JCPenney's bankruptcy is the latest sign that department stores as we know them are dead

JCPenney's bankruptcy is the latest sign that department stores as we know them are dead
A sign stands next to the shuttered entrance to a JCPenney department store Sunday, May 17, 2020, near Brighton, Colorado.AP Photo/David Zalubowski
  • JCPenney filed for bankruptcy after being forced to temporarily close all of its locations in response to the coronavirus pandemic.
  • But department stores like JCPenney have faced challenges for years, with declining mall foot traffic and competition from off-price retailers.
  • JCPenney has also had significant executive turnover and a series of missteps.
  • Visit Business Insider's homepage for more stories.

JCPenney filed for Chapter 11 bankruptcy protection on May 15, the latest retailer to succumb to pressures created by the coronavirus pandemic.

In its bankruptcy filing, the 118-year-old department store specifically mentioned temporary store closures and other pandemic-related business disruptions as ultimately making Chapter 11 necessary.

"Having endured and played a vital role in America's recovery during some of its most difficult periods, including the Great Depression and World War II, JCPenney now finds itself facing another monumental challenge to its business: emerging from the disruption caused by the novel Coronavirus pandemic ('COVID-19')," the company wrote.

JCPenney was forced to temporarily close all of its more than 800 stores in response to the pandemic. It began to reopen certain locations with restrictions at the beginning of May.

But JCPenney and its department store peers faced challenges even before the pandemic hit.


"JC Penney was already facing an existential threat to its business due to the precipitous decline of the US department stores channel as a whole," Bob Hoyler, senior research analyst at Euromonitor International, said in an emailed statement.

Hoyler added that department stores have faced stiff competition from off-price retailers like TJ Maxx and big-box stores like Target and Walmart. These retailers are typically able to beat department stores when it comes to price and convenience.

Some department stores, like Macy's and Nordstrom, have expanded their own off-price store models in response. Nordstrom, for example, now has more off-price Nordstrom Rack stores than it does full-line department stores.

JCPenney's bankruptcy is the latest sign that department stores as we know them are dead
A Nordstrom Rack store in New York in 2019.Shoshy Ciment/Business Insider

Death of the American mall

Another major stumbling block for department stores hoping to improve their business is the decline of foot traffic to American malls.


JCPenney alluded to malls' struggles while outlining its reasons for restructuring.

"The majority of the Company's locations are in shopping malls, which have seen an even steeper decline in traffic than other brick-and-mortar locations," JCPenney said in its bankruptcy filings. "This contributed to the Company's falling short of its sales targets and depressed profitability performance and a need for change."

Malls' and department stores' struggles go hand in hand. A major part of the turnaround plan that Macy's unveiled in February was closing stores in underperforming malls. JCPenney and peers, including Macy's, Nordstrom, and Sears have closed dozens of stores in recent years.

JCPenney said in a filing with the Securities and Exchange Commission on Monday that it plans to close about 240 stores, or 30% of its store base, as part of its restructuring process.

"One of the most immediate priorities is the closure of underperforming and bad space. JC Penney is exposed to a high number of weak malls and locations and it needs to quickly cut its losses," Neil Saunders, managing director of GlobalData Retail, said in an emailed statement.


A mess of its own making

JCPenney is not alone in its struggles during the coronavirus pandemic.

Neiman Marcus filed for bankruptcy earlier in May, citing "inexorable" pressure from the pandemic. Macy's has looked to raise billions in debt in order to avoid a bankruptcy filing, CNBC reported in April.

But it's undeniable that JCPenney made a series of missteps that contributed to its struggles in recent years. The company noted in its bankruptcy filing that by May 2018, it had had four different CEOs in seven years. At times, industry observers have criticized the retailer for trying to appeal to too many different audiences at once and thus losing sight of its core customer. It also made an expensive foray into selling appliances, which it later abandoned.

"The four separate management teams each came with a different business plan and execution strategy. The regular transition periods disrupted efforts to pursue any of these plans and effectuate a cohesive, long-term strategy," the company said in its filing.

JCPenney has about $4 billion in debt. It reported that comparable sales decreased by 7.7% for the fiscal year ending February 1.


But, the company appears confident about the plan under current CEO Jill Soltau to improve its merchandise assortment, reduce inventory, change the look of stores, and ultimately bring customers back. In November, JCPenney opened a concept store with experiential elements like fitness classes, personal styling, and a barbershop.

"We have a newly refreshed, highly experienced team of retail executives who remain focused on rebuilding our business and restoring financial strength to JCPenney," Soltau said in a statement about the bankruptcy. "This team has continued to innovate even during these challenging times, implementing substantial improvements to our flagship eCommerce platform to increase efficiency and ensure our loyal customers continue to have access to the products they need through elevated shopping experiences."

Analysts warn that making it through bankruptcy will require a significant amount of work.

"JC Penney needs a complete overhaul in terms of its assortments, store designs, ways of marketing and connecting with shoppers, and its brand image," Saunders said. "In normal times, that process of reinvention would be challenging; accomplishing it in the midst and aftermath of a pandemic is more than a tall order."

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