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Private equity firm Sycamore partners, which specializes in distressed investing, is currently considering purchasing JCPenny, in its recent emergence from Chapter 11 bankruptcy. JCPenny has been experiencing financial troubles due to changing consumer preferences towards digitally native, more on-trend brands for years. With the forced store and mall closures due to COVID-19, JCPenny has been unable to cover its expenses, namely the rent of its large store footprint. The department store cites the pandemic as the primary cause for bankruptcy. Despite the fact that sales at department stores are down 47% since the onset of the pandemic, there are many fundamental issues that plague JCPenny, including overreliance on clearance and coupons, inconsistent senior executive decisions and a constantly changing team, and of course the general unfavorable market conditions for department stores specializing in apparel. In fact, the company has reported losses in almost every quarter since 2011 despite closing over 20% of its stores throughout the past decade and significantly decreasing payroll and headcount.
In rising from bankruptcy cases, JCPenny is closing around 150 stores and implementing a cost-cutting and financial restructuring transformation plan, which is aiming to reduce billions of dollars of debt. Additionally, JCPenny is devoted to top-line growth, through better merchandising and product selection and increased customer engagement through targeted in-store and digital marketing efforts. Sycamore is especially experienced in investing in large retail companies. It currently holds Staples and Belk, a department store operator, among others.
While Sycamore and JCPenny refused to comment on the possible transaction, it is believed that if JCPenny does not receive additional liquidity and is unable to pay off its creditors that Sycamore would take control of the company. Additionally, there is a possibility that Sycamore, along with JCPenny’s landlords–Simon Property and Brookfield Asset Management–will jointly buyout JCPenny. This scenario would essentially liquidate JCPenney, leaving its real estate properties and other assets; JCPenny would likely have to sell off its inventory at a discounted price.
