What’s J.C. Penney’s next move?

Discussion
Photo: J.C. Penney
May 18, 2020
Tom Ryan

J.C. Penney entered bankruptcy proceedings with a sense of urgency, setting a deadline of July 15 to secure support from lenders on a reorganization plan or pivot to pursuit of a sale to avoid liquidation.

The bankruptcy was expected as the 118-year-old department store skipped two interest payments in recent weeks. CNBC earlier reported that Penney plans to close 180 to 200 of its 846 stores.

Some 70 percent of Penney’s lenders have agreed to support a restructuring proposal that would reduce “several billion dollars in indebtedness.”

Penney said discussions on a debt restructuring had been ongoing prior to the pandemic. Said CFO Bill Wafford in a court filing, “Unfortunately, once COVID-19 was declared a pandemic, and the company’s primary revenue stream in-store sales evaporated overnight, talks regarding the potential transactions came to a grinding halt.”

Plans also call to split the company into two separate publicly traded entities, one being a real estate investment trust. Penney has “significant unencumbered real property” worth up to $1.4 billion, according to the retailer’s lawyers.

Otherwise, Penney’s turnaround efforts under Jill Soltau, Penney’s CEO since October 2018, are progressing and will continue. Management has shifted focus back to core categories such as women’s apparel and accessories along with an emphasis on customer service and low prices. The most ambitious effort is a remodel in Hurst, TX that features a more open layout, with a fitness studio, video game lounge and style classes.

“Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy — and our efforts had already begun to pay off,” said Ms. Soltau in a statement. “While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt.”

According to court documents, if two-thirds of its bankruptcy lenders don’t consent to an “acceptable business plan” by July 15, Penney must “immediately cease pursuing the plan” and instead pursue a sale of assets.

Will bankruptcy make it easier for J.C. Penney to achieve its turnaround? What will Penney need to do to get former customers and new consumers to shop in its stores and on its website?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Nothing short of a wholesale reinvention of the brand and proposition is needed if the chain is to survive."
"I’ve come to believe that J.C. Penney is the retail equivalent of the cockroach. Just when you think they’re gone – surprise, there they are!"
"The problem with the old behemoth is that it is saddled with so much technical debt that it can’t evolve."

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24 Comments on "What’s J.C. Penney’s next move?"


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Mark Ryski
BrainTrust

Bankruptcy is a last resort and that’s where J.C. Penney has arrived. Bankruptcy will extend the wind-down, but I doubt that it will lead to a turnaround – just the opposite in fact. Bankruptcy will accelerate the end of J.C. Penney as we know it. At this stage, I’m not sure if there’s anything J.C. Penney can do to win back former customers that they haven’t already tried. Sadly, this is the beginning of the end.

Dave Wendland
BrainTrust

Admittedly the pandemic did not help Jill Soltau’s turnaround plans and the already beleaguered department store space needed more than a shift in strategy. That said, presuming lenders consent to the July 15 deadline, J.C. Penney still faces an uphill battle. Store closures must continue, revamping assortments is essential, and re-examining both the value proposition and mall-anchored accessibility vital. Even if the business plan is found acceptable, the challenges for Ms. Soltau and her team are many and mounting by the day.

Dick Seesel
BrainTrust
As I’ve mentioned before, in the interest of full disclosure, Jill Soltau is a former colleague at Kohl’s (along with J.C. Penney board member W. Paul Jones). I’ve been rooting for Jill’s turnaround plan since her hiring, because a merchant’s focus on key businesses like women’s apparel was long overdue. That being said, I think J.C. Penney faces a tough challenge. Yes, the Chapter 11 filing allows the company to shed many locations along with some of its debt load. Chapter 11 is not a death sentence, but customers who see the word “bankruptcy” can be reluctant to shop if they are concerned about gift cards, customer returns, and so forth. J.C. Penney has some hard work to do on this front. The bigger challenge is whether a post-bankruptcy J.C. Penney has the resources to roll out its new test strategies to hundreds of remaining sites. This may be a case where a consortium of mall developers — already invested in brands like Forever 21 — decides that J.C. Penney is “too big to fail”… Read more »
Richard Hernandez
BrainTrust

I think J.C. Penney has been trying to be relevant for a long time. It appears that some of the changes are working, but not fast enough. While I wish them the best, I do not know if they can turn it around in time before the clock expires.

Neil Saunders
BrainTrust

Bankruptcy buys time; it is not a solution in and of itself. That said, there are positives that will come out of the process: reduced debt, the closure of unprofitable stores, capital to see it through the coronavirus crisis. However, the rest is down to J.C. Penney’s management. Nothing short of a wholesale reinvention of the brand and proposition is needed if the chain is to survive. In normal times that would be a tough ask; at a time when the industry is in shock and demand is suppressed, it’s an enormous undertaking. I wish J.C. Penney luck, but I am not placing any bets on it.

Suresh Chaganti
BrainTrust

It is hard to see how anyone can put faith anymore in J.C. Penney. It is not indictment of J.C. Penney specifically, but as an anchor tenant and large store operator, that category has run out of fuel and run out of ideas. Even more importantly the customers have largely moved on. There was a window of opportunity, but I think that is long past. Just tweaking category assortment, pricing or loyalty programs will not work.

Ricardo Belmar
BrainTrust
This is a sad situation for an iconic retail brand that relied too long on its legacy and rich history to continue bringing in customers. While they have been showing some progress, it has, unfortunately, been too slow to generate enough impact — that was true even in a pre-COVID-19 world. Now, after having their stores closed, the pandemic has accelerated their decline. Fundamentally, J.C. Penney still has to show its target customers how they are relevant to them and their needs. The new store format in Hurst, TX is a great start, but how quickly can they convert their stores into that format? And does that new format speak to customers in all areas of the country where J.C. Penney is present? I believe J.C. Penney will have to seriously reconsider its place in the retail landscape. Closing 180 to 200 stores may not be enough. Many of their stores are in malls with little traffic and there isn’t much they can do to change that situation. I expect they will need to cut… Read more »
Richard Layman
Guest
1 month 21 days ago

To me, department stores were optimized for city centers/downtowns and major centers. As they moved to malls and as more specialized retailers developed, they lost their verve. You can see this difference looking at department stores in European cities.

Given the hollowing out of the country, could department stores work better still in more rural or exurban locations? That being said, the failure of Shopko (was it all the fault of private equity or were there other issues) and the possible closure of Stage Stores makes me wonder if there is even such an opportunity in exurban areas.

Ricardo Belmar
BrainTrust

I am big believer that department stores make more sense in urban environments where they can return to their roots as being a true shopping destination. That said, there are many brands that didn’t originate in city centers. For those, I believe the market can only sustain a small number of them and only if they maintain a regional/local feel to their stores (including merchandise).

Adrian Weidmann
BrainTrust

I’ve come to believe that J.C. Penney is the retail equivalent of the cockroach. Just when you think they’re gone – surprise, there they are! It’s hard to imagine that two-thirds of their lenders will agree to extending this story with $1.4 billion in “real property”. The challenge will be, who wants to purchase this property? And use it for what? Under normal circumstances this would be the end of J.C. Penney but we are living in far from normal so who knows? Maybe cutting a deal is the best option for those lenders right now?

Frank Riso
BrainTrust

I would recommend J.C. Penney not split into two companies but two divisions. They should then use the sale of real estate to fend off their debts until the renewal plan gets going once more. If they do split into two companies it could be the end of J.C. Penney for two reasons. First the lenders and investors are also in need of capital due to the current situation. Second, many of J.C. Penney’s true customers are the older generation and no longer shopping there and they and Sears may both go into the retail history books.

Richard Layman
Guest
1 month 21 days ago

Splitting off the real estate didn’t help Mervyns, Sears, or any of the other retailers where this occurred.

Bob Phibbs
BrainTrust

Two things: 1.) Those who say the brand is “irrelevant” seem to ignore that the chain still sold $11 BILLION worth of goods last year. That’s something digital brands and DTC companies would die for. 2.) Ms. Soltau’s acceptance of $4.5 million to stay at least though end of January, 2021 is the worst optics. Toys “R” Us made the same type of move before liquidating. I can’t imagine how you rally the troops once it appears “I got mine.”

Rich Kizer
BrainTrust

In a retail world where it seems that “meaningful specific” retailers are successful in their efforts, being a “wandering generality” retailer is very dangerous territory. And that’s where I think J.C. Penney is. It’s very sad.

Ken Cassar
BrainTrust

J.C. Penney should follow Gap’s lead by seeking to come out of the coronavirus pandemic a different, more relevant company. Its goal should absolutely NOT be to come back a leaner version of what it was beforehand. Its model simply doesn’t work anymore, whether they have 800 stores or 300 stores.

Peter Messana
BrainTrust

Bankruptcy is just a step to oblivion, I don’t see J.C. Penney coming back. The problem with the old behemoth is that it is saddled with so much technical debt that it can’t evolve. You can shrink the store base and keep the profitable ones but that is a survival strategy, not a growth strategy.

Mohamed Amer
BrainTrust

Unencumbered real estate assets are not so “liquid” if there’s greatly reduced demand for those assets, just think of the airlines’ situation with their grounded fleets. Similarly, for J.C. Penney the pandemic could not have arrived at a worse time. Jill Soltau and her team were bringing a welcomed merchant mindset to the company but the structural headwinds for the format and category have been overwhelming.

Now these are further exacerbated by the shutdown, accelerated consumer move to online purchases, and uncertainty on the new in-store normal. Bankruptcy buys time but not enough to reinvent the brand and category with new formats and store size/count to better match the changing consumer behavior. The new J.C. Penney will need to be a very different retail model and cost structure – and that might be a bridge too far for this iconic American brand.

Jeff Sward
BrainTrust

If the new store in Texas actually gives J.C. Penney a platform to go forward on, then great. If that store is a real, scalable solution and the bankruptcy parameters allow that to happen, then great. And if that’s not the case, then look at all the additional mall space that Amazon can tap into. If Amazon can somehow beam itself into the space that Sears and J.C. Penney are about to vacate, THAT will be a boost that malls would surely benefit from.

Cynthia Holcomb
BrainTrust

Trying to save JCP and the other retailers who missed the beginning and middle of next-gen retail now face the reality of decades-old poor retail leadership under several CEOs, brought in to save the day. JCP did not die overnight. It happened in daylight. For years now, the old days of retail are gone. When a retailer could survive glutting their floors with big, burdensome, price-driven inventories of lackluster products. From the outside trying to keep JCP alive seems to have entered into the realm of emotionally driven game plans, which again continue to completely miss the new and innovative retailing of today.

The real question, projecting five or ten years out is, exactly who will be shopping JCP if JCP were to survive? What is the use case for a consumer to shop JCP?

Richard Layman
Guest
1 month 21 days ago

Word. I am from Michigan, and among others, remember Kresge. During my high school years I lived in Troy, where Kmart was located (Ironically, Taubman Centers HQ was located close by). Kmart had something like 2,100 stores at their peak. Now they have 34. Meanwhile Target and Walmart are thriving by comparison. Target shows a way to differentiate. I guess JCP hasn’t learned yet.

Kevin Graff
BrainTrust

How about the landlords just accept the reality that the B and C mall properties (where most J.C. Penney stores live) need a complete rethink. Consider transforming these properties into full mixed-use assets. Knock down the anchors (ironically anchors always sink), add in residential, grocery, community centers, gyms, health care.
View this bankruptcy, and those to come, as the opportunity to finally move forward instead of hoping these dinosaurs can live again.

Ed Rosenbaum
BrainTrust

It is becoming obvious we are going to be experiencing changes in people’s shopping habits moving forward. I understand J.C. Penney is going through difficulties, but it is not new. They have been in difficult financial straits for many years. Coming out of it will be most difficult if it is possible at all. They will not be alone as several others will be struggling to stay afloat. We are going to be seeing many empty stores as companies work to downsize in order to survive. But downsizing means many more people looking for new jobs that may not even exist. We are going to experience a large downward cycle before we level off.

Craig Sundstrom
Guest

It helps only if they are able to eliminate debt … permanently. Offsetting this of course are the not insignificant legal costs of reorganizing.

And then of course under what, for want of a better term might be termed a “best case” scenario, we’ll be back to where we were a few years ago: a marginal business sliding toward irrelevancy. At least no one’s suggesting a merger with Neiman Marcus … I hope.

William Passodelis
Guest

This is all so sad. Expected for a long time, but still sad when the day actually arrives. The only thing that will happen here is that the lawyers overseeing the bankruptcy will make a lot of money.

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Braintrust
"Nothing short of a wholesale reinvention of the brand and proposition is needed if the chain is to survive."
"I’ve come to believe that J.C. Penney is the retail equivalent of the cockroach. Just when you think they’re gone – surprise, there they are!"
"The problem with the old behemoth is that it is saddled with so much technical debt that it can’t evolve."

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