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Big stores' 'discounts' all part of the plan

Tuesday - 11/26/2013, 9:59am  ET

WASHINGTON - As you scour the ads and coupons, looking for big discounts at the stores for Black Friday, keep in mind that those so-called savings are mostly mirages.

The Wall Street Journal says that the practice of "high-low pricing" means that many stores list items at unrealistic prices, just so they can mark them down later and give customers the feeling that they're getting deals. Sometimes they jack prices up before the holidays, just to give a bigger-looking discount for Black Friday.

The Journal says that the website Savings.com surveyed 31 major department and clothing stores from 2009 to 2012. They found that the stores offered 63 percent more discounts, and that the average discount grew from 25 percent to 36 percent.

But the profit margins stayed the same.

It sounds like "silliness," and that's the word a Columbia Business School professor uses to describe it to the Journal, but it works.

Ron Johnson was CEO of J.C. Penney when he decided to stop playing that game - under his leadership, the chain set the prices at the level they really wanted, and didn't bother with discounts.

Sales plummeted and Johnson was fired.

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