your customer, in fact you don’t even want them as your customer!
Those are my observations. I’m sincerely eager to learn!
Starting the transformation with price means having to change the existing perceptions of consumers which is always very difficult. Without the rest of the strategic changes — making the shopping experience more exciting — the consumers will only see the price change. Moving away from psychological pricing ($19.99) to a flat price ($20.00) does not help the consumer figure out the actual price because it does not include sales tax. This change will confuse consumers. Where is the excitement?
I’m well known as a fan of EDLP — in most cases, that is.
So … I prefer to think that JCP is moving to price clarity and transparency.
Ian is right, it’s hardly a radical approach, but sometimes you need to reinforce the foundation before you go adding extra stories to a crumbling structure.
The pricing move alone will not accomplish anything other than to drive out the cherry pickers which — when you think about it — may not be the worst thing from a profit perspective.
Methinks Ian Percy’s intelligence, street smarts, sizzling synapses and immunity to Monday morning mortality shine through brilliantly on this one. There’s nothing new about EDLP, except…
…when is the last time someone tried it in a true department store format? I’m no retail historian, so I will stand with Ian in the “ready to learn” corner on this — but I can’t remember one. Still, I don’t think that EDLP in and of itself will pull JCP out of the doldrums. Like others in this forum, I trust there is more to come from Ron Johnson and his team.
If this move helps to reduce time/action for associates and thus improve their overhead expense, it is a good move. JCP is the most aggressive coupon retailer next to Bed Bath & Beyond. Everyday the store is on sale with 20% off coupons, incremental savings for credit cardholders and “private” savings events. I don’t see how EDLP will change the dynamic and help them move more apparel or make the store a more compelling place to shop than Kohl’s or Macy’s. Shop out of necessity or because the item is a good bargain.
Buying St. John’s Bay or other private label clothing at JCP with a strong price/value relationship is what causes me to shop the store — plus incremental savings with deep discounts exclusive to me through my credit relationship.
The JCP Points program is a bore. What you get for what you spend is not compelling. Personalized benefits for best customers is what “should” be next. Time will tell.
Every Day Low Price versus whom? Certainly not Walmart or even Target.
Penny’s is not Apple, nor even Target. It depends on a core of loyal customers, many of whom are used to buying merchandise on deals. Taking away the deals is likely to disappoint some regular customers and reduce the incentive for others to shop there.
Unless the EDLP is supplemented by a better customer experience, it is not likely to be an effective differentiator.
As already stated by my colleagues, ELDP is not new and is definitely not exciting. Neither is the report of thousands of layoffs that I just read about. I’m not sure what I expected from Ron Johnson, but this definitely wasn’t it.
Hopefully, he’s saving the best for the big announcement on the 25th, but with Ackman and Roth firmly in control of the purse strings, I doubt it.
This is the right thing to do from a strategic perspective and for the customer. However, successfully pulling it off will be tricky.
The problem that the entire department store industry faces is that it has overcomplicated the pricing in the stores. Customers never know what the real price is or if it is a good deal.
The moves that J.C. Penney has taken over the last few years with the addition of Sephora in their stores; exclusivity of the Liz Claiborne line and some other unique brands is headed in the right direction.
J.C. Penney’s stores won’t necessarily need to be reinvented for this to succeed. What will need to be reinvented is the culture. You cannot set a company on this dramatic of a course without changing the culture. The biggest obstacles will be the naysayers; the wait and see group; and the “we’ve always done it this way” group. Ron Johnson needs to find the “finally someone is thinking” people within the organization and use them to move the changes forward. The minute sales slip, however, the old guard will be screaming for discounting rather than determining why the sales are slipping.
This one will be interesting to watch.
Price is the last lever a retailer should be pulling to reinvent themselves. How about service or selection or a better shopping experience? Maybe a kiosk in-store so you can access your sizes by manufacturer — which apparently differ based on my experience.
The customer has been trained over the last 3 years to shop for DEALS.
I don’t see it working. Customers respond to the big percent offs in these department stores. Most don’t really know that a basic dress shirt or moderate pair of branded jeans should only really cost $20ish but see these items marked up to $55 or so, and 50% off, and think, wow that is a great deal.
Look at Kohl’s, so so successful; they sell private label items at the same everyday retail as basic branded goods like Van Heusen, Levi’s, Dockers, etc., but percent off them higher so the net price is lower. I was looking for coats recently and was shocked to find the nice warm Nautica Coats at Macy’s at a $250 regular retail on sale for $99.99. I went over to Kohl’s to check out their selection and found some flimsy “Apt 9” coat that was identical looking but cheaper in feel at a $250 regular retail and 60% off. We see how Kohl’s gets those margins they get. Not that I’m trying to be negative on Kohl’s here, two thirds of my clothing has come from there, but — just an observation.
Before I read this I was thinking of buying some JCPenney stock. Thanks for the warning.
I’m with Ben Ball on this one — EDLP isn’t new or radical, except maybe in the department store format. My problem with EDLP is that it’s very difficult to maintain the discipline needed to stay true to the model. It’s so tempting to offer that one promotion or deal to drive traffic — and then you’ve blown your EDLP strategy and all of the profit potential that it implies.
However, if you look at this play through the lens of price transparency, this is theoretically the first move of a two-step: one, standardize your pricing. Two, start making personalized offers to customers (“Yes, this is THE price, but what I’m offering you is YOUR price”). I’m waiting eagerly for that second step — now that would be something new and radical, in any format.
“Radical” is hardly the word I’d choose to describe JCP’s plan to step back from constant price discounting. Even “innovative” would be a stretch.
If it tries to stake out a “we’re the cheapest” position in the apparel/home goods market under Mr. Johnson, I think JCPenney will not fare too well. But if it uses its pricing to reinforce an image of consistently good deals on consistently good quality goods, it can win and keep some fans.
EDLP is nothing new to the retail world and JCP will not find a way to make it work, since so many others have tried and failed and “it” will not be compelling to the core customer. Having no excitement and no urgency to shop will hurt them.
JCP can only attract customer foot steps if it is doing promotions and giving the customer reason to shop. During off periods of advertising it seems a bowling ball could roll the aisles and not hit a customer.
My guess is he needed to find something to justify the salary and show how great a retailer he is. This has been done many times, so NOTHING NEW! Others — Kohl’s and Macy’s — will eat his lunch and dinner!
Consumers have been trained to be “deal shoppers.” This change will confuse the shoppers who will no longer see the value in deals. This will also eliminate the need for destination buying, as the price will no longer have any immediate action required of the customer. Kmart tried the same tactic in the early 2001 era. This cost them dearly and pushed shoppers to Walmart where this tactic was understood. Changing the price game without teaching the consumer first is a huge gamble.
The visual “noise” in Penney’s stores has long distracted from the merchandise. Let’s give decorum a chance here.
To be an EDLP department store operator, you have to keep merchandize moving off the floor quickly — which means you have to discount it somewhere, somehow. Walmart tried to be EDLP for a while, but not anymore.
EDLP produces more predictable sales. Its main benefit is on supply chain efficiency, not sales. Not sure if JCP is ready to exploit those efficiencies. Many people forget that Sears tried this a few years ago. The key issue is credibility of the pricing claim.
EDLP. Really?
Give me a compelling reason to go to a mall and then visit your store. How is that going to work in categories that consumers expect to be highly promotional, e.g. jewelry? Or how will it compare to high-low zen master, Kohl’s?
Let’s not be too hasty with Mr. Johnson’s first foray in his excellent adventure in Mall-based, department store retail.
Don’t forget, “retail ain’t for sissies.”
I don’t believe EDLP will change anything at Penney’s. Their issue is not pricing. Penney’s issue is image and presentation. Walking into Penney’s is boring. Crowded items on metal racks that all seem to be last year’s stuff. Penney’s needs an image overhaul. I’d start with the name, inventory, store layout and flimsy catalogs. Everything about Penney’s screams “cheap.” They need to spice things up again.
Mr. Johnson should try to make it cool to shop at Penney’s, like he did with Apple stores. Draw people in with more than just EDLP.
Something had to change.
Like Mr. Goddy says “If Penney moves to an everyday low price concept, they’ll lose a portion of those customers who only respond to price.” Is that such a bad thing? It seems to me that Penney didn’t have enough of those customers.
EDLP could be the radical change that J.C. Penney needs to attract a new customer base to its locations. The product mix and shopping experience will be critical to retain those trial users — which is why the Martha Stewart boutiques and other similar in-store concepts are essential to Penney.
I hope it works, it will not be a unique concept. Ultimately marketing and the re-branding efforts will create success or bury the company.
Mr. Johnson is making a start. Is this the way to go? I can’t say it will have people banging down the doors. But this shows he is making a start to convert Penney’s into a force in the industry. Let’s watch for the next installment to see if he is on the success road.
I’ll have to 23rd (or whatever) the observation that this concept seems anything but “radical” (though I’m willing to give the analyst who made the remark a pass…maybe he was asked on a Monday himself).
Of more concern to me, though, is that this seems to be a trend now: “exciting,” “radical” and yet thoroughly underwhelming changes…the colorful handkerchiefs are nice, Ron, but when are you going to pull out that big, fluffy, rabbit?
How do you step back off a slippery slope once you’ve stepped out onto it? Once you start down the price promotion path, it’s very hard if not impossible to turn back. Once you start price promoting, you train customers to continually think in terms of discount percentages. Before long, their sense of how much they saved becomes even more important than what they actually paid. It becomes a zero-sum game — if the customer feels they got a good discount they feel they’ve beaten the retailer. Otherwise, they feel the retailer has the upper hand, and they go elsewhere.
EDLP requires that the customer be re-trained, to focus on the actual price instead of the discount. It’s going to be quite a shock to customers when those sale toppers come down off the racks at Penney. They’ll undoubtedly take steps to increase the perceived value in their stores, but I think this is going to be a tough slog.
EDLP is a tough model in today’s retail environment. Consumers really don’t get inspired by the approach anymore. Last year I met with more than one grocery retailer that attempted EDLP and reverted back to a model that also included sales. Who doesn’t love a great sale? JCPenney should seriously consider a model focused on highlighting its exclusive brands like Martha Stewart. The EDLP model at Apple (small assortment backed by an amazing store experience) is very different than JCPenney (huge assortment with an okay store experience). Apple also doesn’t compete directly with Walmart and Target.
I agree with Warren; the move to EDLP is of secondary importance. It is imperative to get customers back into their stores because they have a reason to shop and to do this they will need to focus on a revamped merchandise strategy. If nothing else changes there is little reason to believe that customers will shop more because the stuff they aren’t buying now is moving to an every day low price.
Smart move on JC Penney’s part. They are taking their queue from the consumer.
Penney’s shares its customer base more with Kohl’s and Target than they do with Macy’s or Walmart. Their core customer is a bit older than Kohl’s and Target, and fractions of years less education than these two retailers, based on the BIGinsight Consumer Intentions & Actions (CIA) Survey (14.3 years vs. 14.6 years for Kohl’s and Target). In other ways — purchase behavior, credit card and payment plans, attitudes, and future spending plans, and searching and shopping online — the Penney’s customer has patterns like Kohl’s and Target.
The EDLP strategy should support Penney’s trip frequency. At the same time, the shift should help with the in-store experience, as the consumer steps to the “moment of decision”.
Penney’s isn’t the only one. Walmart returned to its EDLP roots and Lowe’s announced a similar no-games pricing strategy recently as well. None are doing this out of the goodness of their hearts, of course. The fact is that, in an omni-channel world of radical price transparency and hyper-localization, the alternatives are untenable. The “L” in EDLP stands for “low,” not “lowest” so there is plenty of wiggle room, particularly for Penney’s with its mega stable of private and proprietary brands. They are better positioned to execute this strategy than national brand-reliant competitors.
Wow! This is such a pretty brutal response that I hate to pile on. But I had the same reaction: “OK, and what ELSE are you doing?”
Penney’s needs a change while there is something left to change. While this is very uninventive, it will get more customers in the door(s). I suspect the executives there are unable to grasp the importance of modern expansion and were unable to tweak any initial attempts. What is more needed here as in many other Big Mall Temples is modern marketing experts.
Here’s what he’s trying to do: simplify. If there’s one thing we all learned from Apple, it’s the simpler the better. Easier for brand, easier for ops, easier for product filters and most of all, easier for customers. Simple, easy to understand, well designed; Penney’s needs all that desperately. Good start.
How did that EDLP thingy work out for Chuck Conaway and Mark Schwartz at Kmart?
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Will JCP be bucking a trend? Absolutely. But as far as I’m concerned, price is a lousy differentiator anyway.
The company will have to differentiate in another way — hopefully on interesting products and positive customer service.
And if we get to say adios to “door busters” as a result of this, I will personally shake the man’s hand.
Penney needs excitement and differentiation more than anything else. I’d have done more work there first, before switching to EDLP. Maybe there are other strategies waiting in the wings, set to be rolled out. I hope so.
Methinks J.C. Penney will now be walking around in the marketplace with a good but leaky umbrella.
The “best” is the enemy of “good” … and the best EDLP model already exists. Give me some energized excitement, JCP!
I sure wish I understood this retail world better! If these observations are totally irrelevant, please blame it on my a) ignorance, b) naivete, c) slow neuro-processing, d) this being Monday or e) all of the above.
If going to “EDLP” is an example of “radical” thinking then lord help us all. Isn’t that a pretty common well-worn strategy? Another example of “radical” thinking is that shopping has to be more exciting and actually offer the customer something different from everyone else. The pricing round-up to whole numbers is simply an admission that we’ve been treating customers like they have the IQ of a hockey puck. (Actually if it’s handled right this is the best idea of them all. Some day gas stations will follow suit.) Oh, and then the ultimate of horrors…the realization that some people AREN’T meant to be your customer, in fact you don’t even want them as your customer!
Those are my observations. I’m sincerely eager to learn!
Starting the transformation with price means having to change the existing perceptions of consumers which is always very difficult. Without the rest of the strategic changes — making the shopping experience more exciting — the consumers will only see the price change. Moving away from psychological pricing ($19.99) to a flat price ($20.00) does not help the consumer figure out the actual price because it does not include sales tax. This change will confuse consumers. Where is the excitement?
I’m well known as a fan of EDLP — in most cases, that is.
So … I prefer to think that JCP is moving to price clarity and transparency.
Ian is right, it’s hardly a radical approach, but sometimes you need to reinforce the foundation before you go adding extra stories to a crumbling structure.
The pricing move alone will not accomplish anything other than to drive out the cherry pickers which — when you think about it — may not be the worst thing from a profit perspective.
Methinks Ian Percy’s intelligence, street smarts, sizzling synapses and immunity to Monday morning mortality shine through brilliantly on this one. There’s nothing new about EDLP, except…
…when is the last time someone tried it in a true department store format? I’m no retail historian, so I will stand with Ian in the “ready to learn” corner on this — but I can’t remember one. Still, I don’t think that EDLP in and of itself will pull JCP out of the doldrums. Like others in this forum, I trust there is more to come from Ron Johnson and his team.
If this move helps to reduce time/action for associates and thus improve their overhead expense, it is a good move. JCP is the most aggressive coupon retailer next to Bed Bath & Beyond. Everyday the store is on sale with 20% off coupons, incremental savings for credit cardholders and “private” savings events. I don’t see how EDLP will change the dynamic and help them move more apparel or make the store a more compelling place to shop than Kohl’s or Macy’s. Shop out of necessity or because the item is a good bargain.
Buying St. John’s Bay or other private label clothing at JCP with a strong price/value relationship is what causes me to shop the store — plus incremental savings with deep discounts exclusive to me through my credit relationship.
The JCP Points program is a bore. What you get for what you spend is not compelling. Personalized benefits for best customers is what “should” be next. Time will tell.
Every Day Low Price versus whom? Certainly not Walmart or even Target.
Penny’s is not Apple, nor even Target. It depends on a core of loyal customers, many of whom are used to buying merchandise on deals. Taking away the deals is likely to disappoint some regular customers and reduce the incentive for others to shop there.
Unless the EDLP is supplemented by a better customer experience, it is not likely to be an effective differentiator.
As already stated by my colleagues, ELDP is not new and is definitely not exciting. Neither is the report of thousands of layoffs that I just read about. I’m not sure what I expected from Ron Johnson, but this definitely wasn’t it.
Hopefully, he’s saving the best for the big announcement on the 25th, but with Ackman and Roth firmly in control of the purse strings, I doubt it.
This is the right thing to do from a strategic perspective and for the customer. However, successfully pulling it off will be tricky.
The problem that the entire department store industry faces is that it has overcomplicated the pricing in the stores. Customers never know what the real price is or if it is a good deal.
The moves that J.C. Penney has taken over the last few years with the addition of Sephora in their stores; exclusivity of the Liz Claiborne line and some other unique brands is headed in the right direction.
J.C. Penney’s stores won’t necessarily need to be reinvented for this to succeed. What will need to be reinvented is the culture. You cannot set a company on this dramatic of a course without changing the culture. The biggest obstacles will be the naysayers; the wait and see group; and the “we’ve always done it this way” group. Ron Johnson needs to find the “finally someone is thinking” people within the organization and use them to move the changes forward. The minute sales slip, however, the old guard will be screaming for discounting rather than determining why the sales are slipping.
This one will be interesting to watch.
Price is the last lever a retailer should be pulling to reinvent themselves. How about service or selection or a better shopping experience? Maybe a kiosk in-store so you can access your sizes by manufacturer — which apparently differ based on my experience.
The customer has been trained over the last 3 years to shop for DEALS.
I don’t see it working. Customers respond to the big percent offs in these department stores. Most don’t really know that a basic dress shirt or moderate pair of branded jeans should only really cost $20ish but see these items marked up to $55 or so, and 50% off, and think, wow that is a great deal.
Look at Kohl’s, so so successful; they sell private label items at the same everyday retail as basic branded goods like Van Heusen, Levi’s, Dockers, etc., but percent off them higher so the net price is lower. I was looking for coats recently and was shocked to find the nice warm Nautica Coats at Macy’s at a $250 regular retail on sale for $99.99. I went over to Kohl’s to check out their selection and found some flimsy “Apt 9” coat that was identical looking but cheaper in feel at a $250 regular retail and 60% off. We see how Kohl’s gets those margins they get. Not that I’m trying to be negative on Kohl’s here, two thirds of my clothing has come from there, but — just an observation.
Before I read this I was thinking of buying some JCPenney stock. Thanks for the warning.
I’m with Ben Ball on this one — EDLP isn’t new or radical, except maybe in the department store format. My problem with EDLP is that it’s very difficult to maintain the discipline needed to stay true to the model. It’s so tempting to offer that one promotion or deal to drive traffic — and then you’ve blown your EDLP strategy and all of the profit potential that it implies.
However, if you look at this play through the lens of price transparency, this is theoretically the first move of a two-step: one, standardize your pricing. Two, start making personalized offers to customers (“Yes, this is THE price, but what I’m offering you is YOUR price”). I’m waiting eagerly for that second step — now that would be something new and radical, in any format.
“Radical” is hardly the word I’d choose to describe JCP’s plan to step back from constant price discounting. Even “innovative” would be a stretch.
If it tries to stake out a “we’re the cheapest” position in the apparel/home goods market under Mr. Johnson, I think JCPenney will not fare too well. But if it uses its pricing to reinforce an image of consistently good deals on consistently good quality goods, it can win and keep some fans.
EDLP is nothing new to the retail world and JCP will not find a way to make it work, since so many others have tried and failed and “it” will not be compelling to the core customer. Having no excitement and no urgency to shop will hurt them.
JCP can only attract customer foot steps if it is doing promotions and giving the customer reason to shop. During off periods of advertising it seems a bowling ball could roll the aisles and not hit a customer.
My guess is he needed to find something to justify the salary and show how great a retailer he is. This has been done many times, so NOTHING NEW! Others — Kohl’s and Macy’s — will eat his lunch and dinner!
Consumers have been trained to be “deal shoppers.” This change will confuse the shoppers who will no longer see the value in deals. This will also eliminate the need for destination buying, as the price will no longer have any immediate action required of the customer. Kmart tried the same tactic in the early 2001 era. This cost them dearly and pushed shoppers to Walmart where this tactic was understood. Changing the price game without teaching the consumer first is a huge gamble.
The visual “noise” in Penney’s stores has long distracted from the merchandise. Let’s give decorum a chance here.
To be an EDLP department store operator, you have to keep merchandize moving off the floor quickly — which means you have to discount it somewhere, somehow. Walmart tried to be EDLP for a while, but not anymore.
EDLP produces more predictable sales. Its main benefit is on supply chain efficiency, not sales. Not sure if JCP is ready to exploit those efficiencies. Many people forget that Sears tried this a few years ago. The key issue is credibility of the pricing claim.
EDLP. Really?
Give me a compelling reason to go to a mall and then visit your store. How is that going to work in categories that consumers expect to be highly promotional, e.g. jewelry? Or how will it compare to high-low zen master, Kohl’s?
Let’s not be too hasty with Mr. Johnson’s first foray in his excellent adventure in Mall-based, department store retail.
Don’t forget, “retail ain’t for sissies.”
I don’t believe EDLP will change anything at Penney’s. Their issue is not pricing. Penney’s issue is image and presentation. Walking into Penney’s is boring. Crowded items on metal racks that all seem to be last year’s stuff. Penney’s needs an image overhaul. I’d start with the name, inventory, store layout and flimsy catalogs. Everything about Penney’s screams “cheap.” They need to spice things up again.
Mr. Johnson should try to make it cool to shop at Penney’s, like he did with Apple stores. Draw people in with more than just EDLP.
Something had to change.
Like Mr. Goddy says “If Penney moves to an everyday low price concept, they’ll lose a portion of those customers who only respond to price.” Is that such a bad thing? It seems to me that Penney didn’t have enough of those customers.
EDLP could be the radical change that J.C. Penney needs to attract a new customer base to its locations. The product mix and shopping experience will be critical to retain those trial users — which is why the Martha Stewart boutiques and other similar in-store concepts are essential to Penney.
I hope it works, it will not be a unique concept. Ultimately marketing and the re-branding efforts will create success or bury the company.
Mr. Johnson is making a start. Is this the way to go? I can’t say it will have people banging down the doors. But this shows he is making a start to convert Penney’s into a force in the industry. Let’s watch for the next installment to see if he is on the success road.
I’ll have to 23rd (or whatever) the observation that this concept seems anything but “radical” (though I’m willing to give the analyst who made the remark a pass…maybe he was asked on a Monday himself).
Of more concern to me, though, is that this seems to be a trend now: “exciting,” “radical” and yet thoroughly underwhelming changes…the colorful handkerchiefs are nice, Ron, but when are you going to pull out that big, fluffy, rabbit?
How do you step back off a slippery slope once you’ve stepped out onto it? Once you start down the price promotion path, it’s very hard if not impossible to turn back. Once you start price promoting, you train customers to continually think in terms of discount percentages. Before long, their sense of how much they saved becomes even more important than what they actually paid. It becomes a zero-sum game — if the customer feels they got a good discount they feel they’ve beaten the retailer. Otherwise, they feel the retailer has the upper hand, and they go elsewhere.
EDLP requires that the customer be re-trained, to focus on the actual price instead of the discount. It’s going to be quite a shock to customers when those sale toppers come down off the racks at Penney. They’ll undoubtedly take steps to increase the perceived value in their stores, but I think this is going to be a tough slog.
EDLP is a tough model in today’s retail environment. Consumers really don’t get inspired by the approach anymore. Last year I met with more than one grocery retailer that attempted EDLP and reverted back to a model that also included sales. Who doesn’t love a great sale? JCPenney should seriously consider a model focused on highlighting its exclusive brands like Martha Stewart. The EDLP model at Apple (small assortment backed by an amazing store experience) is very different than JCPenney (huge assortment with an okay store experience). Apple also doesn’t compete directly with Walmart and Target.
I agree with Warren; the move to EDLP is of secondary importance. It is imperative to get customers back into their stores because they have a reason to shop and to do this they will need to focus on a revamped merchandise strategy. If nothing else changes there is little reason to believe that customers will shop more because the stuff they aren’t buying now is moving to an every day low price.
Smart move on JC Penney’s part. They are taking their queue from the consumer.
Penney’s shares its customer base more with Kohl’s and Target than they do with Macy’s or Walmart. Their core customer is a bit older than Kohl’s and Target, and fractions of years less education than these two retailers, based on the BIGinsight Consumer Intentions & Actions (CIA) Survey (14.3 years vs. 14.6 years for Kohl’s and Target). In other ways — purchase behavior, credit card and payment plans, attitudes, and future spending plans, and searching and shopping online — the Penney’s customer has patterns like Kohl’s and Target.
The EDLP strategy should support Penney’s trip frequency. At the same time, the shift should help with the in-store experience, as the consumer steps to the “moment of decision”.
Penney’s isn’t the only one. Walmart returned to its EDLP roots and Lowe’s announced a similar no-games pricing strategy recently as well. None are doing this out of the goodness of their hearts, of course. The fact is that, in an omni-channel world of radical price transparency and hyper-localization, the alternatives are untenable. The “L” in EDLP stands for “low,” not “lowest” so there is plenty of wiggle room, particularly for Penney’s with its mega stable of private and proprietary brands. They are better positioned to execute this strategy than national brand-reliant competitors.
Wow! This is such a pretty brutal response that I hate to pile on. But I had the same reaction: “OK, and what ELSE are you doing?”
Penney’s needs a change while there is something left to change. While this is very uninventive, it will get more customers in the door(s). I suspect the executives there are unable to grasp the importance of modern expansion and were unable to tweak any initial attempts. What is more needed here as in many other Big Mall Temples is modern marketing experts.
Here’s what he’s trying to do: simplify. If there’s one thing we all learned from Apple, it’s the simpler the better. Easier for brand, easier for ops, easier for product filters and most of all, easier for customers. Simple, easy to understand, well designed; Penney’s needs all that desperately. Good start.
How did that EDLP thingy work out for Chuck Conaway and Mark Schwartz at Kmart?