J.C. Penney recently filed Chapter 11 bankruptcy. It is the fourth major retailer to meet that fate. With 846 stores and 85,000 employees, J.C. Penney could be the largest symbol of what COVID-19 may mean for retailers already struggling for survival. As part of its reorganization, the 118-year-old company said late it will be shuttering some stores. It said the stores will close in phases throughout the Chapter 11 process and details of the first phase will be disclosed in the coming weeks.
Penney is the biggest retailer to file for bankruptcy reorganization since the pandemic and joins luxury department store chain Neiman Marcus, J.Crew and Stage Stores. Plenty of other retailers are expected to follow.
“The coronavirus pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country,” said Penney’s CEO Jill Soltau in a statement. “As a result, the American retail industry has experienced a profoundly different new reality, requiring J.C. Penney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company
Its fashion and home offerings haven’t stood out for years. And moreover, its middle-to-low income customers have been the hardest hit by massive layoffs during the pandemic. Many of them will likely shop more at discounters – if they shop at all, analysts say.
Penney said that it has $500 million in cash on hand and has received commitments of $900 million in financing to help it operate during the restructuring. It said that it will be looking at different options, including the sale of the company. The restructuring should reduce several billion dollars of its debt and provide more flexibility to navigate the financial fallout from the pandemic, Penney said.
“But since the late 1990s, Penney struggled with weak sales and heavier competition from discounters and specialty chains that were squeezing its business from both ends. Penney’s began flirting with bankruptcy nearly a decade ago when a disastrous reinvention plan spearheaded by then CEO Ron Johnson caused sales to go into free fall.”
Like many department stores, Penney is struggling to remain relevant in an era when Americans are buying more online or from discounters.
Even as retailers like Penney start to reopen in states like Texas and Florida that have relaxed their lock downs, they’re also facing challenges in making shoppers feel comfortable to be in public spaces.
Like Sears, J.C. Penney’s troubles were years in the making, marking a slow decline from its glory days during the 1960s through 1980s when it became a key shopping destination at malls for families.
The company’s roots began in 1902 when James Cash Penney started a dry good store in Kemmerer, Wyoming. The retailer had focused its stores in downtown areas but expanded into suburban shopping malls as they became more popular starting in the 1960s. With that expansion, Penney added appliances, hair salons and portrait studios.
But since the late 1990s, Penney struggled with weak sales and heavier competition from discounters and specialty chains that were squeezing its business from both ends. Penney’s began flirting with bankruptcy nearly a decade ago when a disastrous reinvention plan spearheaded by then CEO Ron Johnson caused sales to go into free fall.
Johnson drastically cut promotions and brought in hip brands that turned off loyal shoppers. As a result, sales dropped from $17. 3 billion during the fiscal year that ended in early 2012 to $13 billion a year later. Many longtime customers walked away and have not returned. Johnson was fired in April 2013 after just 17 months on the job.
Since then, Penney’s has undergone a series of management changes, each employing different strategies that failed to revive sales. The company based in Plano, Texas, has suffered five straight years of declining sales, which now hover around $11.2 billion. Its shares are trading at less than 20 cents, down from $1.26 a year ago, and from its all-time peak of $81 in 2006.
“The company based in Plano, Texas, has suffered five straight years of declining sales, which now hover around $11.2 billion. Its shares are
trading at less than 20 cents, down from $1.26 a year ago, and from its all-time peak of $81 in 2006.”
Soltau has acted swiftly since joining the company in October 2018. Soltau turned the company’s focus back to women’s clothing and goods for the home like towels and bed sheets, which carry higher profit margins. Furniture is still available, but only online.
Still, sales and profits have remained weak. For the fiscal fourth quarter ended Feb. 1, sales at stores opened at least a year dropped 4.7 adjusted for the exit of appliances. Profits were down 64%.
