The Final Countdown Of JCPenney

There are only 5 (Five) days left before JCPenney (JCP) will have to declare bankruptcy. Will the company come up with a buyer – or at least an answer – that would avoid this drastic action? The livelihood of 85,000 associates are at stake, yet I believe that management can still solve the dilemma.   

As I count the hours that are left for management to solve the urgent problem of paying the interest on the loan to satisfy this year’s requirement, I reflect on the reasons why I still hope and pray that the company will survive.

Management. I have full confidence in feisty, CEO Jill Soltau, who took the job two years ago and has worked tirelessly to initiated a recovery plan. I also think that Ronald Tysoe, the company’s non-executive chairman is very valuable.  He one of the few brilliant financial men whom I admire in the retail industry. Both Soltau (53) and Tysoe (66) should be pillars in the restructuring of the company.

Loyalty. The company has loyal customers that continue to buy the multi-million-dollar brands with trust. The names from Arizona, Liz Claiborne, Worthington, St. John’s Bay and many other brands have been well accepted. They are the backbone of the company.

Home Fashion. In the past home fashion accounted for 24% of total sales. The company displays this merchandise in a way that you can envision it in your home, with strong color coordination that matched beautifully. This is another area where JCPenney can thrive.

Apparel.  The retail industry has had weak apparel sales – JCPenney is no exception. However, its accessories to fashion -handbags, jewelry and shoes have shown strength in many JCPenney stores. They have created traffic in stores as shoppers looked for new offerings.  

JCPenney has a distinguished history. I have followed the company since 1972. I admire JCPenny for its ability to beautifully display colors in its home department, develop partnerships with Sephora and show leadership in budget price fashions. JCPenny has developed a strong loyal customer base that wants to continue to shop at their local store.

In this pandemic crisis the company tried to fill internet orders as quickly as possible. Some locations offer curbside pick-up, all of them will deliver to the home.

Some stores will have to be closed. There are too many in Texas and while the Yellow Front stores – tiny mid-western stores, are marginally profitable, they are not promising growth and incremental profitability.

In my blog of May 8, 2020, I suggested that JC Penney
JCP
can stay out of bankruptcy if aided by mall owners. I pointed out that mall covenants with smaller tenants promise two anchor stores in their leases. It is unlikely that mall owners want to renegotiate these leases because of the absence of a major anchor store like JCPenney.

JCPenney was given only 30 days by the New York Stock exchange to find a solution – in other words, pay the $300 Million interest that was due on April 15 on loans due in 2022. So, May 15 is the last day to resolve the matter. On February 19, 2020 Authentic Brands Group (ABG), Simon Property Group
SPG
(Simon) and Brookfield Property Partners (Brookfield), jointly announced the acquisition of Forever 21, a fashion retailer. It is a brand that is in many malls and the stores throughout the United States and overseas. Headquartered in Los Angeles, the company focuses on Gen Z audiences. The acquisition saved that company.

The partnership in this case was 37.5% ABG, 37.5% Simon and 25% Brookfield.

The clock is ticking.

I hope there will be a strong effort to keep the company intact. It may require the closing of some stores in unpromising locations. Maybe Amazon
AMZN
, Simon and Brookfield can take a look at JCPenney and come to an agreement in principle in time. However, it will be a major step to preserve the mall structure. Otherwise there might be a domino effect that will close more malls that are viable. Management of JCPenney is said to be in talks for possible bankruptcy filing. The loss of JCPenney would be a sad moment for this company and the retail industry.

MORE FROM FORBESHow Will Other Retailers Act After Nordstrom Boldly Closes 16 Stores?

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