As bidders vie to buy the J.C. Penney retail operations, and perhaps its real estate, one of its attorneys said the company is “in the red zone.” The meaning of the comment was not clear. However, it was almost certainly a hint at how close J.C. Penney is to liquidation and the end of jobs for thousands of people.
It is not certain who will buy part or all of J.C. Penney. Among those in bankruptcy court were some of its landlords, specifically Simon Property Group and Brookfield Property Partners, both of which operate malls. Even if they cut J.C. Penney’s rent essentially to zero, it will not bring back the shoppers who have deserted the retailer in greater numbers each year. J.C. Penney cannot cut its way to profits.
J.C. Penney has 850 stores, a number it plans to cut to 700. That will bring its revenue down even more since its collapse. In the quarter that ended May 2, revenue was $1.2 billion, down from $2.6 billion in the same period the year before. The spread of COVID-19 was the most substantial cause. As the disease continues to race around America, many of those stores could be closed for months. J.C. Penney cannot afford this. It has not had a solid balance sheet for years. It could not borrow money to build a cash cushion the way Macy’s has. Even the Macy’s funds may well not be enough. In the most recent quarter, J.C. Penney’s net cash used in operating activity was $814 million.
J.C. Penney has another problem new owners in the mall business cannot solve. Malls have become unattractive to many shoppers concerned with crowded indoor spaces. The will not abate until the pandemic does.
Even if J.C. Penney were funded for another year or more, and could make it to the holiday shopping period, consumers already have moved on to Kohl’s, Macy’s, Nordstrom and a crush of other smaller retailers. Whatever merchandise and price cuts J.C. Penney offers will not be adequate either. J.C. Penney already offers discounts of as much as 50% on items available at JCPenney.com.
Amazon.com often has been blamed for the demise of department stores. That is true, and the process is not over.
The rescue of J.C. Penney is already over.