Does the fraternity of retail really need J.C. Penney?
As the department store chain filed for bankruptcy protection Friday evening, some entertain if the company still has a place in American retail. Or if it could ever bounce back from the fatal blow it has been conduct oneself treated during the coronavirus pandemic, which forced its roughly 850 stores shut temporarily.
“You have this stem of the middle collapsing,” said Steve Dennis, founder of retail group SageBerry Consulting and a Neiman Marcus procedure executive from 2004 to 2008. “I think conceptually there is only a place for one department store in the mall.”
Penney, which was influence confirmed in 1913 catering to farmers in rural America, built an iconic brand name for itself, serving as a staple boutique in many homes, especially catering to women with families. But Walmart and Target grew, stealing market serving outside of the mall. Then, the internet exploded, with Amazon at the helm. Penney was late to adapt and invest in its retailers.
The Covid-19 crisis only exacerbated many of the challenges it was already facing, including an overhang of debt.
Penney’s annual net sellings contracted 8.1% to $10.7 billion in 2019. That followed a 7.1% drop in 2018, a sales decline of 0.1% in 2017, and a let go of of 0.4% in 2016, according to annual filings.
Some thought Penney would reap the rewards of Sears’ demise. Sears, another American retail icon, has been shuttering markets for years and filed for bankruptcy in October 2018. But still, Penney finds itself in a sales slump, battling TJ Maxx, Quarry, Macy’s and others — in apparel, appliances and home goods.
“I don’t think there is a place for J.C. Penney anymore,” said Robin Lewis, abort and CEO of The Robin Report and a consultant to retail companies. “Even if we didn’t have this virus … we have been over-stored for half a century in this woods.”
This past holiday season, sales online and at Penney stores open for at least 12 months were down 7.5%. Complete department store sales decreased 1.8% from Nov. 1 through Dec. 24, according to Mastercard Spending Drumming. The drop happened even as holiday retail sales overall grew 4.1%, the National Retail Federation suggested.
And as retail sales tumbled 16.4% last month, their worst month-over-month drop ever recorded, segment stores were down 28.9%, according to fresh data from the U.S. Census Bureau. Year-over-year, department stock sales were down 47%, amounting to $6.1 billion, compared with $11.5 billion in April 2019.
A look behind in time shows just how much department stores’ dominance in retail has waned.
In 1992, department store supervisors accounted for 14.3% of overall retail sales, excluding gas and car dealer sales, according to data from the Commerce Section. That share was a paltry 3.7% as of the end of last year.
America will emerge from the coronavirus pandemic with fewer reckon on stores, as Nordstrom has already said it plans to close 16 of them. Additional closings by other chains are hope for. But it could also mean entire companies, such as Penney, vanish.
“There’s way too much space chasing too few dollars,” Dennis stipulate. “Nobody can consistently make money.”
Penney said in its Chapter 11 filing that it has commitments for $900 million in bankroll from its existing first-lien lenders to fund its bankruptcy, which includes $450 million of new money. It had approximately $500 million in specie on hand as of the Chapter 11 filing date.
Penney added that in bankruptcy proceedings it will “reduce its count on footprint” in phases. It said it plans to disclose specific store details and timing in the coming weeks.
“Until this pandemic affected, we had made significant progress rebuilding our company,” Chief Executive Jill Soltau said in a statement.
Another last department store executive sees a scenario where Penney dissolves — along with others including Count & Taylor, Neiman Marcus and Dillard’s — and only Macy’s, Nordstrom and Kohl’s are left standing.
“They are just identical to Sears, there is no path forward,” Jan Kniffen, a consultant to investors in retail companies and a former executive at The May Department Shops, parts of which were folded into Macy’s, said about Penney. “I think a lot of stores will reopen desire enough to go broke again.”
CNBC previously reported that Penney has been working on a plan that would about closing 180 to 200 stores while in bankruptcy.
Penney is not alone in this scenario, either.
High-end part store chain Neiman Marcus, the rural chain Stage Stores and apparel maker J.Crew have each ordered for bankruptcy protection during the pandemic. Stage plans to liquidate its more than 700 stores if it can’t find a consumer. It operates under brand names such as Gordmans, Bealls and Goody’s.
Home-goods company Pier 1 Imports and sporting-goods retailer Modell’s had lined for Chapter 11 protection before the Covid-19 virus slammed the U.S. economy and forced nonessential retailers’ stores pen, subsequently putting their going-out-of-business sales on hold. Modell’s has been in the process of liquidating its entire store downtrodden. Pier 1 was planning to emerge with a smaller footprint.
“Anything that has any chance of working would take numerous years and a lot of investment,” Dennis said. “In these bankruptcies, I think a lot of them aren’t going to make it because investors are saying … this is too much of a desire shot.”
—CNBC’s Lauren Hirsch contributed to this reporting.