J.C. Penney Co Inc filed for bankruptcy protection on
Friday with plans to permanently close some stores and also explore a
possible sale, making it the latest brick-and-mortar retailer to crumble
as prolonged store closures in response to the COVID-19 pandemic drive a
final stake through long-troubled businesses.
FILE
PHOTO: Shoppers enter and leave the J.C. Penney department store in
North Riverside, Illinois, U.S., November 17, 2017. REUTERS/Kamil
Krzaczynski/File Photo
The U.S.
department store chain, known for selling family apparel, cosmetics and
jewelry at roughly 850 locations, said it reached an agreement with
existing lenders for $900 million of debtor-in-possession financing to
aid operations while it navigates bankruptcy proceedings in federal
court in Corpus Christi, Texas.
The loan consists of $450 million
in fresh financing, the company said. The balance is made up of
existing debt being “rolled up” to be given the same legal status as the
new funding that J.C. Penney obtained, people familiar with the matter
said. The retailer said it had an additional $500 million in cash on
hand before the bankruptcy filing.
While J.C. Penney plans to
reorganize and emerge from bankruptcy proceedings after eliminating
several billion dollars of debt, it will also explore a sale as part of
the terms of its new financing, the company said. Reuters earlier
reported that the company was nearing a bankruptcy filing and
negotiating the financing.
The company on Friday said it would
begin closing some stores permanently in phases and would disclose
further details in coming weeks. People familiar with the matter
previously told Reuters that the company initially plans to permanently
shutter roughly 200 stores, saying the figure could fluctuate depending
on negotiations with creditors.
The bankruptcy filing caps a long
decline for the 118-year-old department store chain, which once
operated more than 1,600 locations that became fixtures in U.S. malls.
The company at one point employed nearly 200,000 people.
Even
before the coronavirus outbreak, J.C. Penney was struggling with nearly
$4 billion of debt and pressure from both discount retailers and
e-commerce companies.
Larger retailers such as Walmart Inc and
Target Corp have squeezed smaller rivals by offering bargain-price
apparel, including online.
IN THE FOOTSTEP OF OTHER BANKRUPTCIES
The
coronavirus outbreak, which has resulted in more than 80,000 deaths in
the United States, is now forcing a financial reckoning among an array
of retailers that had to temporarily close their doors under states’
orders. Other retailers already grappling with customers’ abandonment of
traditional stores for online shopping have also resorted to bankruptcy
filings.
Earlier this month, both luxury department store chain
Neiman Marcus Group and clothing retailer J. Crew Group Inc filed for
bankruptcy protection after alternative attempts to rework their
finances failed. Stage Stores Inc, a U.S. department store chain selling
mid-priced apparel at hundreds of stores in mostly rural areas, said
earlier this week it would liquidate unless it finds a buyer.
Like
other retailers, J.C. Penney has started reopening its stores in stages
as many states have begun to loosen coronavirus restrictions. But with
U.S. unemployment now at the highest level since the Great Depression of
the 1930s, there are serious concerns that consumer spending will
remain dampened for a prolonged stretch.
Against that backdrop,
J.C. Penney faced a looming $105 million debt payment in June and $300
million of annual interest expenses. Adding to pressure was an
unprecedented span of lost sales and uncertainty whether shoppers
concerned about their health would return to stores.
J.C. Penney
negotiated with creditors earlier this year for more financial breathing
room, hoping to give its new chief executive, Jill Soltau, additional
time to forge a turnaround focused on the company’s roots as a seller of
affordable apparel for middle-class families. The talks did not bear
fruit.
The coronavirus crisis forced J.C. Penney to prepare for a
bankruptcy filing to address its strained finances, which on the
horizon included more than $2 billion of debt coming due in 2023.
In
March, the company drew down $1.25 billion from its credit line. It
later skipped debt payments, triggering grace periods to make good
before defaulting that expired this week. The company made one of those
overdue payments before filing for bankruptcy.
Under one plan
being discussed, J.C. Penney would emerge from bankruptcy as two
separate companies, the sources said. One would own some of the
company’s real estate and serve as a landlord to the other entity that
would operate the retailer’s business, they said. Creditors, many of
them Wall Street hedge funds, would control the businesses in exchange
for forgiving debt, they said.
The company earlier this month
resolved a legal dispute with Sephora, the French beauty chain owned by
LVMH that had threatened to end its agreement to sell cosmetics inside
J.C. Penney stores.
Days before seeking bankruptcy protection,
J.C. Penney paid nearly $10 million in bonuses to top executives. The
company said it was “taking necessary steps to retain our talented
management team,” which made strides on the company’s turnaround plan
before the COVID-19 pandemic.
FILE
PHOTO: A J.C. Penney Company Inc. store is pictured at a mall in
Langhorne, Pennsylvania, U.S. November 17, 2018. REUTERS/Suzanne
Barlyn
FROM RURAL ROOTS TO U.S. MAINSTAY
James
Cash Penney founded the eponymous retailer with partners in 1902.
Averse to the haggling that was common at the time, he believed prices
should be low, set and marked, an attitude that served as a precursor to
modern shopping, according to the J.C. Penney Museum in Hamilton,
Missouri, the founder’s hometown.
The company’s first store,
opened in Wyoming, was called “The Golden Rule,” a reference to what the
retailer viewed as its standard for customer service, according to its
website.
J.C. Penney stores initially dotted Main Streets in
rural towns dominated by farmers. After expanding to operate more than
30 stores, it went public in 1929.
By the 1970s, J.C. Penney had
become a mainstay across the United States. The following decade, it
acquired a bank, and later drugstores before eventually divesting both
businesses.
The e-commerce revolution that took root in the
21st century rocked nearly every corner of the traditional retail
landscape and eroded J.C. Penney’s business much as it did those of its
rivals. In recent years, J.C. Penney has closed hundreds of stores and
cut thousands of jobs.
The company has also faced fierce competition from discount chains including TJX Cos Inc’s Marshalls and T.J. Maxx chains.
J.C.
Penney suffered a significant setback after a failed transformation
attempt spearheaded by former CEO Ron Johnson, the one-time pioneer of
Apple Inc’s retail stores. Johnson launched expensive renovations of
J.C. Penney locations and eliminated coupons, resulting in a customer
backlash that led to plunging sales. He was replaced in 2013.
Soltau
took the reins in late 2018 after a revolving door of executives, and
attempted to return J.C. Penney to its roots as a seller of affordable
apparel for middle-class families. She jettisoned the company’s
appliance business and mostly abandoned its furniture offerings.
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