It's All about Retail
Nov. 19th-21st,Shanghai, China

What JCPenney’s Store Closure List Says About The Company’s Future

It came as no surprise when JCPenney JCP released a store closing list on Thursday afternoon. After filing for bankruptcy on May 15, the struggling retailer announced that a sizable percentage of its stores would be shuttered.

JCPenney confirmed that 154 of its 846 department stores would soon close with individual store liquidation sales beginning shortly. The company calls this a “first step in implementing its store optimization strategy.” Additional closures will be announced in the coming weeks.

The retailer states that the closures are part of a long-range plan for the organization. “This was an extremely difficult decision and followed a careful analysis of store performance and future strategic fit for the Company,” says Dione Martin, JCPenney’s Corporate Communications Director.

Unlike other retailers that have closed or retrenched in the past, JCPenney is currently not abandoning any large metropolitan market, with the possible exception of Syracuse. Though the company is drowning in debt, the news indicates that JCPenney’s closing strategy maintains a nationwide presence with certain important markets adequately served.

That was not the case with Sears CKH Holdings. After its October 2018 bankruptcy filing, Sears Holdings randomly closed underperforming stores without any clear structured plan. Milwaukee, Cincinnati, and numerous large cities found themselves without Sears. Over the past two years, the company store count has dropped from 1000 to approximately just 100. Transformco, the current parent of Sears and Kmart, has limped through 2020 without any hope for a future.

Last October, JCPenney opened a new prototype store in Texas. It featured many shopper services and amenities from play areas to exercise classes. But COVID-19 has changed the world in recent months. Shoppers now look for value, convenience, and safety when it comes to making purchases. 

It would be possible for a tired JCPenney department store to transition to a productive distribution center. The retailer lists a “Same Day Pick Up” option for its online shoppers. “Same Day Pick Up” does not promote the sense of urgency that many customers currently seek. That wording needs to change. The structure is in place to stock merchandise for immediate delivery or distribution and could be promoted as such. With appropriate safety protocols and delivery options, JCPenney’s new role as a local distribution center could make the store more competitive and help ease shopper concerns elevated by the recent health crisis. 

Just three weeks ago, reports surfaced that Amazon AMZN was interested in all or parts of the department store firm. Sources confirmed that Amazon officials visited JCPenney’s Plano, Texas corporate headquarters. It is unclear if Amazon is interested in expanding its bricks-and-mortar footprint, acquiring the department store company in order to bolster Amazon’s apparel business, or using JCPenney’s nationwide collection of buildings largely as distribution centers. News reports on the talks have largely subsided. 

Many of the locations on the closure list are in America’s heartland, as well as less-populated towns in the south and the midwest. These smaller stores might not contribute much to the company’s bottom line but their closure will greatly affect JCPenney’s most loyal customer. Closing these stores will abandon a large segment of the customer base and the company must be prepared to accept the consequences of such a decision.

The closure list does not target a number of large JCPenney stores that are located in modestly-performing shopping malls that are well past their prime. These malls have struggled for years and many are still closed from COVID-19. Ultimately, these locations are not sustainable. Shoppers are not drawn to dying centers. But at the same time, if JCPenney wants a chance to rebuild, it cannot afford to withdraw from an entire market.

It’s going to be a long uphill road and it is still unclear if JCPenney has a future. Once the company receives approval from the U.S. Bankruptcy Court for the Southern District of Texas, JCPenney will begin going-out-of-business sales on Friday, June 12 at 154 stores in 38 states.

The first order of business for JCPenney is to survive a July 15 Bankruptcy Court appearance. On that date, lenders will determine whether the retailer’s immediate performance will keep it on a path of reorganization or force it into liquidation.

Although customers have historically resisted changes to its traditional business model, time is running out for JCPenney. It needs to survive the summer. As long as it can maintain a nationwide presence and treat its remaining centers as local showrooms and distribution centers with expedited delivery options, JCPenney could have a chance.