Monday, February 27, 2017

“J.C. Penney and Macy’s Are Turning America’s Malls Into Ghost Towns”

“J.C. Penney and Macy’s Are Turning America’s Malls Into Ghost Towns”
by William Romov

“At the rate department store chains are shuttering locations, your neighborhood shopping mall will soon look like something out of a post-apocalyptic movie. On Friday, J.C. Penney (JCP) became the latest chain to announce a strenuous round of store closures and buyouts for as many as 6,000 members of its workforce in a bid to cut costs. The company expects to save as much as $200 million in annual costs by closing 13% to 14% of its stores, or roughly 140 locations, as well as two distribution centers. The stores represent about 5% of the company's sales.

Also on Friday, the company announced quarterly results that, although not great, weren't terrible. Net sales decreased by 0.9% to $3.96 billion during the fourth quarter. But the company recorded net income of $192 million compared to a loss of $131 million during the same quarter last year. And the company also announced that it had turned its first full-year profit since 2010.

According to J.C. Penney's management, apparel sales have been suffering the most. E-commerce led by Amazon (AMZN), as well as discount stores such as those operated by Burlington Stores (BURL) and TJX Companies (TJX), are growing their market share in an apparel space that has been traditionally dominated by department stores like J.C. Penney, Sears Holdings Corp. (SHLD) and Macy's (M) .

Macy's, the largest apparel retailer in the U.S., is expected to see its clothing and accessories business eclipsed by Amazon this year. Hence, it's no surprise that Macy's is closing 68 stores (as part of a plan to slash 100 more) by early spring in an effort to save money amid weak store traffic.

This reflects a paradigm shift in consumer habits. Apparel was long considered safe from e-commerce retailers. After all, websites don't offer fitting rooms, and making returns can be inconvenient. But as Amazon and others prove this notion wrong, traditional brick-and-mortar apparel retailers have had to either improve their online game or restructure their business.

J.C. Penney is choosing an operational overhaul. The company hopes that the recently announced store closures and layoffs will free up resources to reduce its dependence on apparel. Instead, the company aims to increase sales through toys, home furnishings, and jewelry. But in the meantime, J.C. Penney will be yet another troubled chain in a beleaguered industry. Continue to steer clear of J.C. Penney's shares and other department stores for that matter- America's malls are turning into ghost towns."

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