Sephora could end its deal with J.C. Penney
Sephora is threatening to pull out of J.C. Penney stores and end the contract it has had with the department store retailer since 2009.
The Plano-based retailer has filed a lawsuit in state court seeking a temporary injunction.
Most of Penney’s stores haven’t reopened since they closed temporarily in mid-March because of stay-at-home rules. Sephora has threatened not to reopen its more than 600 Sephora shops inside Penney stores unless Penney agrees to shorten the contract term.
It would be a huge blow to Penney if Sephora exits its stores just as it’s trying to restructure its debt and was already in a difficult turnaround before the coronavirus shutdown shopping centers. The relationship started in 2006 with the first Sephora store inside a Penney store at Alliance Town Center in Fort Worth. The current contract has been in effect since 2009 and Sephora wants to end it in April 2021, according to the lawsuit.
“Sephora has no right to demand an early exit from the parties’ contract, and termination by Sephora tomorrow would cause immediate and irreparable harm to JCP, which depends on Sephora as its only beauty partner and could not obtain a new beauty partner without reasonable lead time,” Penney said in the lawsuit filed Monday in Collin County District Court.
“Terminating a key contract that JCP has depended on for over a decade, while JCP intends to reopen nine stores this week, would cause irreparable harm,” Penney said.
“Sephora knows this, and its threats to terminate the agreement immediately are transparent efforts to gain negotiating leverage where Sephora has none,” Penney said.
Sephora, which has said it plans to reopen its own stores in the U.S. until at least May 22, confirmed that it’s been in “active discussions” with Penney regarding the agreement for some time.
“Although this is a sudden and unfortunate development, we are hopeful of continuing discussions and reaching an amicable agreement for both Sephora and J.C. Penney,” Sephora said in a statement.
Penney said several disagreements emerged between the two retailers during the pandemic including whether Sephora employees should have been furloughed along with other store employees. Penney continued to pay health benefits for employees who filed for unemployment benefits.
Sephora also demanded that Penney use a specific, electrostatic spray for hard surfaces within the Sephora shops. Penney said that it wasn’t part of its agreement or recommended by the Centers for Disease Control and Prevention.
Instead of working through the contract that includes arbitration, Sephora is trying to “end-run the process by unilaterally ending the parties’ 16-year relationship in the middle of a pandemic,” Penney said.
It was a big coup for Penney to partner with the European beauty chain. It had a built-in connection through former J.C. Penney chairman and chief executive Mike Ullman, who had headed Paris-based LVMH Moet Hennessy Louis Vuitton when it first opened Sephora stores in the U.S. in 1998.