J.C. Penney to file for bankruptcy as soon as next week

[thelakelander]

$4 billion in debt, JCPenney is expected to file for bankruptcy any time now. They'll be closing as many as 200 stores. This one could have significant impact locally.

While J.C. Penney aims to reorganize and emerge from bankruptcy protection, it plans to permanently shutter roughly 200 stores, a figure that could fluctuate depending on negotiations with creditors, the sources said.

Full article: https://www.reuters.com/article/us-jc-penney-bankruptcy-exclusive/jc-penney-to-file-for-bankruptcy-as-soon-as-next-week-sources-say-idUSKBN22K20F

[jaxlongtimer]

Interesting to note I haven't seen much discussion about Dillard's.  I gather they may be suffering but are in better shape than their peers.  I read a Fitch credit review of them and, while risky like all major retailers now, they appear to have adequate liquidity to carry on better than most.

[I-10east]

^^^It seems like Belk and Kohl's are within that "better than most" realm as well.

[Steve]

JCPenny was likely months away from filing Chapter 11 prior to all of this happening. JCPenny can trace it's more recent problems to when they hired Rob Johnson from Apple as CEO - terrible hire who did a terrible job. Back in 2011 JCPenny was struggling to attract younger folks into their stores, but they had a nice base of older customers. Johnson's charge was to bring in those younger customers. Johnson then "double failed" - he didn't bring in the younger customers, and his new policies turned off the older ones....so no one was coming in.

Dillard's has been doing OK as a company, and my read is that Belk is doing OK too (not as good as Dillard's). Kohl's is a vey weird one. They are a different animal - their store is sort of a cross between a SteinMart and a traditional department store. Everyone hailed CEO Michelle Gass as a "visionary" when she signed Kohl's up to be a network of Amazon returns centers. However, that really hasn't translate to more sales. It was really the equivalent to buying billboard space for Ski Gear next to a crowded highway in October. Sounds amazing....unless the billboard is in Miami. They recently admitted that it brings in a lot of traffic....but it doesn't lead to many converted sales.


JCPenny isn't the only retailer in trouble. Neiman Marcus filed as well last week, as did J. Crew. J. Crew actually had a good plan for their financial woes, and that was to spin off Madewell via IPO and use the cash to shore up the core J. Crew business. Then COVID-19 came and this became a terrible time to do an IPO.

Long story short...there will be a LOT more of these.

[bl8jaxnative]

Interesting take on JOhnson at JC Penney.  I don't think it's wrong.  But it leaves out the problem, JC Penney didn't have a choice but to make that leap across the chasm. 

Did those moves scare away some customers?  Sure.  But JCP's core customer base was already aging and their purchases shrinking.  What customers they had they were spending were moving to online options and other brick-and-mortar options.

Johnson's short stint ended nearly a decade ago.  JCP's has never recovered because their core issues weren't Johnson.

JCP's never recovered because NOT only because they returned to their dead business model.  But also because those lil' things they had to offer, like their Stafford brand, have been gutted, turned into cheap unreliable garbage to squeeze out a few more cents.   

The media's had a lot of fun making him out to be a scapegoat.  But at least he had the balls to take on a nearly impossible task and risk his reputation.  JCP was a cancer patient in bad need of a miracle.  At least he gave it a shot.



The real scapegoat is the generation of management preceding him. 

[thelakelander]

If they do end up closing Jax area stores, that would leave Avenues and Orange Park with two department store vacancies and you could pretty much lock the doors on Regency.

[jaxlongtimer]

I think the core mall model needs to change.  If I were a mall operator/developer, I would build multilevel apartments/condos and offices over the mall (Tapestry Park on steroids!).  This would provide a walkable community and built in audience for the mall.  It would also possibly create more affordable housing due to more efficient use of the real estate.  Seems mall designs waste a lot of real estate in most areas.  In some places, this approach could apply to large strip and shopping centers too.

Town Center has apartments surrounding it which is an approximation of what I am suggesting overhead.  I think multi-use structures that integrate offices/shopping/entertainment/living uses into a single structure or complex should be used a lot more and am surprised we don't see more of it aside from maybe some super-dense urban areas. 

[Steve]

Interesting take on JOhnson at JC Penney.  I don't think it's wrong.  But it leaves out the problem, JC Penney didn't have a choice but to make that leap across the chasm. 

Did those moves scare away some customers?  Sure.  But JCP's core customer base was already aging and their purchases shrinking.  What customers they had they were spending were moving to online options and other brick-and-mortar options.

Johnson's short stint ended nearly a decade ago.  JCP's has never recovered because their core issues weren't Johnson.

JCP's never recovered because NOT only because they returned to their dead business model.  But also because those lil' things they had to offer, like their Stafford brand, have been gutted, turned into cheap unreliable garbage to squeeze out a few more cents.   

The media's had a lot of fun making him out to be a scapegoat.  But at least he had the balls to take on a nearly impossible task and risk his reputation.  JCP was a cancer patient in bad need of a miracle.  At least he gave it a shot.



The real scapegoat is the generation of management preceding him. 

You're not entirely wrong. But, JCPenny did miss the boat entirely on the strong economy over the last 8 years. While there were issues before him certainly, I believe he accelerated those issue with a culture of rapid change. Rapid change isn't bad, but the problem is he didn't have the entire company on board with it. I don't believe it was impossible at all.

The only one that I (wrongly) believed was impossible to turn around was Best Buy. They were Amazon's showroom 10 years ago and I had them left for dead. They completely turned it around.

JCPenny just failed, and yes there were other executives. But the downhill previously was like a "bunny slope". He made the downhill a double black diamond.

[marcuscnelson]

If they do end up closing Jax area stores, that would leave Avenues and Orange Park with two department store vacancies and you could pretty much lock the doors on Regency.

At this point, maybe that's what they need. I'm not necessarily saying tear it all down, but Regency has been limping along for a long time, and it seems pretty clear that they need to rethink that entire area. Maybe do something like Roosevelt/Ortega, I don't know. I guess that church is taking the Belk, and I don't know how that whole International Decor Outlet went, but after that do something different.

I think the core mall model needs to change.  If I were a mall operator/developer, I would build multilevel apartments/condos and offices over the mall (Tapestry Park on steroids!).  This would provide a walkable community and built in audience for the mall.  It would also possibly create more affordable housing due to more efficient use of the real estate.  Seems mall designs waste a lot of real estate in most areas.  In some places, this approach could apply to large strip and shopping centers too.

Town Center has apartments surrounding it which is an approximation of what I am suggesting overhead.  I think multi-use structures that integrate offices/shopping/entertainment/living uses into a single structure or complex should be used a lot more and am surprised we don't see more of it aside from maybe some super-dense urban areas. 

I think you're forgetting why the mall evolved like this in the first place. Almost all mall developers (hell, almost all developers) went in thinking, "how can I make the most money by spending the least money?" They accomplished this by buying the cheapest land they could and building a big box on it. Having to make those big boxes capable of holding apartments on top is a big ask, and depending on the cost might not be worth it to them. You don't need to use the real estate more efficiently if it was cheap in the first place. The main reason the designs you describe are usually in urban areas is because by the time the developer comes in it's already too expensive to do it any other way.

A walkable community wasn't a factor to the developers or the shoppers, and we can still see that in developments like Durbin Park where it's still the same idea. Big box on cheap land. Social asks like affordable housing isn't something developers want to do either. You have to give the core mall model a reason to change. Making commercial developments like shopping malls accomplish social goals like affordable housing and walkability require either incentives to do so or penalties for not doing so.

In the case of something like Regency, you don't even really need to do all of that anyway, just fill in the parking lot. Looking at it on a map, there is an enormous amount of parking surrounding the mall, and they've even done what I'm saying to a very limited extent, between a fair and some athletic courts. They just need to keep going. Turn those courts into a more fleshed-out athletic complex. Sell off most of the other parking blocks to real estate developers. Maybe build a garage on one of them if they really have to. That's being done in a lot of places with these malls.

[Wacca Pilatka]

The only one that I (wrongly) believed was impossible to turn around was Best Buy. They were Amazon's showroom 10 years ago and I had them left for dead. They completely turned it around.

Why do you think that turnaround happened?  I was certain Best Buy was doomed too.

Asking purely out of curiosity and because I'm enjoying your observations on retail.

[Steve]

The only one that I (wrongly) believed was impossible to turn around was Best Buy. They were Amazon's showroom 10 years ago and I had them left for dead. They completely turned it around.

Why do you think that turnaround happened?  I was certain Best Buy was doomed too.

Asking purely out of curiosity and because I'm enjoying your observations on retail.

It's actually part of my day job to keep up with the retail world. To me Best Buy did two major things:

- Match online prices: This to me was #1; I didn't think they could do it (as margins on the "big box" items aren't amazing to begin with). It wasn't a secret that many people walked into Best Buy, found the item online, then bought it online. They made the decision to match online prices. The key here was they were able to get their costs lower so they could afford to do that. This was a key thing Circuit City was NOT able to do. CC matched the prices, but really couldn't afford to do it because of what they were paying.

- BOPUS (Buy online pick up in store): This is key because someone could shop online and get their item in hours vs. Days. They also did a better job training their associates on their items, in order to differentiate themselves from Amazon.

There were numerous other ancillary benefits, like partnering with people you wouldn't think they'd partner with (Amazon for their Fire TVs, Apple for device repair), and they nailed their website redesign (something easier said than done).

But to me it really comes down to this: Make sure your brand is clear and reliable. Examples:

- Make sure the public knows what they can and cannot get from you: This is certainly easier in electronics than in what JCPenny does. If someone wants an iPhone and you have it at the market price that's half the battle. If someone wants bedsheets in beige, that may be a battle as you might not have the right softness, exact beige, etc.
- Make online and BOPUS work: BOPUS is a giant advantage for retailers with a good physical presence - it's built-in warehouses across the country. Whether fulfilling a BOPUS transaction or ship to home, make sure the customer knows when they will receive their item, then (shocker), MAKE SURE YOU ACTUALLY HIT THE DATE! Personally, I'm not all about this whole "next day everything" for retailers - it doesn't make sense. Does someone always NEED their item tomorrow - especially Christmas gifts? Likely not. As a retailer (particularly small to midsized ones), usually 3 days is fine....as long as you are black and white with your consumer, making sure you tell them them when a product will arrive then actually be successful at it.

JCPenny is in a MUCH worse hole now because yea Johnson tried....but he also burned through many Dubloons doing it. Now, there aren't many Dubloons left to invest in yourself.

[jaxlongtimer]

If they do end up closing Jax area stores, that would leave Avenues and Orange Park with two department store vacancies and you could pretty much lock the doors on Regency.

At this point, maybe that's what they need. I'm not necessarily saying tear it all down, but Regency has been limping along for a long time, and it seems pretty clear that they need to rethink that entire area. Maybe do something like Roosevelt/Ortega, I don't know. I guess that church is taking the Belk, and I don't know how that whole International Decor Outlet went, but after that do something different.

I think the core mall model needs to change.  If I were a mall operator/developer, I would build multilevel apartments/condos and offices over the mall (Tapestry Park on steroids!).  This would provide a walkable community and built in audience for the mall.  It would also possibly create more affordable housing due to more efficient use of the real estate.  Seems mall designs waste a lot of real estate in most areas.  In some places, this approach could apply to large strip and shopping centers too.

Town Center has apartments surrounding it which is an approximation of what I am suggesting overhead.  I think multi-use structures that integrate offices/shopping/entertainment/living uses into a single structure or complex should be used a lot more and am surprised we don't see more of it aside from maybe some super-dense urban areas. 

I think you're forgetting why the mall evolved like this in the first place. Almost all mall developers (hell, almost all developers) went in thinking, "how can I make the most money by spending the least money?" They accomplished this by buying the cheapest land they could and building a big box on it. Having to make those big boxes capable of holding apartments on top is a big ask, and depending on the cost might not be worth it to them. You don't need to use the real estate more efficiently if it was cheap in the first place. The main reason the designs you describe are usually in urban areas is because by the time the developer comes in it's already too expensive to do it any other way.

A walkable community wasn't a factor to the developers or the shoppers, and we can still see that in developments like Durbin Park where it's still the same idea. Big box on cheap land. Social asks like affordable housing isn't something developers want to do either. You have to give the core mall model a reason to change. Making commercial developments like shopping malls accomplish social goals like affordable housing and walkability require either incentives to do so or penalties for not doing so.

In the case of something like Regency, you don't even really need to do all of that anyway, just fill in the parking lot. Looking at it on a map, there is an enormous amount of parking surrounding the mall, and they've even done what I'm saying to a very limited extent, between a fair and some athletic courts. They just need to keep going. Turn those courts into a more fleshed-out athletic complex. Sell off most of the other parking blocks to real estate developers. Maybe build a garage on one of them if they really have to. That's being done in a lot of places with these malls.

I am saying the "reason to change" is that the traditional mall model is now failing so it calls for something new.  The "incentive to do so" is building in a substantial shopping base of customers living on or about the property.  The housing may or may not be "affordable" but it should be more affordable than building detached homes.  Many of the malls that decades ago were built on "cheap" land are now surrounded by much development so that land now has much greater value potentially supporting more density.

If cities could make such developments transit hubs that would help seal the deal even more.

[Steve]

While I agree with this (Malls need to evolve), there's also another dynamic: We have WAY more retail Square Footage per person than any other developed country at between 23 and 24 SqFt Per Person. Canada is next with about 17, and no other country is above 15.

Now, some of that has to do with the American consumer - we like big things (big cars, big houses, big yards, etc.) but it still doesn't add up.

As mentioned, we see this happening in Jacksonville with Regency, and the other malls and large shopping centers. Lifestyle centers are the big thing as you don't have to air condition all of these corridors.

I do think Residential is part of the equation (look at Roosevelt Square evolving into Ortega Park), or better yet: the example of nearly every downtown in America except for Jacksonville.

[Wacca Pilatka]

Thanks, Steve, for taking the time to explain all of these trends and the Best Buy situation in detail.

[marcuscnelson]

I am saying the "reason to change" is that the traditional mall model is now failing so it calls for something new. 

New, yes. Radically different, probably not. At the end of the day, the lifestyle centers that Steve mentions are a departure from traditional malls, but not substantially different. Thats why something like Ortega Park or San Marco East Plaza can be a matter of tearing the roof off and filling in the parking lot.

The "incentive to do so" is building in a substantial shopping base of customers living on or about the property.  The housing may or may not be "affordable" but it should be more affordable than building detached homes.  Many of the malls that decades ago were built on "cheap" land are now surrounded by much development so that land now has much greater value potentially supporting more density.

Not necessarily. Mall developers don't necessarily want to be in the business of building that shopping base themselves versus either locating somewhere with a bunch of houses or letting the houses come to them. In St. Johns County, it might actually be cheaper to build single family homes than multifamily because there are just so many damn incentives to build single family, on top of the county handling so much of the infrastructure. Looking around Regency on a map, are there apartments? Yes. But there are also a ton of detached houses. Of course, that's more the fault of the government than of the developers themselves, but it's still a key factor.

If cities could make such developments transit hubs that would help seal the deal even more.

Definitely a good point, I totally agree. At the end of the day, I think we're both in agreement that Regency needs to change, and that density is the answer for that change. In the long term, what you're saying looks like it will be the trend of dense urban development, while what I'm saying is more the solution for places like Regency where there's room for infill.