J.C. Penney Going Back to 'Mark-Up to Mark-Down' Sales Practice

Ron Johnson's plan for

has failed. According to the

, the former

executive and current J.C. Penney CEO attempted to radically change the company's pricing structure in an effort to re-shape the brand, but instead the retailer has driven away its customers. The company confirmed that it is currently in the process of marking up its prices so that they can subsequently be discounted. The strategy offers shoppers mostly illusory savings, but is popular across the retail space. Johnson, however, felt that this highly promotional strategy cheapened the J.C. Penney brand and instead adopted a "no-discounting" policy with a focus on "everyday low prices." The result has been an exodus of the company's core customer base. In its most recent quarter, the retailer reported that sales had fallen a whopping 28 percent. Same-store sales plunged 31.7 percent, and Internet sales fell 34.4 percent. Furthermore, J.C. Penney reported a massive $552 million loss. In sum, Johnson's efforts to makeover the company have been an unmitigated disaster and he has subsequently acknowledged that it was a mistake to get rid of markdowns and coupons. The price mark-ups and subsequent "sales" will only apply to J.C. Penney's in-house brands. These include St. John's Bay, Stafford and Arizona and account for around half of the company's revenue. Currently, the company will stick with its everyday low pricing approach at its in-store branded boutiques, including Izod and Sephora, according to Daphne Avila, a company spokeswoman. She also underscored consumer preferences for discounts rather than the straightforward pricing approach that Johnson attempted to implement. "While our prices continue to represent a tremendous value every day, we now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the register," Avila said. At this point, it is hard to say if the return to the "mark-up to mark-down" strategy will help turnaround J.C. Penney. From an investors' perspective, it looks like the retailer is now caught in no-man's land and lacks anything resembling a coherent strategy. This is a major problem. In the near-term, however, the move could boost sales which would likely lift the stock price. On a longer-term basis, however, this is a difficult name to own. In 2013, the shares have already lost 24 percent and the stock is down 59 percent over the last year. The old saying is that it is "always darkest before dawn," and that may very well prove to be the case with J.C. Penney. Now could be a terrific time to buy the stock as it is trading near a 52-week low and everyone hates the name so much. It is hard to have much conviction, however, when the CEO looks like a sitting-duck and the strategy and vision he articulated for the company is in the scrap heap. Investors should probably wait for this company to come up with a viable, coherent, game-plan before jumping into the stock.