JC Penney’s shot at returning to retail

JC Penney Co has a fresh shot at returning itself to retailing relevance. The department store chain said it had reached an agreement to be rescued from bankruptcy by mall operators Simon Property Group and Brookfield Property Group in a deal valued at $1.75 billion. But is this the best outcome?
There are upsides to sparing this mall stalwart from liquidation. The acquisition has preserved tens of thousands of jobs and staved off more disruption at US shopping centres, which are reeling from widespread store closures and pandemic-related shopper caution. Still, the deal could turn out to be short-sighted for the mall operators, a squandered moment to reimagine their spaces for the future instead of just trying to survive.
It is understandable that Simon and Brookfield wouldn’t want to see JC Penney go out of business right now. Even though anchor tenants such as JC Penney don’t typically pay top-dollar rents, no one wants that much vacant square footage in their malls. Empty store fronts don’t exactly make the place look exciting and inviting. And shopping centres are an ecosystem, with each store helping draw traffic to the others.
There would be clearer logic to saving the chain, though, if it hadn’t been so troubled before the pandemic. JC Penney had frequently recorded annual losses in recent years, including under Ron Johnson’s brief but disastrous tenure as CEO, when it alienated customers by pivoting away from its familiar promotion and discounting strategy. Later, another CEO, Marvin Ellison, tried to position
JC Penney as a destination for appliances in a bid to steal business away from struggling Sears, an approach that didn’t meaningfully reinvigorate the chain — and was quickly abandoned by his successor.
More recently, CEO Jill Soltau has been working to revamp the in-store shopping experience with nicer dressing rooms and less clutter. And then came the pandemic, which has left many consumers avoiding in-store shopping and reduced their need for work clothes and dressy attire.
So, in rescuing JC Penney, the mall operators have preserved some semblance of near-term stability and normalcy at their centres. Unfortunately, that allows them to kick the can down the road on a harder, but ultimately more important, task: dramatically transforming their brick-and-mortar outposts into places that can thrive long after the pandemic has receded.

—Bloomberg