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Will J.C. Penney Store in Brunswick Square Mall Close This Year?

Company Implementing "Voluntary Early Retirement Program" Incentive For 6,000, While Closing 140 Stores Nationwide to Compete With Growing Online Retailers
JCPeney
J.C. Penney said costs related to rolling out its appliances business to more stores negatively impacted profit in past months. Dave Schatz

EAST BRUNSWICK, NJ–J.C. Penney (JCP) said on February 24 that it expects to shutter up to 140 U.S. stores beginning in April, but won't release a list of closures until mid-March.

It’s not clear if the JCP in Brunswick Square Mall on Route 18 South will remain open beyond April.

Most of the stores on JCP's list of targeted store closures will close before July 1, according to a news release.

“As part of our continuing effort to advance sustainable growth and long-term profitability, JCP will be closing 130 to 140 stores, one supply chain facility and relocating one supply chain facility,” Corporate Communications and Public Relations Manager Sarah Holland told NB Today.

The plan will help align JCP’s physical store footprint and "omnichannel network," according to the company, both of which are part of its “successful return to profitability.”

Under the new plan, JCP will focus solely on strong locations that yield good revenue.

The company is also "implementing a voluntary early retirement program incentive for approximately 6,000 eligible associates,” Holland said. Associates at JCP stores, as well as the company's home office in Plano, Texas, and supply chain personnel, are eligible for the buyout program.

But Holland explained that JCP still expects to see an overall increase in hiring, because the number of full-time associates expected to take advantage of early retirement will far exceed the number of full-timers affected by the store closures.

“Even though we’re closing more locations this year than we have in the past, we continue to recognize the importance of physical stores in the ever-evolving retail landscape," she said.

"Our stores are a destination for personalized beauty offerings... affordable private brands and quality home goods and services," Holland said. "Physical stores are key to our omnichannel strategy, [because they provide] e-commerce support through order fulfillment, same-day pick up, exchanges and returns.”

JCP also said costs related to introducing its appliance business to more stores has impacted profitability in recent months. About a year ago, the company began selling appliances again, and currently displays them on the second level in the Brunswick Square Mall Store, as well as at some 500 other locations nationwide.

The retailer said it would open another 100 appliance showrooms inside of existing stores and expand its offering to include new brand names as well.

"We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers," said JCP's Chief Executive Officer Marvin Ellison.

“Taking actions that directly impact our valued associates and loyal customers is difficult, but we’ll go to great lengths to relocate esteemed leaders, while providing outplacement support services for those eligible associates who will be leaving the Company,” Ellison said. 

Ellison said JCP is able to leverage its brick and mortar locations to "offset the last-mile delivery cost" better than Amazon.com, for instance.

"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," added Ellison, citing the fact that roughly three-quarters of all online orders touched a physical store last year.

Even with fewer stores, "JCP is competitively positioned to deliver a differentiated department store model [in the] digital world, with an inspiring, tangible shopping environment," Ellison said.

In addition to cutting costs, retailers are seeking ways to capitalize on their valuable real estate assets.

JCP said it would sell a distribution center in Southern California to “monetize a lucrative real estate asset,” and the company plans to close a distribution center in Florida as well.

“We share over 400 malls with a struggling retailer that was once dominant in this category,” said Ellison on a February 24 conference call with investors.

“According to the latest estimate from TWICE and the Stevenson Co., Sears forfeited roughly $1 billion in major appliance sales in 2015,” writes Krystina Gustafson, a CNBC retail reporter.

And when it comes to homeowners spending more to make home improvements, a trend Gustafson notes is due to "rising [home] values,” the Garden State is no exception.

“Growing its appliance business is one way [JCP] plans to decrease its dependence on the struggling apparel category and increase its share in a growing market,” writes Gustafson.  

The retailer has more than a thousand stores nationwide, and while the upcoming closures account for nearly 15% of its store base, they will represent less than 5% of yearly sales.

"The stores identified for closure either require significant [investment] to achieve the Company's new brand standard or are [not] cash flow positive today," Ellison said.

These stores show comparable sales figures that are below the ones to remain open, on top of operating at a "much higher expense rate given the lack of productivity," Ellison added.

"I have a deep appreciation and respect for our associates who are on the front lines working tirelessly to serve our customers every day," said Ellison, adding that any actions to exclude JCP’s presence in communities across the country is difficult.

"Closing a store is never an easy decision, especially given the local impact on valued employees and our most loyal shoppers."

Associates in East Brunswick insist their store is not closing. One said he thought JCP would shutter only some smaller stores, while another, who said he’s been working for the retailer for five years, said the buzz is the store would remain open, and any talk to the contrary is “rumor.”

“We aren't closing,” said the employee, although another associate acknowledged the soon-to-be released list of store closures, saying she wasn't sure of East Brunswick's status.

Indeed, a Wall Street Journal report on JCP being "forced to downsize" says that JCP “executives said many [stores set to close] were smaller stores in rural locations.” 

“With [fewer stores] JCP will be able to focus on making its remaining stores more of a destination,” said GlobalData Retail managing director Neil Saunders.

“This is essential as, while progress has been made on categories like home, other departments still require attention. Among these is womenswear, where JCP – like many other [retailers] – is still suffering. JCP needs to thin out its clothing assortment and make the section easier to shop,” said Saunders.

JCP ended its accounting year with a small decrease in sales, but actually outperformed department store rivals Macy's and Kohl's, plus the company recorded strong sales growth over the year before.

“There will be a short term [negative] impact on [earnings] from lease termination and staff severance costs,” Saunders said.

While JCP is "rightsizing to align with changing consumer demand," added Saunders, retail sales have seen a fairly good start to 2017, with sales of consumer goods holding their own.

The overall growth rate of nearly 5% a month, a bit more than that of last year, at 3.3%, said Saunders, adding that there’s been something to cheer about.

But Saunders said there could be some red flags hidden in the figures, and while underlying retail performance is “reasonable,” it’s not as robust as it may look.

Still, fuel sales increased by nearly 14% compared to last year, representing the best growth in just under five-years, mainly due to strong car sales. But the price of fuel, which had been dropping for a couple years, may not go back down.

Certain big ticket items such as furniture and electronics recorded weak comparable sales, and GlobalData’s research also indicated that consumer spending slowed down a bit by mid-January.

“This could be an indication of nervousness among shoppers,” Saunders said.

“We do believe that continued uncertainty among shoppers will lead to a very changeable retail environment in which large purchases are carefully considered,” but this trend may only be short-term and not "stick for the entire year," added Saunders.

"The year ahead will be a reasonable one for retail."