J. C. Penney closings are first step in bankruptcy

Struggling retailer also hit hard by pandemic

With 846 stores and 85,000 employees, J. C. Penney could be the largest symbol of what COVID- 19 may mean for retailers already struggling for survival.

The department store chain filed for bankruptcy Friday and is asking a federal judge to authorize the rejection of 20 leases in the opening salvo of the company’s Chapter 11 bankruptcy. The company said it plans to “accelerate” permanent store closings as part of its bankruptcy but declined to provide details on which locations it plans to shutter.

The move sets in motion the process of beginning permanent store closings as the retailer aims to stabilize its finances and avoid outright liquidation – a fate that chains such as Papyrus, Modell’s Sporting Goods and Art Van Furniture haven’t been able to avoid.

J. C. Penney proposed a restructuring plan that would shed billions of dollars in debt and allow the company to emerge from bankruptcy as a financially sustainable company.

But U. S. Bankruptcy Judge David Jones told J. C. Penney attorneys in a rare Saturday hearing that he has “concerns” that the company is not moving “fast enough.”

“It is kind of hard when people are prohibited from coming into your store and you can’t turn the lights on.” U. S. Bankruptcy Judge David Jones

“I do think there is a genuine hope that the turnaround efforts will proceed, but it is kind of hard when people are prohibited from coming into your store and you can’t turn the lights on,” Jones said.

Although the coronavirus came suddenly, J. C. Penney’s troubles are far from new. And the company is not alone as shoppers’ habits and tastes have changed and more consumers turn to online commerce. Fashion chain J. Crew Group and luxury department store retailer Neiman Marcus Group filed for Chapter 11 bankruptcy protection earlier this month as they faced mounting losses with their stores temporarily closed.

U. S. retailers have announced more than 2,000 permanent closures this year, most of which were made public before the pandemic began, according to retail analytics firm Coresight Research, a global advisory and research firm.

While J. C. Penney hopes to survive

bankruptcy by separating into a real estate investment trust and an operating company, analysts say the retailer is facing a serious risk of outright liquidation.

“We believe this process will give us the financial strength to weather the pandemic and evolve our business while also reducing our debt and increasing our flexibility to better position JCPenney for the future,” CEO Jill Soltau said in a letter to customers. “This will allow us to better serve you, our valued customer.”

J. C. Penney filed a motion late Friday in the U. S. Bankruptcy Court for the Southern District of Texas Corpus Christi Division requesting permission to shed leases for 14 department stores, three home furnishings locations, two auto centers and one stockroom.

The company said in a court filing that it had “already vacated the premises associated with all but one” of the leases it proposed to reject.

J. C. Penney spokesperson Brooke Buchanan declined to provide details.

Sucharita Kodali, a retail analyst at Forrester, believes COVID- 19 has accelerated the inevitable for J. C. Penney and the other retailers who have recently filed for bankruptcy.

“I think these are weak retailers that have been challenged for a long time, and we’re going to see many more bankruptcies,” she said, adding some retailers might have been able to hang on another year or two before filing if not for the pandemic.

The retailer had 846 stores as of Friday, including 387 that it owns, Chief Financial Officer Bill Wafford said in a court filing. Of those, 110 are operating on ground leases.

With nearly 85,000 employees, most of whom are furloughed, and a supply chain of almost 3,000 vendors, J. C. Penney remains a significant operation despite its struggles.

The company has gone from a small dry- goods store in Kemmerer, Wyoming, to a fixture in the shopping experience of the American middle class to the latest victim of the digital revolution.

Founded in Wyoming in 1902 by James Cash Penney with $ 500 in savings and a $ 1,500 promissory note from his local bank, J. C. Penney was first known by the name Golden Rule.

The company had 175 stores by 1917, 500 by 1924 and 1,000 by 1929, according to a court filing.

J. C. Penney went public in 1929 less than a week before the stock market crashed, marking the beginning of the Great Depression.