J.C. Penney, reeling from a one-two punch of the department store industry’s struggles and the coronavirus pandemic, filed for Chapter 11 bankruptcy protection on Friday. The company, which had racked up an unsustainable amount of debt in recent years, plans to close an unspecified number of stores permanently in a bid to survive bankruptcy. The retailer had 845 stores at the end of 2019, according to real estate data source CoStar Portfolio Strategy.
The bankruptcy filing comes after several years of declining sales and strategic missteps as J.C. Penney careened from one reinvention strategy to another. Nothing seemed to work. J.C. Penney lost money in eight of the last nine years, totaling $4.45 billion, according to FactSet. Having racked up the second-most debt of any distressed retailer at $4.2 billion – ranking behind only luxury department store chain Neiman Marcus, according to Moody’s Investor Service – J.C. Penney engaged in talks with creditors in recent weeks in hopes of avoiding bankruptcy. But those talks faltered as it became clear that the retailer’s prospects looked increasingly grim.
J.C. Penney said Friday in a statement that it had secured support from some of its financial creditors for a bankruptcy restructuring plan that would eliminate billions of dollars of debt. That plan would require approval from a bankruptcy judge, who could decide instead to force the retailer to go out of business if that’s in the best interest of the company’s creditors. “Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come,” CEO Jill Soltau said in statement. The company declined to say how many stores would close permanently as part of its restructuring plan.
For J.C. Penney, which was once a regular shopping destination for the American middle class, bankruptcy marks a fall from grace that could spell the end. “If you go back to the ‘80s, J.C. Penney at that point in time was a family retailer that sold a lot of interesting products from fashion to homewares (and) was a destination for a lot of consumers to go and do their shopping,” said Neil Saunders, managing director of GlobalData Retail. But “J.C. Penney has been losing shoppers, it’s been losing market share and it’s been losing sales over a very long period of time because the products it provides and the way in which it provides them has just become increasingly irrelevant to consumers,” Saunders added.
Since JCP’s problems started long before the coronavirus pandemic, it’s difficult to put all the blame there, but the drastic drop in retail sales from March through April certainly didn’t help, and may have accelerated the chain’s demise. JC Penney’s filing, following hot on the heels of former retail giants J. Crew and Neiman Marcus, is the sign of an end to a retail era. The only question now is, who’s next?
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