The deal to rescue decimated J.C. Penney, one of America’s oldest retailers, seems fairly simple. Mall owners Simon Property Group and Brookfield Property Group buy most of the company’s assets for $1.75 billion in cash and debt. Lenders H/2 Capital Partners, Sculptor Capital Management, Brigade Capital Management and Sixth Street Partners write off about $5 billion in debt. The mall owners get 490 locations. The lenders get 160 stores and distribution centers. Simon Property Group and Brookfield Property Group lease those. The mall owners get to keep a tenant. The lenders get some of their money back. It makes sense, but it does not solve J.C. Penney’s primary problem. Fewer and fewer people want to shop at its locations. A smaller store footprint worsens the trouble.
J.C. Penney cannot emerge from its status as a zombie retailer. It not only faces similarly-sized operations like Kohl’s, which has over 1,100 locations, or Macy’s, which has over 550. Target, America’s second-largest retailer, dwarfs J.C. Penney. And Walmart, the nation’s largest retail, has 4,700 stores and owns what is said to be the second-largest e-commerce site in the United States based on traffic. This helps drive in-store pickup and the curbside pickup so essential to revenue when COVID-19 shutters other retailers’ locations. Walmart also has started a customer loyalty program to help it compete with Amazon.com, which has robbed brick-and-mortar retailers of customers for over a decade. J.C. Penney sits on Amazon’s list of victims.
J.C. Penney has not had the capital to overhaul most of its aged stores. That harms its ability to draw customers back to its aisles. SimilarWeb puts JCPenney.com’s online traffic at 26 million visits in August. By contrast, the Walmart.com figure stood at 424 million. Amazon’s number clocked in at almost 2.6 billion.
J.C. Penney, like most retailers, needs a spike in holiday sales to make up for slower traffic earlier in the year. In 2020, those sales could make or break it. Given its badly damaged reputation, limited number of stores and withering competition, it has little or no chance to pull off a comeback.