Those so-called false promotions, as Johnson explains it, mean marking goods up just to mark them back down to make it seem as if the customer is getting a great deal. It's something that Penney's is trying to distance itself from.
"We, along with others, trained Americans to perceive value through an illusion," he says. "Mark goods up to create the illusion of savings. We are trying to break that."
It's proving to be no easy task.
But given his successful background in retail -- he also once headed merchandising at Target before going to Apple -- Johnson is perhaps getting more leniency than most while he figures it out, Nisch says.
"They have a big credibility chip through Ron Johnson," he says. "They will get more time to work this out than probably any other team with any other retailer would get right now."
It still comes down to convincing the customer.
"It's hard to transform the shopping mind-set of a consumer broadly with any single brand or retailer," Bruce says.
Whether customers will accept Penney's everyday prices is a waiting game. So far, Penney's has yet to translate its new strategy into sales, which were down 26.1% in its third quarter ended in October, the retailer announced Friday. That's worse than the nearly 22% drop in the second quarter, though Johnson said in a meeting with investors Friday that the lost sales between the two quarters are due mostly to getting rid of month-long values.
"They're going to hit some bumps during this transition," Nisch says. "They have a rough year ahead."
But Penney's didn't have a choice. With most of its stores in malls, it was "reinvent or die," Nisch says.
"An awful lot of activity has moved off-mall to places such as Kohl's and Target, T.J. Maxx, Marshalls," he says, citing retailers known for their discounts on everyday and designer goods. He questions whether Penney's strategy may ultimately be too complex for customers whose alternatives are the obvious deals at other stores such as those.
Johnson says that they're learning as they go, and that it's too early to judge the success of the transformation.
"You have to earn their trust," he says of customers. "In the short run, our business will be a little lower as we retrain the customer to understand value. What we're doing is actually not unusual," he says, citing retailers such as Starbucks, where drink prices are consistent across stores. "It's a change from the department store recently. But it's not that Americans don't shop that way for most things all day long."
The challenge comes in persuading a department store customer to shop that way, says Barbara Kahn, director of the Jay H. Baker Retailing Center at University of Pennsylvania's Wharton business school.
"The department store customer has been trained to look for the sale or coupon," she says, explaining that customers expect a high price at department stores and use cues such as sale signs or markdowns on tags to figure out if they're getting a good value. "When you tuck away the cues there's a lot of confusion."
The strategy, though, which Johnson says restores integrity to pricing, could end up resonating with a new dominant consumer.
On the heels of a presidential election that saw the emergence of a new electorate made up of more minorities and women, Nisch says Penney's is in a position to benefit from the changing demographics of the country and the country's shoppers. "A lot of the things they're trying to do are really playing well to what that customer wants," he says. "A general sense of fairness, transparency, value for money, all these big trends."
Small stores in big ones
Pricing aside, though, it may be the more often overlooked part of its strategy that ends up putting Penney's back on top.
The retailer's plan to make itself into a mini-mall, with 100 individual shops within about 700 of its stores, is meant to encourage a more social experience among shoppers. Brands including Levi's, Martha Stewart and Joe Fresh are on board, and in 2013, Penney's will develop "streets" -- pathways that will connect the stores -- to include lounge areas with iPads and Wi-Fi and stands with snacks and coffee available.
Kahn says it's the kind of thinking bricks-and-mortar retailers need to adopt to survive. "You have to re-create the environment so it's really enjoyable and people want to do it, and that's a lot of what the J.C. Penney strategy is," she says. "You need to think out of the box because you are getting serious challenges from online shopping."
Online sales still only make up about 10% of all retail sales but are growing much faster than bricks-and-mortar retail sales. That, along with the practice of showrooming (using physical stores as showrooms for products, then buying them for less online), has made it increasingly important for stores to figure out how to keep customers coming in.
So far, Penney's stores only have about 10 shops each, making up about 10% of the store. But next year, that will grow closer to 40%, Johnson says. "That is our future," he says of the shop concept.
Sephora shops, which Penney's implemented pre-Johnson, are some of the most popular in its stores.
Ultimately, it's about creating a new way for customers to view the shopping experience, something Kahn says steals a page from retailers such as Starbucks and Apple, two retailers Johnson cites often himself.
"What was really innovative at Apple was that they fundamentally changed the way the consumer interacted with these electronics," she says. "And it's that (Johnson's) trying to do."
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