Photo: J.C. Penney
Simon says J.C. Penney is ready to become a 21st century retailer
J.C. Penney is moving in the right direction, but it is still a work in progress. That’s the assessment of David Simon, CEO of Simon Property Group (SPG), the co-owner of the department store chain, as told to analysts on an earnings call this week.
SPG and Brookfield Property Partners (BPP) acquired Penney out of bankruptcy last year and expected the chain to put itself on a positive path once free of the massive debt load it had been carrying for years.
Mr. Simon said Penney’s co-owners are pleased with early results from the retailer as it has performed ahead of plan. He pointed to strong liquidity and low debt levels as strengths as the company begins its rebuilding process.
“The first goal is to rightsize the company, strengthen the financial capabilities, repairing a vendor relationships that we need to do, stabilize the morale and so on,” said Mr. Simon. “Obviously, that’s harder to do in COVID, when people are working remotely. But we’ve …. I’ve been proud of the execution, and so far, the results.”
Penney announced last week that it is cutting 650 jobs, about 1.5 percent of its workforce. The job cuts affect employees at the retailer’s corporate headquarters, field offices and stores. This follows earlier job cuts and store closures announced earlier this year.
Mr. Simon said growth will be the focus going forward, starting with rebuilding ties with vendors that may have felt burned by Penney’s bankruptcy, while also bringing in new brands.
He said it was normal for vendors to be somewhat leery when working with a retailer post bankruptcy and Penney was “seeing more and more confidence from the vendor community” as time goes on.
Mr. Simon also spoke with some excitement about the prospects of new brands, including those owned by Authentic Brands Group (ABG), which could be in stores late this year or early 2022.
Early reports about the bidding process for Penney had ABG joining SPG and BPP in making an offer. ABG was not part of the $800 million deal in the end, but the three companies have a history of working together to buy distressed retailers on the cheap, including Aeropostale and Forever 21. Simon and ABG have teamed up to acquire the Brooks Brothers, Eddie Bauer and Lucky Brand.
- Simon CEO says Americans are experiencing ‘euphoria’ as they return to malls – RetailWire
- Simon Property Group, Inc.’s (SPG) CEO David Simon on Q1 2021 Results – Earnings Call Transcript – Seeking Alpha
- Will J.C. Penney be renewed under new ownership? – RetailWire
- Could Authentic Brands be the lynchpin in J.C. Penney’s turnaround? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you agree with David Simon that J.C. Penney is now in a position to focus on growing its business? Do you think the addition of brands from the Authentic Brands Group intellectual property portfolio will enable Penney to attract both core and new customers to shop at its stores and online?
Poll
BrainTrust
Ryan Rosche
Vice President, BRR Architecture
Carol Spieckerman
President, Spieckerman Retail
Outside of cutting costs and emerging from bankruptcy less debt-laden, it remains unclear what will generate growth. At nearly 22 years into the 21st century, even with “new brands,” there needs to be a radically different value proposition for why new droves of customers would visit a J.C. Penney physically or digitally.
Too late — I don’t know a single person under 35 who’s ever even been in a J.C. Penney. The board had the right idea back in the Ron Johnson time, just not the right content. Smells very much like the slow death spiral of Kmart and Sears to me.
We’ve heard this before – lots of times. That said, the source matters here. This is not the “big talk” of a private equity firm, but rather it’s coming from the largest, most successful mall operator in North America. While having the backing of Simon makes a big difference in terms of financial strength, the fundamental challenges at J.C. Penney regarding relevance to consumers and place in the market are still yet to be resolved. I’d say J.C. Penney has its best shot of regaining footing now, but this is still very much a work in progress and the outcomes are very much uncertain.
Well, we’re already 21 years into the 21st century, and there’s no time like the present! It would be genuinely interesting to present a J.C. Penney case study to a group of distinguished retail observers and hear what they would do if they were in charge of modernizing this company.
They would suck all the cash possible before it dies.
We’ve seen this movie before, Gene!
Sooooooooooo many times!
“The first goal is to rightsize the company, strengthen the financial capabilities, repairing a vendor relationships that we need to do, stabilize the morale…” They have a lot of “first goals” they must accomplish. Sadly, he speaks of nothing to change the shopper perception and need of J.C. Penney.
Based on his “euphoria” comment from several days ago and now this, I suspect Simon is nothing but bluster.
With the restructuring J.C. Penney will hang on longer but, as I have opined before, the obituary is already written. The question is, when will reality set in?
This message sounds really good, and is somewhat expected from the CEO of the property group and co-owner of the retailer. This does really sound like a better shot at life for J.C. Penney compared to the news we all were reading last year for the retailer. This could be a lot of fun watching the transition, news and store presentations. I do think that J.C. Penney still enjoys good brand equity with many people which will help the transition back into retail life.
So they have reduced debt and labor, which are good things, but have you decided what you want to be and how you will be relevant to customers? Did the remodels from the previous administration ever go forward or were they scrapped? There is a lot of competition and J.C. Penney will need to differentiate itself both in brick and mortar and in the digital arena to survive long term. The question is, how long can you survive if you haven’t defined your customer?
While I wish J.C. Penney well, I see little in the way of any planned differential advantage that will bring customers back into the stores who have migrated to online and specialty retailers. While focusing on the debt and vendor relations is necessary, beyond the promised new brands, there appears to be little in the way of a long term marketing strategy.
Certainly name recognition is high and I would not say there is baggage that prevents reinvention. turning around J.C. Penney and the future of malls are certainly related ideas and I think “shopping therapy” might be the key to both challenges.
In the words of that great philosopher, Rod Tidwell, played by Cuba Gooding, Jr.: “Show me the money!” I will believe it when I see it. Wait and see on this one…
Warm words. No clear plan. No clear actions. I am not optimistic.
At what point does a brand just call it quits and move on?
Short and sweet and right to the point.
If “short and (maybe not so) sweet” is what you want, how about “Three ‘No’s’ and a Funeral”?
I am happy to hear of some forward momentum at J.C. Penney, to be sure, but what I would also like to hear is a new vision for their merchandising and assortment strategies. Yes, the addition of the Authentic Group brands has the ability to improve product selection almost overnight, but without a coherent, well-defined brand promise to shoppers – and a very carefully crafted assortment strategy that aligns to that brand promise – I have my doubts about their ability to find sustained growth. Just throwing a bunch of recognizable labels at the problem isn’t a strategy. I sincerely hope another announcement is coming soon defining their updated brand vision and, regardless, I wish them the best on their journey. I would love to see a full-fledged comeback from J.C. Penney.
J.C. Penney have failed to differentiate themselves in the market. Their business has atrophied for years, now they’ve burned through the last of their reserves. New investments will put off the inevitable for a while, but simply reshuffling brands is not enough to right this ship. I admire Simon’s optimism but I have not seen the kind of significant changes needed at J.C. Penney to give me much hope.
Bravo, Gary. Not sure why anyone would neg those words but, thanks for the honesty.
It’s interesting the stake that Simon is putting into the retail industry as a whole. They are actively working to influence the market rather than being a passive participant as a landlord. But their success will not be measured immediately. This is a long-term play. Give them credit, they are showing optimism and confidence like no one else, even if it seems to be too early to celebrate.
They had no choice. This is a financial play where the alternatives were take the brands and bring in some revenue versus empty stores and no cash.
I’m intrigued by J.C. Penney’s plug-and-play partnership with Authentic Brands and its SPARC division. The hookup gives J.C. Penney instant access to a growing portfolio of recognized brands, some of which may become exclusives. This could signal a retreat from J.C. Penney’s brand-building past and will take at least several months to take shape. At the same time, J.C. Penney’s paring down of its store fleet may compromise awareness for the J.C. Penney brand and those it is attempting to promote. Stores are also necessary for J.C. Penney to hold onto its digital relevance. J.C. Penney is in a precarious position yet Simon obviously has a master plan that will knit its growing platform of brands, real estate, and strategic partnerships together. J.C. Penney is only one piece of the puzzle, albeit a major one at this point.
Simon’s words certainly sound encouraging from a balance sheet perspective, but where are the words that tell us what the J.C. Penney brand will mean to consumers? What is the “first goal” that speaks to new customer acquisition? What about retention plans for the customers that have stuck with the brand through all of this turmoil and restructuring? While it’s great to see ABG brands will be part of the equation, how does management know those products will attract a new customer base to J.C. Penney stores? As others have pointed out in the comments J.C. Penney has lost an entire generation of shoppers. How will they be attracted to the brand now? I see more questions than answers in David Simon’s statements, so I hope there is more meat to the plan that we are seeing currently, otherwise, this will be the next Sears!
The diminished shell of a once solid mall brand has survived. I guess surviving to fight another day is a good thing, but for that to happen, equity holders, debt holders and vendors had to be eviscerated. I can see why ABG might be excited about the possibilities here, and I can see why SPG is hopeful. To say that they have made a high risk, long shot bet would be an understatement. But mall retailing has never been more competitive. It’s going to take a lot more than race-to-the-bottom promotional tactics to survive the next round of battles.
It’s hard to tell whether Mr. Simon is accurate in describing the J.C. Penney turnaround, or simply talking up the prospects for his portfolio of malls by hyping one of its major tenants. The problems at J.C. Penney go back at least a dozen years (even prior to the Ron Johnson fiasco), and the revolving door in the C-suite hasn’t helped matters.
The interim CEO of J.C. Penney is also a senior executive at SPG; he describes improvements in the business this spring (vs. cratering during the worst of the pandemic) but is still searching for a permanent leader. At some point a new CEO and team need to stop the endless pattern of “revisionist history” (overturning whatever the last CEO did), and find some avenues for sustainable growth. Call me a skeptic.
This is a lot of spin. The brand has an extremely muddled identity, the stores need massive investment to make them appealing and uncluttered, and they are largely mall fixtures — and despite what David Simon says, malls themselves are at risk.
The era of Sears and J.C. Penney ended long ago, they just don’t accept it (yet).
There is an old saying, “you can’t save your way to prosperity.” Cost cutting will not make your brand more appealing. It may help the balance sheet but it will not attract more shoppers. The J.C. Penney brand is tarnished. I do not see a long future for it.
That old saying is as true today as it ever was. Tarnished is a kind word for JCP.
Penney has missed every major trend in the past 10 years or longer. Penney has always taken one step forward and two steps back (10 steps back during the Ron Johnson era). So it will hang on and live a Zombie existence like Sears, undead and delivering some modicum of financial benefit to a few stakeholders, but having no real impact on shoppers or the retail industry as a whole.
Agree that it was 10 steps back, but I think it was 10 steps forward on concept of modernizing the department store thinking and model, but 20 steps back on execution.
It’s hard to disagree with any of his ideas, but I’ll point out (what should be) the obvious: most of them are “ends” not “means” (I suppose something like “strengthen financial capabilities” could mean bringing in additional capital, but ultimately it means selling more).
I’m sure we all wish them well — though some have opined that to them this means a dignified burial — but really, these frequent “updates” about … well, nothing, exactly are getting tedious: let’s zero in on them when they have actual “news” … Eight consecutive quarters of double digit gains, or such.
It’s always good for a retailer to right-size and get their financial house in order, but I didn’t hear anything here about what is going to make them a “21st century retailer.” Going back to the beginning of the 21st century isn’t going help JCP succeed … they need to be focused on the future. Unless they can come up with a compelling unique selling proposition, I don’t see the Authentic Brand Group brands being enough to right this ship.