J.C. Penney to Close More Than 100 Stores--3rd Update
February 24 2017 - 12:35PM
Dow Jones News
By Anne Steele
Add J.C. Penney Co. to the growing list of American retailers
that will shrink to survive a shift away from traditional
stores.
The 114-year-old chain, which had avoided mass closings despite
years of losses, said it would shut as many as 140 of its roughly
1,000 stores by June. The company said it was also offering a
voluntary buyout program to 6,000 of its employees.
Penney on Friday eked out its first annual profit since 2010,
but executives said they were closing weaker stores so they could
focus their investments on revamping those in stronger markets.
Penney said it would identify the locations that are set to close
next month, though executives said many were smaller stores in
rural locations.
The company joins a parade of traditional chains announcing
plans to close locations this year after struggling to draw
shoppers during the holiday season as more shopping moves online.
Macy's Inc. has plans to close 100 locations and is exploring
options for the rest of its real estate, while Sears Holdings Corp.
is closing 108 Kmart and 42 Sears stores.
Analysts have said that hundreds of department stores are likely
to close, especially in weaker and older malls as they lose
business to online rivals such as Amazon.com Inc. as well as
off-price retailers like TJX Cos. This week the parent of TJ Maxx
and Marshall's said it would open about 1,800 stores -- about a 50%
increase from its current base.
Penney Chief Executive Marvin Ellison said the closings will
allow Penney to adjust its business to "effectively compete against
the growing threat of online retailers." He said the remaining
store base gives Penney an advantage since the locations can be
used to ship or pick up online orders, minimizing delivery costs.
In 2016, about 77% of Penney's online orders touched a physical
store.
In an interview, Mr. Ellison acknowledged that smartphones are
changing how people shop, giving them greater transparency on
pricing and less reason to browse different areas of department
stores. But he said the department-store model is "not broken. We
just have to adjust."
In 2016, while retail sales rose across the board, online
retailers took much of the spoils. During the year, spending rose
11% at online retailers and fell almost 6% at department stores,
according to Commerce Department figures.
The closings were necessary, analysts said, even though it will
make it harder for Penney to capture business it might have gained
from Sears or others that were closing in the same malls or nearby
locations. "The company is now making the right moves with its real
estate," analysts at Citi wrote in a note to clients.
Shares of Penney fell 9% to $6.25. The stock has now dropped 25%
this year, leaving a market cap of less than $2 billion for a
business that booked revenue of $12.55 billion last fiscal year but
just $1 million of profit.
Mr. Ellison, a former Home Depot Inc. executive, took over the
company in August 2015 and has been trying to reduce its reliance
on apparel by adding Sephora boutiques inside its stores and more
items for the home, such as appliances. The company has been trying
to recover ground lost to a failed overhaul by former CEO Ron
Johnson, who upended its pricing strategy and offerings in an
effort to make the chain more hip.
During the quarter ended Jan. 31, the company's same-store sales
fell 0.7%, compared with 4.1% growth in the previous year's period.
Penney expects the metric to be down 1% to up 1% for the year.
In all for the fourth quarter, Penney posted a profit of $192
million, or 61 cents a share, compared with a loss of $131 million,
or 43 cents, the prior year. Revenue slipped 0.9% to $3.96
billion.
Penney's results cap a week in which chains such as Wal-Mart
Stores Inc. and Home Depot Inc. recorded strong sales growth but
department store operators including Macy's and Kohl's Corp.
reported lower revenue and profits.
Unlike its rivals, Kohl's executive said they had no plans for
mass closings at the 1,150-store chain. On Thursday, CEO Kevin
Mansell said Kohl's will instead focus on lowering inventories,
remodeling locations and shrinking its footprint by relocating some
weaker stores into smaller locations.
The dwindling visits to U.S. shopping centers even caught up
with Victoria's Secret and Bath & Body Works, two retail
stalwarts that previously shrugged off the trend. L Brands Inc.,
which owns the two brands, warned its profits could fall nearly 25%
this year, sending its stock tumbling Thursday.
But another mall giant, Gap Inc., posted higher comparable
quarterly sales for the first time in two years. "If you read the
headlines today, you'll see the words dead, dying, sick. We are
none of those," CEO Art Peck told investors late Thursday. "We are
healthy and strong and have a plan and clear direction."
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
February 24, 2017 12:20 ET (17:20 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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