The company said it has an agreement with most of its lenders on the turnaround plan that will allow it to remain in business as a financially healthier company, but will include the closure of an unannounced number of its 846 stores. As part of the turnaround process, JCPenney arranged an additional $ 450 million loan from those lenders to pay for operations during the reorganization.
The company blamed the Covid-19 pandemic for filing for bankruptcy.
“Until this pandemic occurred, we made significant progress in rebuilding our company as part of our renewal plan strategy – and our efforts had already begun to pay off,” said CEO Jill Soltau. “Implementing this financial restructuring plan through a court-controlled process is the best way to ensure that JCPenney will build on its history of over 100 years to serve our customers for decades to come.”
How the mighty have fallen
JCPenney’s story begins in 1902 with its first store in Kemmerer, Wyoming. It has grown to become a major national retailer, an anchor of many suburban malls along with rivals such as Sears and Macy, (M)
who are facing their own struggles today. JCPenney reached its maximum number of stores in 1973, when it operated just over 2,000 locations nationwide.
Today, JCPenney has 85,000 employees, making the company one of the largest US retailers in bankruptcy in recent years. It has more stores in the U.S. than other troubled companies like Sears, Toys “R” Us
or Sports authority
when they filed.
JCPenney has fought under a mountain of debt and red ink for a decade. But the past 10 years have been filled with one mistake after another, as a revolving door in executive leadership has led to four different CEOs. The radical changes intended to revive the company – including final coupons and clearance sales in an attempt to capture more sophisticated buyers and the introduction of home appliances – have proved spectacular bankruptcies that have been quickly reversed.
But the company was also struggling with the decline of the entire department store sector. More and more consumers are shopping online instead of in person, and JCPenney too
hit by the growth of large discount stores like Walmart (WMT)
, Target (TGT)
is Costco (COST)
, which offer buyers lower prices and a selection of items not found in department stores, such as shopping.
JCPenney’s last profitable year was 2010 and since then its net losses have been $ 4.5 billion.
Since the summer of 2011 he has recorded net profits in just five quarters, all in the Christmas shopping season – he hasn’t been able to make money without that increase in sales. Since early 2011, JCPenney has closed over 20% of its stores by cutting over 40% of its staff.
Despite the history of errors and industry trends moving against it, there had been recent signs of hope in JCPenney before this crisis.
In November, as the Christmas shopping season was about to begin, its losses eased in the third quarter and increased earnings forecasts, although its sales continued to decline.
“We have made significant progress in our efforts to bring JCPenney back to sustainable and profitable growth,” Soltau said in a statement at the time.
But that optimism turned out to be short-lived, as net profit plunged 64% in its fourth quarter, which included the Christmas shopping season, and the company announced another round of store closings.
These are the companies that Covid-19 is influencing more – and less
The coronavirus pandemic eventually precipitated the company. Sales in the sector’s department stores plummeted 47% in April, while clothing store sales plummeted 89%, according to government data reported on Friday. Like other retailers, JCPenney announced it on March 18 he was closing stores and firing his employees during the crisis. Only recently has it been able to reopen 41 stores to buyers, less than 5% of the total.
In addition to cutting virtually all of JCPenney’s revenue, it has made the prospects for the long-troubled dealer much more somber.
“The pandemic recession is … accelerating consumers’ transition to online retailing,” said Kalinda Ukanwa, assistant professor of marketing at the Marshall School of Business at the University of Southern California.
JCPenney had $ 3.6 billion of long-term debt in its portfolio since February 1. Although much of that debt isn’t due until next year, the company announced on April 15 that it had lost a debt payment because of that day. He said he was examining the policy options that were available during a 30-day grace period before he was found to default on that debt. Another debt payment was missed on May 7, and this came with a grace period of one week. But rather than defaulting on that loan, he made that payment on May 14, giving it an extra day before deciding whether to file for bankruptcy.
A troubled retail sector
Filing for bankruptcy does not necessarily mean that JC Penney will go out of business. Many companies use the process to eliminate debt and other liabilities they cannot afford while closing unprofitable transactions and positions. J.Crew and Neiman both intend to stay in business. But Stage Stores has said it plans to permanently close all of its nearly 800 small department stores if it cannot find a buyer during the bankruptcy process.
But this is a unique time for a retail bankruptcy. Many stores have closed due to quarantine and house orders, and many potential buyers are nervous about venturing into open shops.
Resellers often use store closing sales to liquidate inventory and raise funds they need to finance operations during a bankruptcy reorganization, said Reshmi Basu, a retail bankruptcy expert at Debtwire, who tracks the finances of companies in difficulty. This makes it even more difficult for a company to survive the bankruptcy process. Many retailers went bankrupt with the intention of staying in business but failed.
UBS analysts said Monday that “retail store closings will accelerate in a post-Covid-19 world” and that the gap between well-positioned retailers and troubled chains will widen as a result of the outbreak.