In an effort to streamline its operations, increase profitability and better compete with online retailers, J.C. Penney announced Friday that it plans to close 130 to 140 underperforming stores nationwide and sell two distribution centers over the next few months including one in Buena Park and another in Lakeland, Florida.
A list of stores targeted for closure is expected to be announced next month. A company map indicates that J.C. Penney operates 79 stores in California. The pending closures represent about 13 to 14 percent of the department store chain’s current store count and less than 5 percent of its total annual sales.
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Operations at the 1-million-square-foot, 24-acre Buena Park facility will be moved to a new J.C. Penney distribution center in the Inland Empire, company officials said.
The Buena Park distribution center, at 6031 Orangethorpe Ave., was assessed at roughly $35 million last year, making it a valuable real estate asset for the troubled retailer. CoStar, a commercial real estate database, indicates the property is used as a hub for J.C. Penney’s West Coast operations.
Louis Tomaselli, a senior managing director at the investment management firm JLL, said the move makes sense.
“They go sell a 40-year-old facility and then they lease a brand-new facility … a brand-new, state-of-the-art facility, a huge truck court,” he said. “And they pay current market rates, which are well below what it would cost to operate the Orange County facility at the price level it was worth. This is happening all over Southern California.”
Economist Christopher Thornberg, a founding partner with Beacon Economics, said the move is a good thing for the Inland Empire’s economy and it will better serve J.C Penney to consolidate its local distribution activity into a newer and more modern facility.
Chairman and CEO Marvin R. Ellison said J.C. Penney is taking “aggressive action to better align our retail operations for sustainable growth.” The department store chain said it is initiating a voluntary early retirement program for about 6,000 eligible employees — far more than the number of full-time positions that will be affected by the store closures.
Employees in the company’s pension program who are at least 55 years of age with 15 years of service as of Jan. 31 are eligible for early retirement.
Uncertainty about stores’ status
Management at many area J.C. Penney locations could not be reached early Friday to verify the status of their stores. But an employee at one location at the Antelope Valley Mall said that store is not on the hit list.
“We are not one of the stores that will be closing,” a store representative said Friday. “They are underperforming stores that are closing and have already been notified. But we are not one of them.”
Another employee at the company’s Montebello store said she was “pretty certain we’ll remain open,” although she said the final list of closures will be released in about three weeks. An employee at the Torrance store was uncertain about the future of that location, too.
“We still don’t know,” he said.
The company is streamlining its resources to better compete with Amazon and other online outlets.
“We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers,” Ellison said in a statement. “While many pure-play e-commerce companies are experiencing dramatically increasing fulfillment costs, we are pleased with the double-digit growth of jcpenney.com and how leveraging our brick-and-mortar locations is enabling us to offset the last-mile delivery cost.”
Ellison figures the winning combination will be a “frictionless interaction between stores and e-commerce,” while leveraging physical locations to minimize the growing operational costs of delivery.
Still recovering from a bad reinvention plan
The department store chain has been recovering from a catastrophic reinvention plan under former CEO Ron Johnson that sent sales and profits into a free fall in 2012 and 2013. Business stabilized under Mike Ullman, who took the helm in 2013 after Johnson was pushed out.
Under Ellison, who has been CEO since 2015, J.C. Penney is looking for new ways to increase sales while improving its e-commerce. But while annual sales still shrunk, what’s encouraging is Penney’s profit picture. The company was able to pull in a $1 million profit for the full fiscal year, the first time it earned an annual profit since 2010.
J.C. Penney posted net sales of $12.5 billion last year, down from $12.6 billion in 2015. Comparable store sales — which measure the performance of stores that were open over the course of a year — were flat in 2016. Earlier this year the company announced that it sold its Plano, Texas, headquarters but will lease back 65 percent of that space.
Brick-and-mortar stores seek a balance
Phil Lempert, a Santa Monica-based expert on consumer behavior and marketing trends, said the retail climate has shifted. Brick-and-mortar stores, he said, are scrambling to better align themselves with online shoppers.
“If you look at the entire retail landscape — including clothing, food and other goods — the old brick-and-mortar model needs to evolve,” he said. “People are buying more goods on the internet than ever before. A lot of those stores that were built 40 and 50 years ago … we just don’t need that much space anymore. It’s become a balancing act to have the right amount of stores to meet consumer needs. You can’t have stores with a lot of employees sitting around waiting for people to come in anymore.”
Thornberg said some shoppers will always be drawn to brick-and-mortar stores. But increasingly, he said, stores must embrace the idea of “destination retail.” They should be centered in malls or retail centers that are fun and interesting places to go. He cited The Grove in Los Angeles as a prime example.
“I took my little one to see Santa during the holidays and when I got there the line was really short,” he said. “So I said to one of the too-perky elves, ‘This can’t be the whole line is it?’ And she said, ‘No, you have to sign up first and it’s a five-hour wait.’ ”
Staff writer Hannah Madans and The Associated Press contributed to this report.
