Caution: JCPenney’s V-Day Discounts Aren’t as Sweet as They Seem

Source: http://www.flickr.com/photos/idovermani/

Source: http://www.flickr.com/photos/idovermani/

JCPenney (NYSE:JCP) has good news and bad news. The good news is that the retailer is planning major Valentine’s Day discounts of up to 40 to 60 percent. The bad news is that in order to offer those discounts, the company is hiking its prices up in the near-term — and it doesn’t want you to notice it.

According to the New York Post, JCPenney’s CEO Mike Ullman is in the midst of orchestrating a company-wide strategy that involves significantly increasing prices on all the retailer’s products in order to make JCPenney discounts look more dramatic later in the year. Faced with falling sales and a lack of consumer demand for JCPenney products, executives at the company recognize the need to make the retailer stand apart from the crowd, and that’s where the discounts come in.

The problem, however, is that cash-strapped JCPenney can’t afford to drive its prices down, so it has to drive them up first to try to trick customers into believing they’re really getting the best discounts in the future. Last year, Valentine’s Day discounts reached 20 to 30 percent, while this year, they are expected to be marketed as 40 to 60 percent. Mark Cohen, a professor at Columbia Business School, explains via the Post that, “Ullman is trying to get back the old JCPenney customer, and that customer wants to see 50 and 60 percent off. Taking off 20 or 30 percent doesn’t even get you noticed.”

JCPenney’s former CEO Ron Johnson was already blasted for reportedly practicing the strategy during his reign at the retailer, but it is clear that Ullman and his team aren’t worried about those rants against “fake prices” because this is the best plan of action they think they have.

According to the Post, which cites information from insider sources, JCPenney has especially focused on hiking up its prices on jewelry so those items can be dramatically discounted for Valentine’s Day. As of Wednesday morning, a half-carat diamond ring set was marketed on JCPenney’s website for $1999.98, while in mid-December, it was advertised as $1245, discounted to $996, reflecting a 60-percent price dive.

The retailer’s jewelry prices around the holiday season and now the Valentine’s Day season illuminate its strategy with jewelry: jack up the price early and then offer discounts as the holidays approach. According to the Post, an assortment of gold earnings went for $160 a pair around Christmas, reportedly discounted from $200, while now, those same earrings sit on JCPenney’s website with a price of $49.98 — a 225-percent increase from last month.

It’s not just jewelry that JCPenney is charging higher prices for. Sources report that all products throughout the retailer’s stores are seeing price hikes, except the national brands which have pricing pacts already predetermined. JCPenney has been careful to roll out its price increases gradually, so consumers don’t take notice of the rises, but if word gets out about these changes, the retailer could still be in trouble.

Kurt Jetta of TABS Group, a retail consulting firm, doesn’t think that consumers will definitely notice though, because he explains that, “Consumers are looking at prices based on the discount, which is much more digestible than having to memorize the pricing on hundreds and thousands of products.” Still, even he recognizes that really dramatic price hikes are unlikely to go undetected, so JCPenney now must walk a fine line if it wants to succeed in its secret strategy.

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