Retail Trifecta: JCPenney, Neiman’s & J.Crew All Ready To Restart

As three of the industry’s most iconic — and beleaguered — operations are expected to come out of bankruptcy at about the same time over the next few weeks, the retail landscape will be awash with reclamation projects.

JCPenney and Neiman Marcus will soon join J.Crew in returning from chapter 11, depending on the whims and maneuvering of the legal powers-that-be, with new owners, fewer stores and better balance sheets. Whether any or all of them will have better prospects for success remains to be seen.

Each of the three national retailers was having a tough time before Covid but the pandemic pushed them all over the edge and into chapter 11. All three retailers were forced to close their entire physical store operations for much of the spring and while each has e-commerce businesses of varying scales it wasn’t enough to keep them afloat.

So to the courts they went and each is emerging with most of their enormous debt loads disappearing, the magic of bankruptcy proceedings turning it into equity. Each gets new owners but it appears that all three will return to the marketplace with essentially the same management in place.

In fairness, these managers are not necessarily to blame for all of this. They largely inherited operations besieged with debt from private equity buyouts and/or decisions made by prior managers that proved to be financially crippling. Again, these managers just happened to be in the wrong place at the wrong time.

Now they find themselves in a new place…but one that in a critical aspect remains remarkably the same. Each of these retailers has a much better financial position, they jettisoned any number of bad retail estate locations and they have new owners who will want to get their money out of these deals with some profitable years.

What none of them has, however, is a retail reason to exist. While they can all blame vile viruses, evil overlords and demons from their pasts, all three retailers remain businesses in search of a viable place in the shopping pantheon.

Neiman’s may be in the best position of the three. With a finely honed number of stores and a sector — luxury — that usually holds up better whatever the economic conditions, they should have the best odds of survival. They are pursuing a potentially risky strategy in largely abandoning their off-price division but in their favor is limited competition in the better department store segment (essentially Bloomingdale’s, Saks and some overlap with Nordstrom) and an e-commerce operation that is better than some people realize when you factor in the Horchow brand. They will need to ramp up that online business however and continue to stay out of the promotional wars where they are ill-equipped to compete. But you have to bet Neiman Marcus the odds-on favorite of this trio to make it.

J.Crew is much better suited to the e-commerce side of retailing with a fairly robust business there, a legacy from its original catalog origins. It too has a good brand name and a customer base it has worked generations to cater to. But it must decide what it wants to be when it grows up: a fashion house where shoppers turn to for the latest looks every season or an evergreen perennial selling the best basics it can find. Either way there are risks. The former runs the danger of deadly markdowns every few months and a keen eye to get it right more often than not. Plus it will find itself in competition with the fast fashion ilk who are much better at being, by definition, faster and more fashionable. If it chooses the latter it must be content with the classics, be they dresses, suits or t-shirts. It’s safer but with less of a potential pay-off and not nearly as dependable as it once was. The days of khakis and pocket T’s are long gone and this is an operation that never really embraced the entire athleisure movement of the past decade. J.Crew’s long-term viability remains a work in progress with too many questions and you’d have to say it’s 50-50 on them making it.

For JCPenney, there is only one question: can they capture enough dollars out of the ever-diminishing mid-market? With Kohl’s and Macy’s coming at it dead-on and all manner of other retailers attacking from above and below, Penney’s window of opportunity is slim at best. It will need to combine the elements of its recent Ullman/Soltau positioning of appealing to its existing loyal customer base with Ron Johnson’s ill-fated attempt to attract new shoppers. It’s a tricky proposition but it’s the only way Penney makes it, as going one way or the other won’t provide the scale a 600-store chain needs to prosper. Given that equation the odds are the longest against its success but this is a brand that has stolen victory from the jaws of defeat more than once…including this month in bankruptcy court. Still you’d have call it a long-shot.

This year will be known as the great retail graveyard and many other nameplates, from Pier 1 to Stage Stores to Stein Mart, will not live to see the new year. Neiman Marcus, JCPenney and J.Crew will.

How many new years after that, however, is for the brave betters of retailing to decide.