The series of events is prompting analysts and other industry experts to question whether Penney can avoid the fate of fellow department-store operator Sears Holdings Corp., which filed for bankruptcy and barely staved off liquidation.
“Penney is a broken business,” said Mark Cohen, director of retail studies at Columbia Business School. “They are looking at a very problematic 2019. It’s the mistakes of the past coming home to roost.”
The Plano, Texas-based chain was once the go-to apparel retailer for middle-class families. It and Sears had once dominated American retailing but lost their customers, first to discounters like Walmart , then to fast-fashion retailers and off-price chains like T.J. Maxx. The shift to online shopping hastened their decline.
A strengthening economy brought Penney’s problems into sharper focus. It scaled back discounts and private brands, and focused on appliances at the expense of apparel. At a time when consumers have been spending, Penney posted a 3.5% decline in holiday sales and said it would close more stores, following a string of weak results.
Last week, Fitch Ratings Inc. downgraded its debt one notch closer to junk. One of Penney’s most actively traded bonds, the 6.375% notes due 2036, were trading last week at 37 cents on the dollar, down from 69 cents in March, according to MarketAxess. Penney’s shares, which soared as high as $80 during the recession, now change hands at just over a dollar.
A Penney spokeswoman declined to comment for this article.
Penney’s new CEO, Jill Soltau, joined the company late last year after Marvin Ellison left abruptly to take a new job running Lowe’s Co s. Last week, Penney disclosed it has failed to restock any of the other open positions in its executive ranks. Penney said it is searching for a chief merchant, chief customer officer and head of planning and allocation. Its principal accounting officer will leave March 31, and it is looking for a successor to its chief financial officer who left in October.
“There is uncertainty around the company’s strategy given the changes in the top ranks,” said Monica Aggarwal, a Fitch managing director. “We need more clarity in terms of how they plan to position themselves.”
Ms. Soltau, previously chief of fabric-and-craft retailer Jo-Ann Stores Inc., told analysts on a November conference call she was still formulating her strategy. Last week, Penney said it has hired a McKinsey & Co. consultant as its chief transformation officer to develop and implement strategic changes.
It isn’t clear whether Ms. Soltau will stick with the plan to bring back appliances, put in place by her predecessor. Penney had stopped selling such products in 1983 but returned to it in 2016 in an effort to take share from an ailing Sears, which had closed hundreds of stores before filing for court protection.
While analysts say Penney’s appliance strategy has been moderately successful, the bulk of its sales still come from apparel—an area the company has neglected as it focused on other priorities.
Adding to Penney’s problems is $4.3 billion in debt, the result of a failed overhaul by former Apple Inc. executive Ron Johnson, who scaled back discounts and popular house brands. Penney brought back a former CEO, Mike Ullman, to replace Mr. Johnson in 2013; Mr. Ullman handed the reins to Mr. Ellison, a former Home Depot Inc. and Target Corp. executive, in 2015.
Mr. Ellison was in the top job for barely three years before he decamped to Lowe’s in May, taking with him Penney’s chief customer officer, Joe McFarland. While at Penney, Mr. Ellison had eliminated the chief merchant job, saying a “simplified structure offers greater flexibility.” Ms. Soltau wants to reinstate the position, a crucial role at most retailers that helps set the fashion sensibility.
Fitch’s Ms. Aggarwal said Penney has some breathing room. While the company has about $50 million in debt coming due in 2019, she expects it to have $1.5 billion in cash and borrowing availability by year-end.
Still, the latest holiday season brought worrying signs. Sears, which is Penney’s closest competitor, filed for bankruptcy protection in October, and on Thursday reached a deal that would allow it to emerge from court protection in a shrunken form. Macy’s Inc. and Kohl’s Corp. barely grew sales during the holiday period.
“There is a risk that if you change your position so regularly, customers don’t know what you stand for anymore,” said Alan Treadgold, global head of retail strategy at PA Consulting Group. “Penney has some serious challenges to overcome, and gaps in the senior leadership aren’t helpful to the changes they have to make.”
Write to Suzanne Kapner at [email protected]
Source : https://www.wsj.com/articles/j-c-penney-struggles-to-avoid-a-fate-worse-than-the-sears-scenario-11548072000