Analysis: J.C. Penney has ‘narrow’ path forward

After a long period of decline, JC Penney has finally bowed to the inevitable and filed for bankruptcy protection.

Even before the pandemic, JC Penney’s road to reinvention was the equivalent of climbing a steep mountain with nothing other than the burden of an enormous pile of debt. The coronavirus crisis effectively broke the retailer’s limbs making further progress all but impossible.

However, bankruptcy provides a narrow path forward. It gives JC Penney the financial means to weather the current downturn in demand and the scope to restructure its operations as the retail economy starts to normalize.  

The process of reinventing the firm will not be easy. While management claims that significant progress had been made before the pandemic, we do not share this view. While some advancements were made, these were partial and completely insufficient to ensure a viable future for the company.

The reality on the ground, is that JC Penney needs a complete overhaul in terms of its assortments, store designs, ways of marketing and connecting with shoppers, and its brand image. In other words, a wholesale makeover is required to restore the company’s fortunes. In normal times, that process of reinvention would be challenging — accomplishing it in the midst and aftermath of a pandemic is more than a tall order.

One of the most immediate priorities is the closure of underperforming and bad space. JC Penney is exposed to a high number of weak malls and locations and it needs to quickly cut its losses. It will emerge a much smaller company, but this makes the process of reinvention much easier and will allow capital investments to flow to locations where they can generate the best return.

Despite the challenges of reinventing the entire proposition, we have confidence in Jill Soltau and her management team. Progress might have been slow, but the direction she has taken so far – which has focused on customers and their needs – has been correct. Developments like the reimagined store format in Hurst, Texas, showed some good forward thinking. However, no one should underestimate the challenges of moving these ideas forward to the entire chain.

Bankruptcy has only bought JC Penney time. It is a drug that is providing life support during a time of dire distress. Recovering is the difficult part, and it is still by no means certain that JC Penney will pull through or get back to full health.

Neil Saunders is managing director of GlobalData Retail