J.C. Penney, the department store chain founded in 1902 that has more than 800 stores in the United States, filed for bankruptcy protection on Friday, the latest and largest retailer to fall during the coronavirus pandemic.
Its collapse follows other retail bankruptcies this month, including J. Crew, the Neiman Marcus Group and the designer men’s clothing brand John Varvatos. But J.C. Penney represents the biggest casualty by far based on the number of locations, with stores that are anchors at many American malls, with nearly 85,000 employees.
The company said it filed for Chapter 11 protection from its creditors in federal bankruptcy court for the Southern District of Texas, and that it had $500 million in cash on hand and received commitments for $900 million financing to use during the bankruptcy process. J.C. Penney said it had struck a deal with certain lenders that will reduce several billion dollars of its debt and would explore a sale of the company. It also said it plans to close stores and that specific locations and timing would be disclosed in coming weeks.
The filing was expected after J.C. Penney failed to make an interest payment on its debt in April to “maximize financial flexibility,” and then skipped another payment last week. Shares of the chain, based in Plano, Tex., have been trading below $1 per share for most of this year.
The bankruptcy represents the fall of an American institution that traces its roots to Kemmerer, Wyo., where its founder, James Cash Penney Jr., invested in a dry-goods store called the Golden Rule. The native of Hamilton, Mo., expanded the chain and soon renamed it J.C. Penney, but was devoted to the notion of the Golden Rule, particularly in how the company treated its workers.
From J.C. Penney’s early days, the staff shared in its profits, which Mr. Penney considered core to its success and an example of “doing unto others as you would have them do unto you.”
Most department store chains have been in a long period of decline, and the massive footprints of Sears and J.C. Penney at mid-tier malls has been especially challenging.
But J.C. Penney’s demise was accelerated in the past decade by the involvement of William A. Ackman, the hedge fund manager, and Ron Johnson, the charismatic former retail chief at Apple, who were behind one of the most disastrous retail turnaround attempts in recent history.
Mr. Ackman, an activist investor and chief executive of Pershing Square Capital Management, bought a major stake in J.C. Penney in 2010 and subsequently joined its board, seeing an opportunity at the retailer, which was losing ground to rivals like Kohl’s and Macy’s.
His rosy vision — and Mr. Johnson’s frequent references to the late Apple founder Steve Jobs — inspired optimism at first. But, ultimately, Mr. Johnson’s plans, which were often put into place without any small-scale tests, alienated J.C. Penney’s core customers, led to sales and traffic declines and created internal rifts. He was ousted after 17 months in April 2013, but in one year, J.C. Penney had wiped out $4.3 billion, or 25 percent, of its annual sales.
J.C. Penney has cycled through new chief executive officers since then, but the downward trend has persisted.
Green Street Advisors, a real estate research firm, said in a report last month that it expected more than half of all mall-based department stores to close by the end of 2021 as the pandemic pulled forward “several years of retailer fallout.” The firm said that department stores represented about 60 percent of mall anchor space, and mall operators would be left in a lurch as they figured out what to do with large vacant boxes.
Green Street said it expected J.C. Penney to eventually liquidate, even if it emerged from bankruptcy in the short-term, saying that “a smaller store fleet is not going to solve J.C. Penney’s core issues.”
The company’s sales have steadily shrunk in recent years to $10.7 billion for the year that ended Feb. 1, when it posted a net loss of $268 million from continuing operations. At the time, it said it had 846 stores in the United States. A decade ago, J.C. Penney was still seeing declines, but its sales were $17.6 billion and it posted income of $249 million from continuing operations. Back then, it had more than 1,100 stores and 154,000 employees.