Mass merchant JCPenney says its no longer operating under the constraints of bankruptcy court protection.
The business was sold by bankrupt J.C. Penney Co. Inc. to its two major landlords, Simon Property Group and Brookfield Asset Management. The company already secured bankruptcy court approval on Nov. 9.
“We have always been firm believers in JCPenney, and are very pleased to help preserve this iconic institution and save tens of thousands of jobs,” said David Simon, Simon’s chairman, president and CEO. “JCPenney is now poised for a future focused on innovation and consumers, while continuing to navigate through the pandemic. We are excited about JCPenney’s future growth and look forward to collaborating with the JCPenney team to serve its customers and communities.”
Brian Kingston, CEO of Real Estate at Brookfield, said the mall operator is “excited to help lead the turnaround of a storied institution while saving tens of thousands of jobs and continuing to serve over 35 million customers.”
The company’s Retail Revitalization Program was set up to make this kind of investment, Kingston added, and “along with our partner Simon we have a successful blueprint in place to deploy our collective operational expertise and industry relationships to transform JCPenney through new innovations and offerings.”
As part of the bankruptcy exit, JCPenney has access to about $1.5 billion of new financing, which includes a new asset-based lending facility led by Wells Fargo.
New JCPenney: what to know
New JCPenney, the retail operation sold to Simon and Brookfield, doesn’t own anything and represents the OpCo component noted in the bankruptcy of old J.C. Penney Co. Inc. The real estate assets are still owned by the bankrupt old company, J.C. Penney Co. Inc., which is still under bankruptcy court supervision, and those assets are still slated to be placed into two real estate investment trusts, one for 160 stores and the other for the six distribution centers. That component was referred to as PropCo in the bankruptcy and when that sale is completed, will be owned by the majority of first-lien lenders.
The bankruptcy court approved J.C. Penney’s reorganization plan that broke the business into the PropCo-OpCo holding companies. The PropCo sale is expected to be completed in the first half of 2021, JCPenney said on Monday, adding that OpCo will enter into master leases with the PropCos. While JCPenney will continue to operate the properties and distribution centers, it will rent rather than own the assets.
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Also on the agenda might be the inclusion of some brands owned by Authentic Brands Group as part of JCPenney’s merchandise mix. ABG holds the licensing rights to the Shaquille O’Neal brand, and Shaquille is already the Big & Tall Style Ambassador for the department store retailer. While there’s nothing official yet about other brands in ABG’s portfolio umbrella, ABG chairman and CEO Jamie Salter, a firm believer in the department store business, discussed the possibility for “some of our brands that make sense for JCPenneys” during the WWD Virtual Apparel and Retail Summit last week. The department stores that are doing well are those that, like Macy’s Inc., have done a great job switching over to e-commerce, he added. That would be a greater area of focus for JCPenney “if we get involved with [the retailer],” he said.
JCPenney CEO Jill Soltau described the exit Monday as “an exciting day for our company, as we have accomplished our goal of putting JCPenney on a secure path for the future as a private company so that we can continue to serve our loyal customers.” Recognizing the company’s vendor support and employees’ hard work, Soltau added, “With this closing, our operating company has exited Chapter 11 and is continuing under new ownership and the JCPenney banner.”
The sale allows JCPenney to remain in operation and keep over 6o,000 American employed. New financing gives the retailer access to funding and the ability to pay vendors for new orders.
And while JCPenney has exited Chapter 11 ahead of the critical holiday season, it’s also starting anew at a time when the coronavirus pandemic is strengthening its grip on the American economy.
Over the weekend, California Gov. Gavin Newsom issued a new set of regional restrictions for businesses and activities designed to last for at least 21 days, impacting 11 Southern California and five San Francisco Bay Area counties. For now, retailers can remain open, but they are limited to operating at a 20 percent capacity. Other states might do the same, and there’s no guarantee that there won’t be another mandate by state and local governments to temporarily close all nonessential retail businesses if confirmed cases spike substantially in the weeks ahead.
Even without the presence of Covid-19, JCPenney would still have a tough road ahead. While the old J.C. Penney was struggling with a high debt load, it was also losing market share to digitally savvy competitors that sold merchandise appealing to younger consumers. That’s not to say there isn’t a place for the aging nameplate, but the retailer already lost much of its customer base years ago when former CEO Ron Johnson tried and failed in his ill-fated efforts give the business a younger, edgier makeover.
Many of JCPenney’s former customers have migrated elsewhere to shop, and those scars from the Ron Johnson era run deep.