Weighed down by nearly $4 billion in long term debt and threatened by
sliding sales.
J.C. Penney is fighting for its life.
As of April 1st, 2020 shares were trading well below $1 and the stock had
been long in danger of being delisted by the NYSE.
In fiscal year 2019, it posted losses of $48 million in the second quarter
and $93 million in the third before posting a gain of $27 million in the
fourth. But it's not out of the woods, sales are continuing to decline and
it's losing money on an annual basis.
In the fiscal 2019 year, which ended in late February 2020 total revenues
fell 7.1 percent and same store sales fell 7.7 percent since the 2017
holiday season. It has not seen one quarter of sales growth year over
year. Its future is in the hands of new CEO Jill Soltau, who took the
reins in October 2018.
She wants to bring the company back to its origins, focusing on customer
service, apparel and low prices.
She's trying new things like in-store classes on how to set a dining table
or pick the right window treatments.
They're also refreshing dressing rooms and making sure that in-store
displays are eye-catching.
But Soltau is confronted with numerous challenges shoppers simply don't go
to shopping malls as frequently as they once did, and when they do, they
aren't buying as much clothing as they did in the past.
The retailers already precarious position has been made even worse by the
coronavirus pandemic on March 18th, the company announced temporary
closures of its stores, which will cause it to miss out on sales while its
expenses to operate stores continue straining its finances even more.
It's also furloughed many of its 85 thousand employees and on April 1st,
2020. Fitch spelled out a doomsday scenario for the retailer.
The credit ratings agency said that without additional financing and if
its cash flow continues to weaken as much as it anticipates it will.
J.C. Penney could face default in the next 12 months.
With so much uncertainty.
J.C. Penney withdrew its financial forecast.
Other department stores that sought turnarounds, Sears, Bon-Ton crumbled
under the weight of their debt and the loss of trust from their vendors
before they had a chance to rehabilitate their image.
Both filed for bankruptcy in 2018, part of the carnage that has swept over
the retail industry as shoppers abandon the mall and Amazon grabs more
market share. Soltau has plans to turnaround the company, but she doesn't
have much time to prove those plans will work.
James Cash Penny, the son of a Baptist preacher, grew up poor on a farm in
Missouri. He was a religious man who believed in the value of the golden
rule. Treat others as you would like to be treated.
He founded his first store in 1902 in Kemmerer, Wyoming.
The store reflected James Penney's moral values.
It was cash only holding a policy.
J.C. Penney would keep until 1958.
Extending credit to shoppers can boost sales, but hurt the shopper by
loading them with debt.
Mr. Penney also refused to hire anyone who gambled, drank or used tobacco.
But he didn't offer credit.
And in the best of my understanding, he didn't offer credit because he'd
seen merchants done in before by offering credit and then having people
fail to to pay.
So he felt like if he treated people fairly and honorably and offered
quality goods at a fair price, that that there should be an exchange.
And people should pay him.
And he felt that that was how he would stay in business within the
business's first decade.
Penney expanded the chain to 34 stores.
In 1913, James Penney changed the name of his stores to J.C.
Penney Company, largely located in rural areas.
J.C. Penney stores gave farmers and others their first depot that offered
essentials at affordable prices.
Buoyed by the efficiencies that scale gave it, J.C.
Penney's growth accelerated from 1920 to 1928.
It grew its store base from two hundred ninety seven to one thousand as it
looked to gain ground against rivals Sears and Montgomery Ward.
A year later, J.C.
Penney went public just a week before the market crash of 1929.
It's cheap prices provided a salvage for shoppers during the Great
Depression. Equity from the IPO helped to fuel its further growth.
By 1951, J.C.
Penney was a retail giant that reached $1 billion in sales.
In 1963, executives at J.C.
Penney decided it should no longer be simply a country store in Main
Street USA. It should be a full fledged department store with broader
selection, fashionable clothes and higher priced goods.
The decision came in part out of weakness.
J.C. Penney would never catch up to Sears and appliances.
Sears was a retail hedgeman that had dominated suburban shopping malls
since opening its first store in 1925.
It owned monster brands like Kenmore Appliances and Craftsman Tools.
J.C. Penney couldn't fight Sears on appliances, so it picked another
battle, the catalog.
By the time J.C. Penney acquired a catalog business in 1962, Sears had had
a catalog business for decades.
J.C. Penney launched its first so-called big book in 1963.
The catalog would sometimes have more than one thousand pages advertising
its apparel, toys and appliances.
It brought the retailer to rural communities that didn't have access to
its stores or any other major retailer offering affordably priced goods
around the same time.
J.C. Penney also decided that if it wanted to be a true department store
to suburban America, it had to go where retail was headed.
The mall. J.c.
Penney became an anchor to two malls in 1964.
The King of Prussia in Pennsylvania and the Blackhorse Pike Shopping
Center in New Jersey.
So they they focus their business on the whole.
And and they really have.
They stayed ahead of Sears, for example, in apparel.
So so they offered apparel more effectively than Sears did.
J.C. Penney pushed further into fashion in the 1980s.
It committed to spend roughly $1 billion to renovate several hundred of
its largest stores. In 1983, it signed an exclusive agreement with one of
Jackie Kennedy's favorite designers, Halston.
The deal was one of many.
It struck with designers to create diffusion lines, clothing that carried
some form of their name, but in more inexpensive material and at a cheaper
price. It also launched to greater success, more of its own store brands
like Arizona Jeans.
By 1994, J.C.
Penney had achieved the transformation it set about decades prior.
It was a department store for suburban America, not just a mass merchant
to rural America.
That year, the company had 251 stores and generated about $21 billion in
retail sales with a net income of roughly $1 billion.
J.C. Penney's time of glory proved short lived from the summer of 1998
through the end of 2000.
Shares fell eighty five percent as a department store.
It never quite caught up to Macy's and mervyns as a purveyor of affordable
goods. It faced the rising prowess of its new foe, Wal-Mart.
Wal-mart, on the other hand, began as a discount store.
Stack them high and let them fly in and it was really a different business
model and a business model really built on their supply chain, on having
less expensive real estate stores that weren't in in cities that were in
rural areas around the country, at least initially.
Wal-mart's competition was amplified by Kohl's, which in the 2000s was
expanding into new markets, going after these same price conscious
customers that J.C.
Penney catered to.
By 2000, J.C.
Penney knew it needed a change.
It brought in Alan Questrom from Barneys to save it.
As CEO Questrom from sought to simplify J.C.
Penney, he sold off its non-core businesses and centralized its buying
system to help it compete with Wal-Mart and others.
He kept the company's focus on fashion, which he believed distinguished it
from big box competitors and brought shoppers more frequently into the
store. After a mild rebound in the retailer's shares, Questrom handed the
CEO role to Mike Ullman in 2004, Ullman looked to further push J.C.
Penney mainstream and broaden its shopping base beyond the suburban moms
who are aging out of their prime shopping years.
In 2006, J.C.
Penney expanded its beauty business and launched Sephora in its stores.
The high end cosmetics brand owned by European conglomerate LVMH opened up
store within a store concepts that proved a hit with shoppers.
Then the Great Recession struck.
Penney's found the middle was a perilous position when its core middle
class demographic pulled back on spending.
Its department store competitors all struggled, but J.C.
Penney lagged further behind from 2007 to 2011.
J.C. Penney's sales growth and investor return lagged behind Macy's,
Kohl's, T.J.Maxx and Nordstrom.
Its once powerful catalog lost relevance and volume as the Internet grew
in dominance. In 2010, J.C.
Penney ceased publication of the once storied big book.
And so J.C. Penney was vulnerable when, in 2010, legendary activist
investor Bill Ackman decided the company was in a crisis.
He bought up sixteen point five percent of the company and demanded a seat
on the board. Ackman declared his vision for J.C.
Penney. He believed it relied too heavily on coupons, arguing that nearly
three quarters of its revenue came from products discounted half off or
more. Ackman said J.C.
Penney's outdated brand hurt its ability to bring in the best product and
therefore hurt its sales performance.
He thought headcount was too large and that the company could lean on
technology to help replace some of its labor investments.
The activist investor won a seat on the board and he helped bring in a new
CEO for the company.
Ron Johnson, who previously oversaw Apple's retail division.
Johnson rolled out new ideas in J.C.
Penney. Like he did at Apple quickly and efficiently.
But he did so without testing them.
The speedy rollout confuse customers and severed trust with employees.
Johnson and ackmann learned too late that if you get rid of a coupon, you
get rid of a main reason.
Shoppers visited J.C.
Penney stores - thrill of a deal.
Customers stayed home and it really killed J.C.
Penney revenue. So they went Schrum over 19 billion to to over 13.
So they lost almost almost a third of revenues.
Retailers like J.C.
Penney have high fixed costs.
That means falling sales can quickly put a company into a death spiral,
racing to catch up with its expenses after eroding sales and the costly
investments in J.C. Penney stores.
The retailer reported a $1 billion loss during Ron Johnson's first full
year in the role in April 2013.
Johnson was out of the CEO job four months later in August, Ackman
conceded defeat, stepping down from the board.
He lost nearly half a billion on his J.C.
Penney bet. This is a company with the consumers.
The customers were almost addicted to the coupon day five 580 promotions.
In 2011 you're getting one and a half promotions a day.
People went to the store four times a year.
They didn't respond to menu.
And his view is, let's take the prices down to what people actually pay.
Consumer clearly knows the right price is with finances, a wreck and nearly
on the brink. J.C.
Penney brought back Mike Ullman as temporary CEO to stabilize the
business. Ohman went to Goldman Sachs and got himself a $2.5 billion loan
to shore up J.C. Penney's finances.
The retailer still holds the burden of that loan.
Ohman went back to J.C.
Penney's old strategy of focusing on apparel and discounts.
He helped J.C. Penney avoid catastrophe.
Consumer habits had changed drastically after the Great Recession.
They were more value focused and they were shopping online more and
walking the mall less.
J.C. Penney was in a tough spot when Home Depot executive Marvin Ellison
took the CEO reins in 2014.
J.C. Penney placed a new bet on appliances.
He saw opportunity in the housing recovery and had hopes of capturing
sales from Sears, which was now struggling in his four year tenure.
He slimmed year over year losses by 67 percent, but overall annual sales
fell about 2 percent.
It was hard to compete with Kohl's, which had stores better located in
strip centers where time pressed shoppers could zip in and zip out.
And it forged alliances with Amazon to handle the online retailers
returns, which brought in shoppers who occasionally made additional
purchases. Wal-Mart was pushing further into J.C.
Penney's, playing ground, rolling out new store brands and investing in
its online apparel business.
Marvin Allison took over as CEO with a real with an operations background
and a focus on.
Becoming an effective operator and an improving J.C.
Penney operations.
So not a big strategic vision.
As much as we're going to do our job better, we're going to be more
effective in store, in-store and with our supply chain.
But there was really limited benefit for that in an industry that was that
was shrinking and and facing real challenges.
In May 2018, Ellison announced he was leaving the CEO role and heading the
Lowe's. Now it's Jill Soltau's chance.
Soltau former CEO at Kraft's retailer joann's stores took over as CEO in
October 2018.
Soltau has laid out her vision, redesigning roughly 860 stores, putting
the focus back on apparel and adding stylists to enhance in-store
shopping. J.C.
Penney has once again exited its appliance business as it looks to hone
its focus and move into higher margin apparel.
J.c. Penney has had declining total sales annually since 2016, according to
FactSet, as its financials deteriorated.
It shuttered stores in hopes of managing its costs.
Its roughly eight hundred forty six store footprint is less than a quarter
of its store base in 2001.
The department store hired law firm Kirkland and Ellis in 2019 to
restructure its debt.
The company's focus is not on bankruptcy and it has liquidity.
But over the holiday season, it needs its vendor support.
Retailers like Toys R US have crumbled once they lost that.
Soltau told analysts in August: "We are not simply running a business.
We are rebuilding a business now." J.C.
Penney must prove it can escape the track records of its failed rivals.