A Penney Saved Is A Penney Gained

In the end, the idea of JCPenney being owned by its creditors and continuing as an independent entity not controlled by mall developers or private equity may not be the worst case scenario.

Granted, there is no best case scenario for this oh-so-troubled retailer that has had more than its fair share of pain inflicted upon it — self-inflicted and otherwise — but the news this week that it may end up in the hands of the people it owes money to could turn out to be a much better solution than some of the others that have been in play.

Those include proposals from two mall real estate operators — Simon and Brookfield — that see Penney’s ongoing existence as being beneficial to their rent rolls. Whether this is the best use of their disposable dollars — or the best way for the retailer to continue in business — is another question but these guys have an obvious vested interest to keep their properties occupied.

The other suiter is the private equity owner of Belk, Sycamore Partners, which came up with the cockamamie plan to merge the two retailers…but not under the nationally better known Penney name, instead using the Belk nameplate. Sycamore has not won any Retailer of the Year awards for the way it has run Belk since buying it a few years ago and there’s nothing to suggest a Belk-JCP mash-up would be any more successful. Private equity’s track record running retailers has been dismal, to be generous.

A few other buyers were rumored to be snooping around Plano, including Amazon and Hudson’s Bay Co. Thankfully none of them have proved to be in it to win it.

Now it appears the serious bidders are not moving in for the kill, apparently their offers are not what the bankruptcy court wants to see. Which is why the company’s creditors are now working to put together a plan that may separate the stores from the real estate, a ploy that other retailers have looked at as a way to generate cash. Tellingly enough, most retailers have rejected the separation as not being in the company’s best long-term interests. That is, unless they were really desperate.

Penney is really desperate. If this deal doesn’t go through and the other parties don’t come back with enhanced offers it’s pretty likely the company will be liquidated. Retailers have been going bankrupt for eons but what’s different today is that more of them are being liquidated and not getting the chance to try it one more time.

Penney should be given the chance to, indeed, try it one more time. Many of its troubles are the result of very bad decisions made by very bad managers and owners over the past 15 years. Its current management — which may or may not be the ones still standing under new owners — has done a number of positive things in the last two years, albeit at a slower pace that lacked the sense of urgency many would have liked to have seen.

But Penney’s test store in Hurst, TX just outside of Dallas, is one of the best answers to what a modern department store should be and with some relief on its balance sheet it could roll out this format to a large number of its remaining stores. That store count, by the way, will be down when it comes out of bankruptcy, removing some dead weight that has to help as well.

Combine that with the voids in the marketplace caused by all the retail liquidations so far this year, the renewed interest in the suburbs created by pandemic-induced urban flight and the company’s still ever-enduring (if declining) loyal customer base and a case can be made that there is a way for Penney to survive and even prosper.

But its best chance to give this a shot is likely to be as an independent company, unencumbered by owners with very different agendas. It may still all come tumbling down and crash and burn in the end, but Penney should get one more flip of the coin.