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J.C. Penney has begun clearance sales at 136 of the stores it is planning to close permanently as part of its bankruptcy protection process, liquidations that promise to add to the pain chains like Macy’s, Kohl’s, and Gap are already feeling.
A month ago, Penney filed its business plan to emerge from Chapter 11 protection as a leaner, better run company, saying it would close 242 of its 840-store fleet by 2021, including 192 this year. Those stores, disproportionately in smaller markets, generated 18% of Penney’s pre-bankruptcy revenue. The list of the stores closing first is here.
Deals at the already discount-heavy department store chain will include storewide discounts of up to 40% off original prices, with things like jewelry and window treatments getting even bigger price cuts, according to a press release from the four companies overseeing the liquidations: Gordon Brothers, Hilco Merchant Resources, Great American Group, and Tiger Group.
Those deals could be painful for rival department stores like Kohl’s and Macy’s as they look to unload much of their own merchandise left unsold during the pandemic that lowered their sales by about half in the first quarter. On the home goods front, another rival, Pier 1 Imports, is liquidating altogether, meaning even more discounting for the survivors to compete with.
Penney, which is heavily focused on apparel, could also squeeze indirect rivals and mall neighbors like Gap, Aéropostale, and American Eagle Outfitters at a time when they too are grappling with hundreds of millions of dollars worth of unsold clothing.
In theory, these Penney store closings could present an opportunity for rivals to win market share in the areas of the closing stores. But Macy’s, Gap, and Kohl’s are already losing market share to the likes of T.J. Maxx, Target, and Amazon, which are more likely to be the benefactors of Penney closings.
Just like Sears’ hundreds of store closings in the last decade didn’t help Penney or Macy’s much, the Penney shutterings won’t necessarily mean a boon for the stores they will leave behind in the mall. In fact, those malls losing their Penney stores, typically lower quality malls, will likely see a drop in shopper visits.
And even if the Penney closings do mean market share gains for rivals further down the road, it will pinch margins in the short term. Barneys New York’s liquidation during the holiday season hurt sales at Nordstrom, Saks Fifth Avenue, and Neiman Marcus. A few years ago, The Sports Authority’s demise slammed Dick’s Sporting Goods briefly.
Penney suggested additional closing stores will be identified soon. “A handful of previously announced store closing locations remain on hold pending further review,” the company said in a blog post on Wednesday.
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