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J.C. Penney, 118-Year-Old Department Store, Files for Bankruptcy J.C. Penney, 118-Year-Old Department Store, Files for Bankruptcy
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J.C. Penney, the department store chain founded in 1902 that has more than 800 stores in the United States, filed for bankruptcy protection on Friday, the latest and largest retailer to fall during the coronavirus pandemic. J.C. Penney, with its budget-friendly clothing for families and reliable home furnishings, was for years a cornerstone of American malls and an undeniable success story. What started as a humble dry goods store in Wyoming in 1902 was a century later a national chain with a household name and more than 1,000 locations.
Its collapse follows other retail bankruptcies this month, including J. Crew, the Neiman Marcus Group and the designer men’s clothing brand John Varvatos. But J.C. Penney represents the biggest casualty by far based on the number of locations, with stores that are anchors at many American malls, with nearly 85,000 employees. But on Friday, the company filed for bankruptcy protection after a prolonged decline over the past 20 years, becoming the latest and largest retailer to fall during the coronavirus pandemic, which has devastated the industry. The chain has more than 800 stores and nearly 85,000 employees.
The company said it filed for Chapter 11 protection from its creditors in federal bankruptcy court for the Southern District of Texas, and that it had $500 million in cash on hand and received commitments for $900 million financing to use during the bankruptcy process. J.C. Penney said it had struck a deal with certain lenders that will reduce several billion dollars of its debt and would explore a sale of the company. It also said it plans to close stores and that specific locations and timing would be disclosed in coming weeks. Its collapse follows other retail bankruptcies this month including J. Crew, the Neiman Marcus Group and the designer men’s clothing brand John Varvatos. But J.C. Penney represents the biggest casualty by far based on the number of locations, with stores that are anchors at many of the nation’s malls.
The filing was expected after J.C. Penney failed to make an interest payment on its debt in April to “maximize financial flexibility,” and then skipped another payment last week. Shares of the chain, based in Plano, Tex., have been trading below $1 per share for most of this year. J.C. Penney said it filed for Chapter 11 protection from its creditors in federal bankruptcy court for the Southern District of Texas, adding that it had $500 million in cash on hand and had received commitments for $900 million in financing to use during the bankruptcy process. The company said it had struck a deal with lenders that would reduce several billion dollars of its debt and it would explore a sale. It also said it planned to close stores, but specific locations and timing would be disclosed in coming weeks.
The bankruptcy represents the fall of an American institution that traces its roots to Kemmerer, Wyo., where its founder, James Cash Penney Jr., invested in a dry-goods store called the Golden Rule. The native of Hamilton, Mo., expanded the chain and soon renamed it J.C. Penney, but was devoted to the notion of the Golden Rule, particularly in how the company treated its workers. Jill Soltau, J.C. Penney’s chief executive, said that the retailer expected to emerge from “Chapter 11 and this pandemic as a stronger retailer.”
From J.C. Penney’s early days, the staff shared in its profits, which Mr. Penney considered core to its success and an example of “doing unto others as you would have them do unto you.” The filing was expected after J.C. Penney failed to make an interest payment on its debt in April to “maximize financial flexibility,” and then skipped another payment last week. The stock of the chain, based in Plano, Tex., has been trading below $1 per share for most of this year.
Most department store chains have been in a long period of decline, and the massive footprints of Sears and J.C. Penney at mid-tier malls has been especially challenging. The bankruptcy represents the fall of an American institution that traces its roots to Kemmerer, Wyo., where its founder, James Cash Penney Jr., invested in a dry-goods store called the Golden Rule. He soon renamed it J.C. Penney, but was devoted to the notion of the Golden Rule, particularly in how the company treated its workers, and shared its profits with staff from its early days.
But J.C. Penney’s demise was accelerated in the past decade by the involvement of William A. Ackman, the hedge fund manager, and Ron Johnson, the charismatic former retail chief at Apple, who were behind one of the most disastrous retail turnaround attempts in recent history. By the 1990s, the company was viewed as a respectable shopping destination that was more affordable than Macy’s but more upscale than discount outlets.
“It was synonymous with value,” said Stacey Widlitz, president of SW Retail Advisors, an independent research firm.
Most department store chains have been in a long period of decline, and the massive footprint of J.C. Penney at mid-tier malls has been especially challenging.
But J.C. Penney’s demise was accelerated in the past decade by the involvement of William A. Ackman, the hedge fund manager, and Ron Johnson, the former retail chief at Apple, who were behind one of the most disastrous retail turnaround attempts in recent history.
Mr. Ackman, an activist investor and chief executive of Pershing Square Capital Management, bought a major stake in J.C. Penney in 2010 and subsequently joined its board, seeing an opportunity at the retailer, which was losing ground to rivals like Kohl’s and Macy’s.Mr. Ackman, an activist investor and chief executive of Pershing Square Capital Management, bought a major stake in J.C. Penney in 2010 and subsequently joined its board, seeing an opportunity at the retailer, which was losing ground to rivals like Kohl’s and Macy’s.
He personally recruited Mr. Johnson, who joined in late 2011 and planned to transform J.C. Penney’s stores into collections of boutiques with a “town square," banish nonstop promotions and coupons, strike up partnerships with upscale designers like Nanette Lepore and more. He recruited Mr. Johnson, who joined in late 2011 and planned to transform J.C. Penney’s stores into collections of boutiques with a “town square," banish nonstop promotions and strike up partnerships with higher-end designers like Nanette Lepore.
His rosy vision — and Mr. Johnson’s frequent references to the late Apple founder Steve Jobs — inspired optimism at first. But, ultimately, Mr. Johnson’s plans, which were often put into place without any small-scale tests, alienated J.C. Penney’s core customers, led to sales and traffic declines and created internal rifts. He was ousted after 17 months in April 2013, but in one year, J.C. Penney had wiped out $4.3 billion, or 25 percent, of its annual sales. But Mr. Johnson’s efforts alienated J.C. Penney’s core customers, led to sales and traffic declines and created internal rifts. He was ousted after 17 months in April 2013. In one year, J.C. Penney had seen $4.3 billion, or 25 percent, of its annual sales wiped out.
J.C. Penney has cycled through new chief executive officers since then, but the downward trend has persisted. “It is not easy to get a customer back but it is easy to lose one,’’ said Christina Boni, senior credit officer at Moody’s Investors Service. “They made some strategic choices that in hindsight were not the best to make.”
Green Street Advisors, a real estate research firm, said in a report last month that it expected more than half of all mall-based department stores to close by the end of 2021 as the pandemic pulled forward “several years of retailer fallout.” The firm said that department stores represented about 60 percent of mall anchor space, and mall operators would be left in a lurch as they figured out what to do with large vacant boxes. J.C. Penney has cycled through chief executives since then, but the downward trend has persisted. Even with a 14-year partnership with Sephora, the cosmetics chain with shops inside hundreds of J.C. Penney locations, it has found it difficult to appeal to younger customers.
Green Street said it expected J.C. Penney to eventually liquidate, even if it emerged from bankruptcy in the short-term, saying that “a smaller store fleet is not going to solve J.C. Penney’s core issues.” “They’re not luxury, they’re not as cheap as Walmart and T.J. Maxx, they don’t have the niche stuff at specialty retailers,” said Barbara E. Kahn, a marketing professor at the University of Pennsylvania’s Wharton School. “It’s stuck in the middle with no differentiation.”
The company’s sales have steadily shrunk in recent years to $10.7 billion for the year that ended Feb. 1, when it posted a net loss of $268 million from continuing operations. At the time, it said it had 846 stores in the United States. A decade ago, J.C. Penney was still seeing declines, but its sales were $17.6 billion and it posted income of $249 million from continuing operations. Back then, it had more than 1,100 stores and 154,000 employees. The company had been making progress in recent months toward slimming down its inventory and improving its merchandise presentation, Ms. Boni said. But J.C. Penney was also struggling with a debt load more than three times that of other large mall-based retailers, giving it less financial flexibility to invest in online initiatives and other efforts to win back customers.
Still, the company had managed to avoid bankruptcy longer then another similar mall-based retailer, Sears, which filed for Chapter 11 protection in October 2018.
Since its bankruptcy, Sears has been trying to survive with a smaller footprint. But in February, the company that now owns Sears and Kmart, Transformco, closed an additional 96 stores, citing “increased competition and other factors.”
When J.C. Penney closes stores, it could have major implications for the mall landscape in the United States, which was already struggling with a widening chasm between the most popular and least-favored shopping destinations. It could leave vast and unappealing empty spaces at many malls. And it could also allow smaller retailers to leave, based on agreements that are often contingent on the presence of anchors like J.C. Penney.
“When a J.C. Penney or a Macy’s goes out, it’s like a snowball effect,” Ms. Widlitz said.
Green Street Advisors, a real estate research firm, said in a report last month that it expected more than half of all mall-based department stores to close by the end of 2021. It also said it expected J.C. Penney to eventually liquidate, even if it emerged from bankruptcy in the short term, saying that “a smaller store fleet is not going to solve J.C. Penney’s core issues.”
The company’s sales have steadily shrunk in recent years to $10.7 billion for the year that ended Feb. 1, when it posted a net loss of $268 million from continuing operations.
“J.C. Penney was already experiencing market share declines before Covid-19,” Ms. Boni said. “It would be difficult to turn around a business in this environment.”
Contact Sapna Maheshwari at sapna@nytimes.com and Michael Corkery at michael.corkery@nytimes.com.