A Personal Mea Culpa on JCPenney

June 5, 2013

As a sometimes pundit, I feel obligated to own when I praise something that turns out unwell.

In speeches about state tax policy, I have sometimes referred to JCPenney's recent attempt to transform itself from a coupons-and-targeted-sales model (over 590 sales per year, with sales at an average 60% discount) to an always-low-prices model with in-store "shops." In my speeches, I praised the move and analogized it to state tax incentives vs. offering a good tax system.

JCPenney's board didn't think so, as they've ousted the CEO and are rethinking the strategy after terrible financial results. The general gist of the problem is that JCPenney's old customers stopped buying without constant sales and new customers didn't start buying because they don't trust the merchandise. I maintain that its attempted transformation was its best chance of success due to enormous competition for value-seeking retail customers, but that's obviously a debatable point.

I'm still musing about the implications for my state tax policy analogy. I suppose it could be that if everyone views you as having shoddy merchandise but frequent sales, it's tough to induce a bunch of new customers with streamlined pricing. It makes me wonder, though: do people prefer to buy a $7 shirt for $7, or a $7 shirt with a tag price of $12.99 marked down to $7.99? That said, business and even individual taxpayers aren't retail customers, so perhaps while the analogy was foolhardly from the beginning, it doesn't doom efforts to simplify state tax systems and get states out of the business of picking winners and losers.

Your thoughts are appreciated: henchman@taxfoundation.org.


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