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JC Penney to Slash Prices 40% Everyday

Discussion in 'Political Discussion' started by PatriotsReign, Jan 28, 2012.

  1. PatriotsReign

    PatriotsReign Hall of Fame Poster

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    #18 Jersey

    For those hoping for signs of an improving economy, JC Penney's new strategy reflects a deflationary sign.

    J.C. Penney slashing prices on all merchandise

    "NEW YORK – J.C. Penney is permanently marking down all of its merchandise by at least 40% so shoppers will no longer have to wait for a sale to get the lowest prices in its stores.

    — Sale prices become everyday prices. The company will use last year's sales figures to slash all prices at least 40% or lower than last year's prices. So, a woman's St. John's Bay blouse regularly priced at $14.99 could have the "Every Day" price of $7."


    J.C. Penney slashing prices on all merchandise in new strategy

    Although JCP will claim this is a consumer oriented strategy, it's actually a strategy that allows JCP to manage their margins better. Even stranger is that this strategy is WalMart's strategy...so what is JC Penney doing mimicking WalMart's strategy?....strange times we're living in.

    The same thing is happening in my industry. Retailers like CVS, Walgreens and Rite Aid have dramatically increased the number of "Buy 1, Get 1 Free" ad events to increase their market share.

    But all it has accomplished is a more competitive environment and less predictible margins and that's not good from Wall Street's perspective. Like JC Penney, in my industry, Walgreens has stated they will reduce/eliminate "BOGO Free" sales and replace them with "Buy 1, Get 50% Off" an additional item. They are hoping their competitors will follow.

    This is all good from a consumer perspective, but not as an economic indicator.
     
    Last edited: Jan 28, 2012
  2. DarrylS

    DarrylS PatsFans.com Supporter PatsFans.com Supporter

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    Demonstrates the ridiculous mark up of clothing..
     
  3. PatriotsReign

    PatriotsReign Hall of Fame Poster

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    Almost all consumer goods are marked up ridiculously. Especially non-consumable goods. The biggest causal factor for this is inventory costs. Retailers like JCP have mega-inventory combined with erratic and slow sales velocity. Inventory costs are a large component of what is called GMROI (Gross Margin Return on Investment). The lower the GMROI, the higher margins have to be. WalMart has much higher GMROI, so they can lower their margins.

    But here's the catch on that....the cost of having goods produced in China & Asia in general are skyrocketing. Many US companies are opting to buy from US manufacturers rather than import them. Since WalMart relies on Chinese manufacturing the most, they will pay the biggest price in the long-term.

    China has just started a gov't program that mandates all workers will get an annual 15% raise for the next 4-5 years. The goal is to increase disposable income of Chinese citizens so that they buy more and help China's economy become self-sustaining. So the net/net is that the cost of producing in China will be increasing dramatically.
     
    Last edited: Jan 28, 2012
  4. chicowalker

    chicowalker Pro Bowl Player

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    There's actually a lot more to JC Penney's new strategy than simply cutting prices. There was a good article about it in the journal this week:
    J.C. Penney to Overhaul Department-Store Concept - WSJ.com

    Their new CEO, Ron Johnson, headed up retail for Apple. We'll see if he can turn JC Penney around.

    But the reason for price cuts, if they can be called that, is that they were constantly having "sales" anyway, and the bulk of their goods were being sold at discounts of at least 50%.
     
  5. PatriotsReign

    PatriotsReign Hall of Fame Poster

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    #18 Jersey

    The single biggest reason they're going to what is called "EDLP" (Everyday Low Price) strategy is to better manage margin as I stated in a previous post. They would not say that publically, but it's still the biggest reason for the change.

    If a retailer's margins remain constant as they will in the EDLP approach, that will allow them to meet Wall Street expectations and forecasts more consistently. When their margins were all over the board as they have been with a "High/Low" strategy, it's virtually impossibe to forecast margin & profit expectations.

    I think it's a good move, but my opinion isn't based upon experience within the "Big Box" department store arena. It may end up being a bad move and only time will tell. Consumers LOVE sales and even the appearance of a big discount. Khol's has been very successful using their consumer-centric loyalty strategy with their Khol's card-holders.

    Most shopper's aren't that smart and often fall for hot sales even if it isn't the best price out there. Sure they'll do their homework on big-ticket items like flat-screen TV's, but not with clothing and housewares.
     

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