Economy First Look

J.C. Penney to close 140 stores – but still optimistic about brick and mortar

After sluggish holiday-season sales, J.C. Penney on Friday announced a plan to close up to 140 stores. It's the latest department store chain that faces pressure from online retailers and shifting consumer shopping habits.

People pass in and out of the J.C. Penney department store in the Mall of Victor Valley in Victorville, Calif.
David Pardo/AP/File
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After sluggish holiday-season sales, J.C. Penney announced on Friday its plan to shutter up to 140 stores – the latest department store chain facing pressure to reorganize its business model from online retailers and shifting consumer-shopping habits.

Yet unlike other retailers, J.C. Penney also delivered a net profit in 2016, the first time since 2010, of $1 million. With unique in-house leased stores and a stronger digital presence, the 114-year-old chain hasn’t given up, and is optimistic about its goal to turn around its brick-and-mortar business.

“We believe we must take aggressive action to better align our retail operations for sustainable growth,” J.C. Penney's chairman and chief executive officer, Marvin Ellison, said in statement.

“During the year, it became evident the stores that could fully execute the company's growth initiatives of beauty, home refresh and special sizes generated significantly higher sales, and a more vibrant in-store shopping environment,” he said.

The company also reported earnings that topped Wall Street’s expectations, though its comparable sales fell 0.7 percent during the holiday quarter – the third period out of four during the past fiscal year to see slower business.

In addition to closing 130 to 140 stores, the company will also shutter two distribution centers in efforts to better focus on existing stores that are performing well. These store closures could save J.C. Penney roughly $200 million a year, CNBC reported. The company plans to offer about 6,000 employees options for early retirement.

After continuously disappointing performances last year, other department stores, including Macy’s, Sears, and Kohl’s, also announced store closings. But J.C. Penney, which brought in annual sales of $12.5 billion in 2016, compared to $19 billion a decade ago, has some edge over its competitors, analysts said.

"Although JCP ended its fiscal year with a shrink in sales, it can take some comfort from the fact that the decreases are modest and that it managed to outperform its main department store rivals," Neil Saunders, the managing director of GlobalData Retail, told CNBC in an email.

The company did see some success as a result of its revamp plan in recent years. It had tried to differentiate itself from other stores by offering in-store Sephora beauty boutiques, which has “garner four times the sales per square foot than the stores overall,” according to Fortune, and by re-introducing appliances last year. Home goods, Sephora, salon, and fine jewelry were its top-performing merchandise divisions this past quarter, according to its report.

Despite the angst that the rise of e-commerce is triggering among department store chains, J.C. Penney said its brick-and-mortar locations is giving them a competitive advantage in the ever-changing retail landscape, as the stores try to offer the personal experience, and offset last-mile delivery cost for online order fulfillment. According to Mr. Ellison, nearly 75 percent of the company’s all online orders touched a physical store.

“We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce, while leveraging physical locations to minimize the growing operational costs of delivery,” he said.

Such diversified efforts might be the key for the future of department stores, experts said.

"Retail stores are not going to go away, but each one has to become more refined in how they define their business model and work towards making their consumer happy," Arvind Rangaswamy, a marketing professor at the Penn State Smeal College of Business, told The Christian Science Monitor in August.

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