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Is JCPenney Backpedaling From Its Pricing Strategy?

Wednesday, 30 May 2012 | 3:22 PM ET

Even as hedge fund manager Bill Ackman continues to trumpet that he believes that JCPenney has the right strategy to turn its business around, reports are circulating that the retailer may be backing off its pricing strategy.

J.C. Penney
AP
J.C. Penney

In January, JCPenney's new CEO Ron Johnson said he wanted to reinvent the department store as the place shoppers can go to for "fair and square" pricing, but as the retailer's poor first-quarter earnings showed, the company is far from reinvigorating its sales.

Now the company appears to be backpedaling from its nonpromotional stance.

Deutsche Bank analyst Charles Grom said the company has added five "Best Price Friday" events to its calendar. The first took place this past weekend ahead of the highly promotional Memorial Day weekend, and another is slated for Black Friday in November. Others may occur at peak sales times such as during the back-to-school season, according to Grom.

"The additional Best Price Fridays equates to adding promotions and is a step away from the company's three kinds of pricing strategy, suggesting that the company is willing to forgo its original thinking," Grom wrote.

In an interview with CNBC on Tuesday, Ackman, JCPenney's largest shareholder, said he thought the company was in the process of turning itself around, but the process can be slow and painful.

The long lead times that are required to order merchandise make it difficult to change a strategy abruptly. Add that to the even more difficult task of communicating the complex message of a new pricing strategy to consumers, and the risks are even greater.

While Ackman's comments expressed confidence in Johnson's strategy, Grom's report raises some questions about it.

During "Best Price Friday" events, certain products are marked down, and the lower prices stay in effect until the product sells out.

There also are changes being made to in-store signs to emphasize the savings in the sticker price.

Grom said these changes are admissions the strategy has flaws.

"Furthermore, we believe the move could confuse its shopper base even more, with some Fridays now 'Best Price' and some others not," Grom said.

Retailers have long used sales and other promotions to drive shoppers into the store. The challenge retailers have when the number of promotions are reduced is finding a way to create excitement and get consumers to shop without these sales events.

Ackman told CNBC that there are new products coming to JCPenney later this year that will help bring in new shoppers.

A JCPenney spokeswoman wasn't immediately available for comment.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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