JC Penney’s interim CEO sees green shoots emerging as department store chain plots post-bankruptcy turnaround
An empty parking lot is seen outside a closed JC Penney Co. store in Mt. Juliet, Tennessee, on Thursday, April 16, 2020.
Luke Sharrett | Bloomberg | Getty Images
Just a few months into serving as interim CEO of J.C. Penney, Stanley Shashoua said he sees signs of growth in the business.
“J.C. Penney is a great American family destination, and our strength is in our storied brands and the services we provide,” he said in a phone interview. “We’re seeing week-over-week improvements in the business, and we’re increasingly optimistic as we work our way through this.”
Specifically, he cited growth in home goods and athletic apparel — two categories that have outperformed during the Covid pandemic as Americans look to refresh their houses and restock their wardrobes with more comfortable clothing. More recently, Shashoua said, customers have been coming to Penney for Easter dresses and other formal wear — another sign that people are ready to dress up again.
Shashoua, who also is chief investment officer of the biggest U.S. mall owner — Simon Property Group — has been at the helm of Penney since Dec. 31. That’s when former CEO Jill Soltau abruptly left, following the department store chain’s Chapter 11 bankruptcy filing seven months earlier.
Simon, along with the U.S. mall owner Brookfield, came to the rescue late last year, acquiring nearly all of Penney’s assets out of bankruptcy for $1.75 billion in cash and debt. That included taking control of roughly 670 stores, compared with the more than 800 that Penney had when it filed. For now, the company said, no additional store closures are being planned.
According to Shashoua, the search for a permanent CEO is also ongoing and the prospects are plentiful.
“We are taking our time,” he said. “We’ve gotten a lot of interest from a lot of very high-quality, highly qualified people. And that’s very encouraging. People come to us and tell us they love Penney, they grew up with Penney, and they’re emotionally invested in it and have real points of view about the business.”
Simon Property hopes for another success story
J.C. Penney’s troubles didn’t crop up overnight. The business had been stumbling for years due to the ascent of e-commerce and what many analysts say was a failure by management to invest in upgrading stores and modern merchandising. A heavy debt load and the pandemic are ultimately what pushed it over the edge.
After working through bankruptcy proceedings, Shashoua said the Texas-headquartered company has emerged with a stronger balance sheet and better liquidity, though he did not provide figures. He said the focus has shifted to keeping cash flowing into the coffers. It has scaled back contracts with vendors and has invested in launching more private labels across apparel and home, he added.
“It’s a very similar approach in the initial stages that we’ve taken with all the other companies that we’ve managed to turn around,” he said.
Simon has already helped to take several retailers out of bankruptcy. Those include the mall-based retailers Aeropostale, Forever 21, Brooks Brothers and Lucky Brand. The latter two filed for bankruptcy in 2020.
Simon CEO David Simon has said his company “made a ton of money” in its Aeropostale deal. He’s also told analysts, “We’re certainly as good as the private-equity guys when it comes to retail investment.”
In its bid to save Penney with Brookfield, Simon saw an opportunity in Penney’s loyal and diverse customer base. It also at one point had a Penney store in about 50% of its U.S. malls, based on one analyst’s analysis, which also likely spurred the landlord’s interest in investing to avoid further store closures at its own shopping centers.
Simon Property shares are up more than 33% this year. It has a market cap of $42.7 billion.
New brands coming to stores
Simon’s retail deals often involve collaboration with the global brand owner and licensing company Authentic Brands Group, who is also now playing a role in reviving J.C. Penney.
Shashoua said some of ABG’s apparel brands, like Forever 21 and Juicy Couture, are going to be added to Penney’s merchandise assortment in stores and online. “2021 is more about rebuilding the company, and I think 2022 you’re going to see good growth,” he said.
For Penney, categories of focus in coming months include home goods, men’s merchandise in big-and-tall sizes, women’s merchandise in inclusive size ranges, and baby and kids gear, according to Shashoua. He also wants to grow online commerce, which now represents about 20% of Penney’s sales.
To be sure, Penney’s path to profitable growth, winning back customers, and gaining market share in key categories like apparel and footwear won’t come easily.
Consumers have increasingly steered clear of suburban malls, and especially during the pandemic. Many have shifted their purchasing online to the benefit of e-commerce giants like Amazon and Walmart. Clothing sales also have been hampered during the health crisis, as Americans have been spending much less time getting dressed up to get out.
Spending by U.S. consumers on clothing and footwear tumbled 48% year over year last April, when many retail stores that sell apparel and accessories were shut for the full month, according to a tracking by Coresight Research. More recently, spending in the category has ticked back up, growing 0.8% in January, Coresight said.
Last year, along with Penney, department store operators Neiman Marcus, Stage Stores, Lord & Taylor and Century 21 filed for bankruptcy.
Penney hopes to avoid the fate of the iconic department store chain Sears. Since filing for bankruptcy in 2018, Sears has slowly been whittling down its store footprint to become a fraction of its former self.
“We’re strengthening our retail fundamentals, with a focus on modern retail, digital, and an engaging customer experience,” Shashoua said. “Retail is evolving faster than ever … and so our goal is to execute swiftly.”