What the Exit of JCP's President Means for Its 'No Sale' Strategy

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J.C. Penney (JCP) president Michael FrancisJ.C. Penney (JCP) president Michael Francis, the junior partner in the executive duo leading the chain's radical new "fair and square" pricing strategy -- which eliminated most sales -- resigned Monday, after just eight months on the job.

Francis' sudden departure calls into question the retailer's bold move to cut 590 annual sale events and eliminate coupons, a strategy that has largely been applauded by retail analysts, but has left many shoppers cold.

Despite Francis' exit, J.C. Penney says it's staying the course on its turnaround strategy. "His departure does not signify a change to J.C. Penney's long-term transformation plans," Daphne Avila, media relations director for the department store, tells DailyFinance.

"We remain focused on our vision to becoming America's favorite store through great product and exciting new brands, a dynamic shops environment and an ongoing commitment to treating customers Fair and Square," she says

But Avila declined comment on the reasons for Francis premature exit.
Update (June 20, 10:20 a.m.): In an interview published in Women's Wear Daily on Wednesday, J.C. Penney CEO Ron Johnson said Francis left the chain because marketing -- which the former president was charged with -- wasn't working. In turn, "My job as CEO is to really take responsibility for everything. I felt compelled to dive in and help with the new strategy," Johnson told WWD. "Michael and I both concluded we didn't need two hands on the same steering wheel. The marketing I largely left to him. The fact that it hasn't resonated [meant] I had to get involved."

Johnson is now overseeing marketing and merchandising himself.

Despite the retailer's failure to market the fair and square pricing push, Johnson reiterated his faith in the strategy. "We are huge believers that we are on track, and that ultimately we will carve out a winning position," he said.

Marketing Missteps

Ron Johnson, who took the reins as Penney's CEO in November, plucked Francis from Target (TGT), where he was executive vice president and chief marketing officer. Johnson, also a Target alumni, joined Penney from Apple (AAPL), where he led its highly successful retail stores.

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At J.C. Penney, Francis helped devise the marketing plan for the fair and square pricing strategy, which debuted in February. That's when Penney permanently marked down all of its merchandise by at least 40% to new, everyday low prices. It also limited sales to "monthly value" discounts on select items, and "best price" sales held regularly twice a month.

The retailer has been backpedaling on parts of the strategy ever since.

In May, Johnson conceded that Penney's first quarter $55 million net loss and 18.9% comp-store sales decline in part reflected Penney's failure to effectively communicate the new pricing strategy to shoppers.

J.C. Penney (JCP) president Michael Francis

On June 5 came another concession: Johnson said it was a mistake to drop the "sale" word from its vocabulary. "We're moving away from the word 'month-long value' because no one really understood that, to calling it what we intended to do, a sale," he told Reuters, at a Piper Jaffray conference in New York.

But Johnson has stressed that he expects the strategy will still pay off in the long term.

Butting Heads?

When it comes to "fair and square pricing", Penney's has a marketing problem, Paul Swinand, equity analyst with Morningstar, tells DailyFinance. Francis' departure likely reflects him butting heads with Johnson "over tactics and implementation" of the program. "Do you use the word sale? Call it 'fair and square'? Everyday low price?"

While weaning shoppers off temporary bargains won't be easy, Penney's everyday low price strategy is a sound one, and already works well for retailers ranging from Walmart (WMT) and Costco (COST) to H&M, Swinand says.

Although Penney's first quarter results were poor, "they were actually selling an increased amount of stuff at regular price," which is evidence that shoppers are warming up to the change, he says.

Howard Davidowitz, chairman of Davidowitz & Associations, a national retail consulting and investment banking firm, couldn't disagree more. Francis' departure "marks another nail in the coffin" for J.C. Penney, he says.

"What it definitely suggests is that the strategy will not work," says Davidowitz. "[Johnson] should have [first] tested it in 100 stores." That's what you do "when you want to revolutionize a company."

Countering that notion, Swinand contends that historically, revolutionary marketing ideas "don't test well" -- but that doesn't mean they won't eventually succeed, he says.

7 Ways Stores Get You to Make an Impulse Purchase
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What the Exit of JCP's President Means for Its 'No Sale' Strategy

Stores pull together color-coordinated items in matching or complementary hues as part of a thematic display designed to spark impulse purchases and multiple sales.

A retailer will spotlight a spring-themed bathroom display, for example, grouping blue, yellow and green shower curtains, bath towels, a rug and bath mat "so that it makes a really nice statement," Steve Ryman, the former vice president of home for both Sears and Kmart (SHLD), who now runs retail consultancy Ryman Consulting, tells DailyFinance.

The display is so nice that a shopper who's in the department simply to buy some new shower hooks suddenly thinks, "'It's time to refresh my bathroom -- and I can do it for $25!' -- and they throw it all in their cart," he says.

Everything from pineapples and palm trees to owls and peace signs have at one time or another captured the imagination of the American consumer -- prompting them to shell out cash for all manner of merchandise sporting the motif du jour.

Often a trendy motif starts at the high end, "then filters its way down to every store in the nation," Ryman says.

When a look is at the height of its popularity, retailers know shoppers are under its odd spell -- but only for a limited time. So while the going's good, they conjure up store displays that enshrine the motif, often featuring "totally unrelated products," Ryman says.

Accordingly, a shopper might find they've brought home a pineapple-themed wreath, bath accessory, doormat and candle.

Retailers use "punitive pricing promotions" to spark impulse sales, says Mark Cohen, professor of marketing in the retailing studies department of Columbia University's business school, and a longtime retail veteran who was the former CEO of Bradlees and Sears Canada and has held positions at the Gap (GPS) and Lord & Taylor. Such promotions include buy one and save 20%, buy two and save 30%, buy three and save 50% type sales.

Stores trick shoppers into thinking, "'the more you buy, the more you save' -- without regard to how much you actually need," Cohen says. "Consumers love these deals, which in fact reward their impulsive behavior."

Call it retail theater: Stores hire well trained and bubbly marketing experts to draw you to their product demonstrations by staging tempting, multi-sensory experiences.

The seduction begins with the overall look and feel of the demo area, with a display that "catches your eye," Ryman says.

Then stores further hook shoppers with food and drink. So a browser sampling, say, a new cheese cutter, is also fed "cheese and sausage, and at the same time they're selling you the cheese cutter, they're selling you knives, six new wine glasses and a bottle of wine," Ryman says. "Retailers maximize the sale by putting together as much related product as they can."

So the now semi-tipsy shopper who didn't even think he needed a cheese cutter has not only purchased that implement, but all the other accouterments, too.

Out with the old, in with the new: Stores send this message to shoppers by playing up new merchandise -- even when its newness is dubious -- by showcasing the goods in a fresh setting, prompting shoppers to make an unplanned purchase.

Retailers highlight presentations of current-season clothing, for example, "which by virtue of fashion, silhouette, or features and benefits, makes last season's merchandise appear to be dated or obsolete," Cohen says. "It plays to a customer who doesn't want to be considered behind the times, without regard to whether or not this new merchandise is actually better or truly different. This is why new season merchandise is invariably different in the way it's colored/packaged and presented so as to make last year's version less attractive." Retailers know that "new and engaging, if only by way of packaging, promotes impulsive buying," Cohen says.

And with consumer packaged goods like cereal, stores can accomplish the same thing "merely through the use of the word 'new' on a package, insinuating the importance of what is typically an insignificant reformulation."

Stores will also try to coax an unplanned purchase from a shopper's planned purchase, a common ploy at electronics chains. Brent Shelton, a spokesman for money saving shopping site FatWallet.com, tells DailyFinance, "Electronic accessories such as cables, as well as extended warranties, are two common up-sells."

"At many electronics stores, if you're purchasing a big-ticket audio-visual item like an HDTV, computer or home theater system, one retail tactic is to try to get you to buy over-priced audio-visual cables -- HDMI, USB adapters, connectors, Monstercables, etc. -- [as well as] speakers, remotes," he says.

These stores also push shoppers to buy extended warranties, which consumer advocates say are mostly a waste of money for a variety of reasons. For one, products rarely break within the extended warranty period, but instead after they've long expired.

What's more, "many credit cards will extend the warranty just for using their card," Shelton says. "And you should find out before swiping a big ticket item at the register."

These displays, featured in prominent areas on a store's selling floor, scream: Buy this merchandise!

Strike zones are "in-your-face, impossible-to-miss displays of merchandise that [the retailer] wants you to notice whether you're looking for something or not," Cohen says. The implicit message is, "It's new, it's special and you've got to check it out, and hopefully, [buy] it."

Such debates over testing aside, in its transition, Davidowitz notes that Penney has ceded shoppers to Macy's (M) and The Gap (GPS) along the way, CEOs from both chains have said.

But the real issue is that Penney's new strategy is fundamentally flawed, he says. "The American consumer has lost 10% of their income in the last four years, there are 50 million people on food stamps, the customer's net worth is down by 40%. Penney's should be driving up promotions because the American consumer is poor," he says. "It's all wrong."

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