Who will come to J.C. Penney’s rescue?

Discussion
Photo: Getty Images/hapabapa
Jun 17, 2020
George Anderson

J.C. Penney is facing a deadline that it may not be able to meet. The department store operator, which filed for bankruptcy in May, is at risk of running out of cash by July 15 if something dramatic doesn’t happen to change its financial position. All hope is not apparently lost, however, as reports have surfaced that Authentic Brands Group (ABG), Simon Property Group and Brookfield Property Partners are planning to make a bid for Penney.

The three firms, which previously worked together to acquire the Forever 21 and Aéropostale chains, have a track record of success in managing deals such as this. The news of the group’s interest in Penney follows other reports that had Amazon.com and Sycamore Partners separately kicking the tires on a possible deal for the chain. Authentic Brands and Simon have also been reported as considering a bid for Brooks Brothers’ business.

Acquiring Penney could provide benefits for all three of its prospective owners. ABG would be able to supply Penney’s stores and sites with merchandise from its impressive list of clothing brands, including Aéropostale, Barney’s New York, Forever 21, Frye, Nautica, Nine West and dozens of others. Simon and Brookfield would gain by being able to keep Penney anchors at malls that were already under pressure before the novel coronavirus forced them to close.

As part of its bankruptcy filing, Penney announced that it would close 242 of its 846 stores, spin off its real estate as a separate publicly-traded investment trust and push ahead with a turnaround plan put in place by CEO Jill Soltau that focuses on core categories such as women’s apparel along with improved customer service and low prices.

Penney would benefit from landlords willing to work with the company on rent payments while potentially gaining access to brands that appeal to demographics, particularly younger consumers, where the chain has struggled to find traction.

In an interview with CNBC last week, Jamie Salter, CEO of ABG, explained his thinking on deal making.

“My strategy is simple. Buy low, sell high,” he said, before adding, “We make sure, if we get into retail, that [the company] has a purpose. If it doesn’t have a purpose, we find a purpose.”

DISCUSSION QUESTIONS: Which of the parties reportedly interested in acquiring J.C. Penney would make the best fit for the retailer? Could Penney not only be saved but turned into a thriving business with the right ownership?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Choosing the right partners to acquire J.C. Penney isn’t a matter of who has the most money but rather who has the best plan."
"J.C. Penney needs a scorched-earth re-invention, IMO."
"This is not a financial play — it’s a customer centered play. Can JCP get real?"

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22 Comments on "Who will come to J.C. Penney’s rescue?"


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Mark Ryski
BrainTrust

Whoever buys J.C. Penney better understand that their problems will not be easy to solve. Getting access to capital is a first and important step, but it’s only a first step. The far bigger challenge is in turning around a tired and beaten up department store chain. And if that’s not challenging enough, throw in a pandemic and a systemic decline in consumer demand due to high unemployment. Penney can be “saved,” but turnaround is a whole other proposition.

Lee Peterson
BrainTrust

No one. Let nature take its course. Sometimes you just have to go with Darwinism at retail.

Art Suriano
Guest
Choosing the right partners to acquire J.C. Penney isn’t a matter of who has the most money but rather who has the best plan. Any buyer can put money into the company in the short-term, but without a robust strategy that can make J.C. Penney a winner again the future will still be bleak. Department stores today are all struggling because none of them have yet successfully reinvented themselves, creating the department store of the future. No one really knows what that is now, which is part of the problem, but we do know that continuing the same old and tired approaches do not work. Department stores cannot survive selling only apparel, jewelry, and housewares merchandise. Years ago, and probably ahead of his time, Ron Johnson had what I always felt was a brilliant concept of stores within the store. Ironically, long after he was gone, J.C. Penney did try that approach and, for a time, had success with Sephora having a store inside the J.C. Penney store. So whichever potential buyer has a different… Read more »
Jeff Sward
BrainTrust

It’s the mall that needs rescuing more than J.C. Penney. And Amazon is the player to do it. Not because they would save J.C. Penney, but because they would totally re-rationalize that end of the mall. And on a scale much different than ABG simply infusing that space with its brands. ABG has does an amazing job in turning around Aeropostale, but that was a whole different scale of project than J.C. Penney. Amazon could make this a game changer.

Tony Orlando
BrainTrust

You can invest in let’s say Apple, Amazon, Verizon, Costco, Walmart, and many other strong companies, which will assure you of some growth and a dividend — or invest in J.C. Penney, which has been a drag on investors for years. Who in their right mind, unless they love super high risk investing, would invest in J.C. Penney? Not me or anyone else I know. J.C. Penney will most likely perish, and they had a good run. RIP

Suresh Chaganti
BrainTrust

Separating out real estate and clothing makes sense, and I wish all the clothing retailers would do that. Real estate is a bloated asset and an operational liability. Most importantly, it takes away from the core competencies of a clothing retailer – developing fashion sense, assortment and understanding consumer behavior.

Authentic Brands has the most synergy in acquiring J.C. Penney. With Amazon, they will probably make it a distribution asset.

Neil Saunders
BrainTrust

The Authentic Brands Group consortium would probably be the best option for J.C. Penney in that it would provide the breathing space and financial muscle as the chain tries to reinvent itself. Moreover, those investors have a vested interest in the long-term viability of the business.

Private equity would be OK for the short term, but we all know the carnage such deals often create in the long run. Amazon is interesting but if they want to get into physical retail in a serious way, they’d be far better off buying Target.

No matter what the outcome, investment only buys J.C. Penney time. There is a stack of work to do in order to stabilize the company and attempt to make it relevant again. And it’s touch and go as to whether such efforts will even work.

Dick Seesel
BrainTrust

I mentioned on an earlier post that a consortium of mall owners (Simon and others) would be the most likely saviors of J.C. Penney in its current form. Mall developers can hardly afford yet another mall anchor to collapse under a pile of debt, or to allow another wave of zombie malls. But in J.C. Penney’s case, it’s not just about the financial rescue but about the business model, which has proven less and less relevant over the past decade.

The links to this discussion (the various players “in talks” to buy J.C. Penney, from Amazon to Authentic Brands) suggest that nobody really knows the outcome here. Weakened brands don’t suddenly recover just because they find a buyer.

Phil Rubin
BrainTrust
3 months 13 days ago

J.C. Penney is the Sears of this decade (and perhaps the Macy’s of next). It’s fascinating that retail landlords would consider buying J.C. Penney but then again, misery loves company.

What is the relevance of a brand and offering like J.C. Penney? There is a growing list of those ignorant and/or arrogant enough that they believe this business can be salvaged, much less from bankruptcy. This is why G-d invented short-sellers!

Bob Phibbs
BrainTrust

I fear J.C. Penney will die a long death like Sears which was cut up in pieces and just when you thought it was done, like Glen Close’s character in the movie Fatal Attraction, it rose from death again and again. So sad. Let’s pause and remember that Ron Johnson made this inevitable – heck of a job.

Gene Detroyer
BrainTrust

“Who will come to J.C. Penney’s rescue?” Shouldn’t the question be, “why will anyone come to J.C. Penney’s rescue?”

Craig Sundstrom
Guest

In the case of Brookfield and Simon, the answer to “why?” is obvious. For them the real question is “what?” — as in, “What if this doesn’t work out? What becomes of the viability of many of our properties?”

Peter Charness
BrainTrust

If you round up a bit and say 15 percent of all retail sales are now online (with big variations by category), you have to wonder why at least 15 percent of all store capacity doesn’t disappear, for a very crude equivalent. Yes commerce is unified, and yes stores are still part of the online and brand experience, but really there just isn’t room for the number of physical locations in retail in the U.S. So undifferentiated locations selling the same stuff as everywhere else feel like the slow moving animals that can’t keep up with the rest of the herd.

Cynthia Holcomb
BrainTrust

Taking a key factor out of the equation with the death of malls — which were a destination of the past for traditional big footprint stores — leaves little room to re-imagine the future of J.C. Penney as the destination for AGB apparel brands. Product- and product assortment-wise, JCP.com, given the COVID-19 in-store retail effect, looks a lot like Walmart.com and Amazon.com’s third-party sellers. Conflating real estate as the reason to save the J.C. Penney brand with hanging on to J.C. Penney for emotional reasons actually clogs the system making it difficult for new and innovative retail and retailers to go about the business of reinventing retail for the 21st century. We’re now 20 years into the 21st century!

William Passodelis
Guest
This is tough. Like the Lord & Taylor customer, most of J.C. Penney’s customers are in the grave. I LIKE J.C. Penney and I shop there but their time has passed. Amazon could use SOME of the locations as last-mile fulfillment centers and could reinvent SOME of the locations as Amazon stores with probably an amazing offering. They might be able to pick up locations after J.C. Penney has closed however, at a steeper discount. Ron Johnson spent ALL of their money trying to make a new store that Nobody wanted, and he did not understand, or did not care about the actual J.C. Penney customer of that time. You can argue that the changes were simply all too fast, but it seems as though that entire time was an arrogant move. Kind of “I know better and we have to do it this way.” It seems to me that it does not matter. Ask anyone under 40 if they will go to J.C. Penney, usually I get a surprised look and the word “why,”… Read more »
Martin Mehalchin
BrainTrust

This would be the boldest move yet for Authentic Brands but it could be a great one (with obvious benefits for Simon and Brookfield). It would be a mistake to try to revive the current Penney’s, but ABG could use the store footprint to create lifestyle-oriented shops that are anchored in the brands in their impressive portfolio. I’d advocate for a clean start: drop the J.C. Penney name and launch something completely new based on a refreshed assortment and a connected (digital/physical) retail model.

Paco Underhill
BrainTrust

This is not a financial play — it’s a customer centered play. Can JCP get real? William Whyte in his book “City Rediscovering the Center” points out that when merchants leave their HQ in center cities they lose touch with their customers. JCP HQ used be in Rockefeller Center — close to the media and close to garment district. In their daily lives, management had to see and listen to a broader world. When JCP moved to Plano, they lost touch and it’s been a downhill slide since then.

Craig Sundstrom
Guest

You know it’s looking bad when the top contenders are a “buyout firm” and someone with the (unintendedly) ironic name of “Authentic Brands” — apparently no one who wears the title of “merchant” is interested.

Anyway, I’ll go with the consortium, my mirth at the name of one of the trio notwithstanding. Simon and Brookfield certainly have the most incentive to keep the store alive, and presumably they have the experience and resources to do what’s necessary to get that done — if it’s actually doable, at all.

James Tenser
BrainTrust

“Authenticity. If you can fake that, you’ve got it made.” – Groucho Marx

James Tenser
BrainTrust

J.C. Penney needs a scorched-earth re-invention, IMO. The ABG consortium may be best-positioned among the suitors, but it’s no easy challenge. Underlying the entire initiative is the underlying question about mall-anchor department stores: Are they still a viable retail species?

Re-merchandising the surviving JCP stores with a new brand portfolio from ABG is only part of the battle. The brand will need to be re-positioned to speak to the next generation of fashion shoppers. That’s a long-term investment with a steep price tag, but also a potential handsome payoff.

Sterling Hawkins
BrainTrust

JCP needs a complete and total overhaul of their store design, current offers, even their culture. Personally, I think sometimes it’s better to start fresh than trying to revive a dinosaur. It would be a massive commitment for one of these groups to take it on, but not impossible.

Ethan Chernofsky
Guest
3 months 12 days ago

Anyone who believes that J.C. Penney needs to be fundamentally reimagined is ignoring the strong brand equity they still have. The key is to build on who they are and to intelligently reimagine their retail footprint. This is a unique opportunity to open the stores that help and close the ones that don’t. Even just optimizing their fleet could drive a financial turnaround.

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Braintrust
"Choosing the right partners to acquire J.C. Penney isn’t a matter of who has the most money but rather who has the best plan."
"J.C. Penney needs a scorched-earth re-invention, IMO."
"This is not a financial play — it’s a customer centered play. Can JCP get real?"

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