In a dramatic twist, retail giant JCPenney filed for bankruptcy on a Friday, joining a growing list of casualties amid the coronavirus crisis. In many ways, the pandemic acted as the final blow to a 118-year-old company grappling with a decade of poor decisions, leadership instability, and unfavorable market dynamics.
In this article, we delve into the story of JCPenney’s decline, the impact of the pandemic, and what lies ahead.
The Historic Rise and Fall
JCPenney’s story began in 1902 when it opened its first store in Kemmerer, Wyoming. Over the years, it became a cornerstone of suburban shopping malls alongside competitors like Sears and Macy’s. At its zenith in 1973, JCPenney boasted over 2,000 locations nationwide.
Fast forward to today and JCPenney stands with 846 stores and 85,000 employees. Its journey from a thriving retail giant to bankruptcy is a testament to the relentless changes in the industry. JCPenney’s financial woes span a decade, marked by a revolving door of four CEOs and a series of strategic missteps.
Decade of Missteps
The past decade saw a series of miscalculations that further compounded JCPenney’s struggles. An attempt to capture upscale shoppers by eliminating coupons and clearance sales backfired spectacularly.
Likewise, the foray into household appliances proved to be a costly mistake. In addition to these internal blunders, JCPenney faced fierce competition from big-box discounters like Walmart, Target, and Costco. These retail giants offered lower prices and a broader range of products, making it challenging for JCPenney to retain its customer base.
JCPenney’s last profitable year dates back to 2010, with net losses totaling a staggering $4.5 billion since then. Between 2011 and 2023, the company shuttered over 20% of its stores and cut over 40% of its staff.
A Glimmer of Hope Before the Storm
Despite a history of mistakes and an industry unforgivingly shifting towards e-commerce, JCPenney displayed signs of resilience before the pandemic struck. As the holiday season loomed in November, the company reported reduced losses in the third quarter and raised its profit forecast. However, optimism proved short-lived, with a 64% drop in net income during the critical holiday season.
The Pandemic’s Final Blow
The coronavirus pandemic struck a devastating blow to JCPenney, pushing it over the edge into bankruptcy. According to government figures, department store sales plummeted by 47%, while clothing store sales nosedived by a staggering 89% in April.
As the crisis unfolded, JCPenney announced store closures and employee layoffs. Even after partially reopening 41 stores, accounting for less than 5% of its total, the company’s outlook remained bleak. The pandemic has accelerated the shift towards online retail, which was already underway but gained unprecedented momentum in these trying times.
Kalinda Ukanwa, an assistant professor of marketing at the University of Southern California’s Marshall School of Business, succinctly captures the situation: “The pandemic recession is accelerating consumers’ shift towards online retail.”
Debt and Bankruptcy
JCPenney was burdened with $3.6 billion in long-term debt as of February 1, 2023. Although much of this debt wasn’t due until the following year, the company missed a crucial payment in April, signaling financial distress. Another missed payment followed this in May. The company’s choices were dwindling, and it chose the path of bankruptcy to navigate its way out of this dire financial situation.
What Does the Future Hold?
JCPenney’s bankruptcy filing doesn’t necessarily signify the end of the road. Many companies use this process to shed debt, restructure operations, and close unprofitable locations while aiming to continue in business. For instance, J.Crew and Neiman Marcus intend to continue their operations despite their bankruptcy filings.
However, the timing of JCPenney’s bankruptcy is unique. The pandemic has forced store closures due to quarantines and stay-at-home orders, and many consumers remain apprehensive about visiting open stores. Store closure sales, commonly used by retailers to raise cash during bankruptcy reorganizations, have become even more challenging.