JCPenney is an American department store chain founded by James Cash Penney and William Henry McManus in 1902. The company filed for bankruptcy in 2020 and after an acquisition, continues to operate in a limited capacity. JCPenney was ultimately crippled by the coronavirus pandemic, becoming one of many retail companies to meet a similar end in the face of sluggish consumer spending and reduced foot traffic.
Background
JCPenney is an American department store chain founded by James Cash Penney and William Henry McManus in 1902.
From a single store in Wyoming, JCPenney became a household name in the 70s and 80s as it took advantage of the surge in popularity of mall shopping.
Indeed, most malls would be anchored by a JCPenney store selling everything from homewares to fashion.
In May 2020, the 118-year-old department store filed for bankruptcy with net losses of $4.5 billion.
The demise of JCPenney is, in some respects, emblematic of the pandemic era for physical department stores.
In truth, however, the decline of the company was gradual and started long before the onset of the virus.
Poor strategy and mismanagement
With revenue declining by $2.4 billion since the Global Financial Crisis, JCPenney appointed new CEO Ron Johnson in June 2011.
Johnson had a transformative plan for the company and quickly set it in motion.
He hired a team of outsiders to fill critical senior positions, fired 19,000 employees, and removed JCPenney’s discount pricing strategy.
Then, he instituted a massive store revamp without verifying that it would resonate with consumers.
Employee morale suffered as a result of the mass terminations. Revamped stores featured an Apple-esque genius bar, with Johnson drawing inspiration from his time at Apple. Ultimately, the genius bar did not inspire shoppers.
When the company banned the word ‘sale’ from its promotions and replaced it with ‘month-long savings’, consumers became confused over the new pricing system.
The near-constant discounting cycle damaged the JCPenney Brand. When the company shifted its focus to affluent shoppers, it alienated its traditional, value-seeking customer base.
Johnson was fired just 16 months after being appointed. Sales fell by 25% under his tenure, equating to a further $4.3 billion loss in revenue.
Bankruptcy
The coronavirus pandemic and subsequent shift to purchasing online became the straw that broke the company’s back.
JCPenney filed for bankruptcy on May 15, 2020, and announced the immediate closure of 242 stores.
In fact, the company became one of 20 retail businesses that would go bankrupt because of the pandemic in North America.
Acquisition
In September 2020, JCPenney was acquired by Simon Property Group and Brookfield Asset Management in a cash and debt deal worth around $800 million.
Post-acquisition, the new owners plan to close nearly a third of all remaining JCPenney stores in the next two years.
The company headquarters in Plano, Texas, was also vacated with no new location as yet announced.
The future remains uncertain for the company as consumer spending and bricks-and-mortar shopping continue to be impacted.
This was highlighted by findings released by Mastercard in late 2020 showing that department store sales – once the bread and butter of JCPenney – had declined by 10.2% over the October-December holiday period.
Key takeaways:
- JCPenney is an American department store chain founded by James Cash Penney and William Henry McManus in 1902. The company filed for bankruptcy in 2020 and after an acquisition, continues to operate in a limited capacity.
- JCPenney posted billion-dollar losses after the GFC and in response, appointed new CEO Ron Johnson. Unfortunately, Johnson alienated the company’s target audience by focusing on the affluent market and revamping JCPenney stores without validating his ideas.
- JCPenney was ultimately crippled by the coronavirus pandemic, becoming one of twenty such companies to meet a similar end in the face of sluggish consumer spending and reduced foot traffic.
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