Sale of JCPenney retail completed
The JCPenney department store chain is back — smaller but more solvent — just in time for the holiday sales extravaganza and the worst of the coronavirus pandemic.
The chain completed its previously announced sale of its retail operations to Simon Property Group Inc. and Brookfield Asset Management Inc., according to a statement Monday. It’s the first step in a process that splits JCPenney into two parts: an operating company led by its mall landlords and a property company owned by its lenders.
The operating company has been freed from Chapter 11 bankruptcy court supervision. The property group will need until the first half of next year to finish getting organized, JCPenney said.
“We have always been firm believers in JCPenney and are very pleased to help preserve this iconic institution and save tens of thousands of jobs,” David Simon, CEO of the self-named property company, said in the statement.
The retailer is still led by CEO Jill Soltau, who was hired in 2018 and was in the middle of crafting a turnaround plan when COVID-19 broke out this year and shut the stores. By mid-May, JCPenney was bankrupt.
But the virus wasn’t the only cause. For years, the chain had suffered from too much debt and lackluster sales as shoppers defected to specialty stores and online merchants.
“The brand still has value, and Soltau’s initiatives are on the mark to improve results,” Poonam Goyal, who follows the retail industry for Bloomberg Intelligence, said in an interview before the announcement. “Debt was its biggest issue, so if it can start with a clean slate, the retailer can find ways to reclaim itself.”
The turnaround likely includes shutting or shrinking some stores, Goyal said. Capital expenditures were cut significantly to preserve cash, but now spending needs to accelerate, especially on digital, she said via email.
Stability rather than growth may be the best Soltau can achieve, according to Jan Rogers Kniffen, a former department store executive and founder of a consulting company that bears his name.
“They’ve certainly lost a lot of market share already and will continue to shed more,” Kniffen said before the announcement. “It all makes sense, I just don’t see this changing the real fate of JCPenney as someone who is shrinking in relevance to the customer. That doesn’t mean they can’t stabilize, manage the business and operate it.”
A lot of retailershave that chance. Among the casualties that have closed for good are Stein Mart, Stage Stores, Pier 1 and Art Van Furniture.
“All the data suggests that when a retailer files for Chapter 11, it is more likely than not that the case ends in a liquidation,” Josh Sussberg, the Kirkland & Ellis bankruptcy lawyer representing JCPenney, said during a Nov. 24 court hearing. Given the pandemic shutdown and cash burning away at about $50 million per month earlier this year, Sussberg said, “Chapter 11 was not simply an option — it was the only way this company could potentially survive.”
The outcome also benefits the mall owners buying the operating company, according to Kniffen.
“They basically got a lowcost option on what they can do with all those JCPenney properties,” he said, and it’s good for the other retail tenants. “If you’re in that mall, you’re certainly better off with JCPenney operating than with a dark box.”