Oct. 12, 2012 at 12:56 PM ET
Offer a customer 10 bucks off and they’ll probably call it a coupon, although J.C. Penney Company insists that the $10 “gift” it sent what it referred to as “a select group of core customers” is no such thing.
This might seem like semantics, especially to the shopper who just wants to pay less for towels or sneakers. From a strategic perspective, it’s actually an important distinction that gives Penney a much-needed middle ground of offering customers the promotions they clearly want without returning to the sale-driven mentality of old.
“I don’t think they’re changing their strategy,” Morningstar equity analyst Paul Swinand said. “I think they’re still having trouble with traffic. The difficulty now is you have to change the brand perception among consumers and brand perceptions are very hard to change.”
By targeting only its biggest fans and framing the $10 off as a reward for loyalty, “They don’t have to call it a coupon the way they used to,” said Marshal Cohen, chief retail analyst at NPD Group.
“When J.C. Penney operated as a promotional department store, we relied on coupons to drive traffic during key sales events. Now that J.C. Penney is transforming to become a specialty department store, the gift serves as an invitation for customers,” the retailer's media relations director Daphne Avila said via email.
When CEO Ron Johnson announced a near-total break from promotional pricing after only three months on the job in February, analysts worried customers wouldn’t like it and would vote with their feet. For the most part, they did; since then, Penney has struggled to get traffic into stores, even as it revamps them into a series of boutiques that analysts say hold promise.
“Initial shop productivity [is] encouraging,” JPMorgan Chase analyst Matthew Boss wrote in a research note last month. He noted that the in-store boutiques have 20 percent higher sales than the rest of the store, but those spaces currently take up only 10 percent of stores’ floor space. For the second half of 2012, management told investors to expect a 20 percent drop in same-store sales.
Swinand said eschewing excessive promotions is still a better bet for Penney in the long run. “if somebody walks in and is looking for a pair of jeans, they want a pair of jeans... If you throw an 80 percent off sign in front of their faces, they’re distracted.”
But even if it was counterproductive, it was a distraction consumers expected, especially in the aftermath of the financial crisis. “We conditioned consumers to only buy things during deep discounts,” Swinand said. “We’re still having trouble getting people off of that drug.”
The $10 discount could indicate that the company is acknowledging that the pace of change is slower than it wanted, and is rethinking its strategy of going cold turkey in favor of working more gradually to wean consumers off markdowns and coupons.
Avila seemed to indicate this might be the case. “We have not yet made any decisions regarding future gifts; however we are reviewing our jcp rewards program to bring additional incentives to our most loyal customers.”
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