The company said it had agreements with most lenders regarding a settlement plan that would allow it to stay in business as a financially healthier company, but would include the closure of 846 stores that had not been announced previously. As part of the settlement process, JCPenney arranged to borrow an additional $ 450 million from lenders to pay for operations during the reorganization.
The company blamed the Covid-19 pandemic because of the need to file for bankruptcy.
“Until this pandemic strikes, we have made significant progress in rebuilding our company under the Renewal Plan strategy – and our efforts have begun to bear fruit,” said CEO Jill Soltau. “Implementing this financial restructuring plan through a court-supervised process is the best way to ensure that JCPenney will build more than 100 years of its history to serve our customers over the coming decades.”
How the mighty has fallen
The history of JCPenney began in 1902 with its first store in Kemmerer, Wyoming. It grew into one of the major national retailers, anchors many suburban shopping centers along with rivals such as Sears
Macy’s. (M.) who find themselves facing their own struggles today. JCPenney reached its peak in 1973, when it operated more than 2,000 locations throughout the country.
Today, JCPenney has 85,000 employees, making the company among the largest US retailers to file for bankruptcy in recent years. It has more stores in the US than other troubled companies like Sears,
Toys “R” Us or
Sports Authority To do
when they file.
JCPenney has been struggling under a mountain of debt and red ink for a decade. But the past 10 years have been filled with mistakes one after another, as the door swung around in executive leadership bringing him four different CEOs. Radical changes intended to revive companies – including ending coupons and selling permits in an effort to capture more high-end buyers, and introducing household appliances – proved to be a spectacular failure that was quickly canceled.
But the company also struggled with the decline in all department store sectors. More consumers shop online than directly, and JCPenney too
battered by the growth of large discount boxes like
Walmart (WMT),
Target (TGT) and
Costco (COST), which gives buyers lower prices and choices of items not found in department stores, such as food.
JCPenney’s most profitable year was 2010, and its net loss has reached $ 4.5 billion since then.
Since the summer of 2011 he has reported net income in only five quarters, all in the holiday shopping season – he cannot make money without increasing sales. Since early 2011, JCPenney has closed more than 20% of its stores while cutting more than 40% of its staff.
Despite the history of mistakes and the industry trends that oppose them, there are signs of hope recently at JCPenney before this crisis.
In November, when the new holiday shopping season was about to begin, losses shrank in the third quarter, and raised earnings forecasts, even as sales continued to fall.
“We are making significant progress in our efforts to return JCPenney to sustainable and profitable growth,” Soltau said in a statement at the time.
But that optimism proved to be short-lived, as net income dropped 64% in the fourth quarter, which included the holiday shopping season, and the company announced another round of store closures.
This is the Covid-19 company that has the most impact – and at least
The corona virus pandemic eventually bankrupt the company. Sales at department stores across the industry plummeted 47% in April, while clothing store sales plummeted 89%, according to government figures reported Friday. Like other retailers, JCPenney announced on March 18 that it closed shops and fired its employees during the crisis. Currently it can only reopen 41 stores for shoppers, less than 5% of the total.
In addition to cutting almost all of JCPenney’s income, it makes future prospects for troubled retailers far more bleak.
“The pandemic recession is … accelerating the shift of consumers towards online retailing,” said Kalinda Ukanwa, assistant professor of marketing at Marshall University of Southern California Business School.
JCPenney has a long-term debt of $ 3.6 billion in its books on February 1. Although much of the debt will not be due until next year, the company revealed on April 15 that it had missed debt payments that day. It said it was looking at strategic options available during the 30-day grace period before being assessed in the debt default. On May 7, he missed another debt payment, and this one came with only a week’s grace period. But instead of defaulting on the loan, he made the payment on May 14, giving him an extra day before deciding whether to file for bankruptcy or not.
The retail sector is problematic
Filing a company bankruptcy does not always mean that JC Penney will go out of business. Many companies use this process to reduce debts and other obligations that they are unable to do when closing operations and unprofitable locations. J.Crew and Neiman both intend to stay in business. But Stage Store said it plans to permanently close all nearly 800 of its small department stores if it cannot find buyers during the bankruptcy process.
But this is a unique time for retail bankruptcy filing. Many stores are closed due to quarantine and orders remain at home, and many potential buyers are restless wandering to open stores.
Retailers often use store closure sales to liquidate inventory and collect the money they need to fund operations during bankruptcy reorganization, said Reshmi Basu, a retail bankruptcy expert at Debtwire, which tracks the finances of troubled companies. It only makes it harder for companies to survive the bankruptcy process. Many retailers enter bankruptcy who intend to stay in business but fail to do so.
UBS analysts said on Monday that “the closure of retail stores will accelerate in the post-Covid-19 world” and that the gap between well-positioned retailers and struggling chains will develop due to the outbreak.
