JCPenney slashes prices in dramatic overhaul

JCPenney (JCP) is permanently slashing all of its prices by at least 40% in a sweeping overhaul of its stores and strategy.

The company says it's unhappy with its old model, which confused shoppers with nearly 600 promotions a year. It had too many sales that didn't draw in customers, and in the end, most of its revenue came from items marked down at least 50%.

That's not the right way to do business, the company said. So it has announced a new pricing strategy that aims to be simpler and easier to understand.

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Here are the new tiers of prices, starting Feb. 1:

• Daily low prices. This is similar to the "everyday low pricing" model that Wal-Mart (WMT) made famous.

• Monthly discounts. There will now only be 12 promotional events each year -- one a month -- when some items will be marked down further.

• Clearance deals. JCPenney is timing its "Best Prices" clearance sales to the first and third Friday of the month -- when many shoppers get paid.

The thinking behind the strategy goes something like this: Don't try to trick customers with prices that change all the time. Customers will simply wait on a purchase if they think another sale or deep discount is around the corner. Instead, keep prices constant and reliably low.

"The customer knows the right price," CEO Ron Johnson said Wednesday, according to Reuters. "To think you can fool a customer is kind of crazy."

Investors didn't seem too impressed by the news. JCPenney shares fell 1.3% to $34.15 after the announcement.

JCPenney has other big changes in mind. It's doing away with what it calls "the confusing and seemingly endless racks" in traditional department stores. Instead, JCPenney plans to carve its stores into dozens of mini-shops based on individual brands. There will be a Martha Stewart shop, for example, along with separate shops for Izod, Liz Claiborne and L'amour Nanette Lepore.

Target (TGT) is also exploring this idea of a shop within a store, announcing recently that it will feature small Apple stores in some of its large stores around the country.

These moves try to make a store more distinctive, with a landscape more customized to shoppers' needs.

JCPenney is also launching a new advertising campaign featuring talk-show host Ellen Degeneres, who began working for JCPenney in her teens as a sales associate. It gave a peek into that campaign Wednesday with a full-page advertisement in The Wall Street Journal that said: "We're not interested in being the biggest store or the flashiest store. We want to be your favorite store."