Last week, rumors swirled that JC Penney (click ticker for report: ) was pressuring its suppliers to place MSRPs (manufacturer’s suggested retail price) on its products so JCP could appear to be giving consumers a discount on a product (a sale without it actually being on-sale). Earlier today, that move was confirmed, and sales and MSRPs will be reintroduced at Penney’s stores around the country.
Much-maligned CEO Ron Johnson noted that the strategy shift was an “evolution” rather than an admittance of failure. Yet, the idea of including MSRPs or comparable prices isn’t at all a unique idea—just look at any TJX (click ticker for report: ) store, Nordstrom Rack (click ticker for report: ), or Ross (click ticker for report: ), which are all filled with “suggested prices.” If the success of these stories was entirely dependent upon price comparison, then we’d say this is a slam-dunk move. However, the product and brand mix at these off-priced firms exceed what JC Penney’s has to offer. In fact, we’re not sure if this pricing strategy is really any different from the pre-Johnson path or even the strategy in place at the struggling Kohl’s (click ticker for report: ).
For JC Penney to succeed, the new merchandising and display efforts will need to become increasing popular with consumers. Since a monumental shift in pricing is taking place, we’re comfortable assuming that the fourth quarter was terrible, and the management team is (somewhat) conceding defeat. We admire Johnson’s flexibility, but reverting to previous failed strategies may not be positive for the company’s long-term survival.
If/when poor fourth quarter results surface, it could mark the bottom in JC Penney’s stock—in the near term. Market participants love measuring retailers’ success based on same-store sales growth rates, and JC Penney’s are set up nicely to have easy comparisons because its results were so terrible during 2012.
Still, that doesn’t mean we’re excited about the company’s current fundamentals. Fourth quarter results will give us insight into the company’s current cash flow and balance sheet positions, but at this time, we aren’t interested in adding the struggling retailer to the portfolio of our Best Ideas Newsletter.