Shortly after J.C. Penney filed its long-expected Chapter 11 application on Friday, Amazon appeared in the wings with a mind to pick up the troubled department store chain on the cheap, according to Women’s Wear Daily.
“There is an Amazon team in Plano [TX] as we speak,” a source who does business with Amazon told WWD, referring to J.C. Penney’s headquarters. “There is a dialogue and I’m told it has a lot to do with Amazon eager to expand its apparel business — for sure.”
According to J.C. Penney’s 8-K filing with the Securities and Exchange Commission, the Chapter 11 restructuring agreement calls for closing 242 of its 846 stores by 2021, setting up a real estate investment trust (REIT) to handle the balance of its physical assets, and receiving $900 million in debtor-in-possession financing in installments from its creditors.
The store closure count may not be a final one, the company said in the filing, adding the remaining stores were its most profitable and productive. J.C. Penney also has $500 million in cash on its books, the company said.
In a month’s time, J.C. Penney must submit both a lease optimization and a real estate optimization plan, and a business plan by July 8, which the company and its creditors must agree to by July 14.
Management at J.C. Penney suffered a huge PR backlash after it was announced last week top executives were awarded $10 million in retention bonuses days before the bankruptcy filing, and after stores were closed and workers furloughed. This included $4.5 million to CEO Jill Soltau.
J.C. Penney had been in a tough position even before COVID-19 hit, which pushed it quickly into a bankruptcy filing. It had a poor holiday season, as did other department store chains like Macy’s and Kohl’s.
While sources told WWD that Amazon may be looking to make the Penney’s locations into high-tech stores like its high tech, checkout-less Go stores, Forrest analyst Sucharita Kodali was skeptical of that idea.
“Go is for small formats, not large formats,” Kodali said, adding the deal would be a bad one for Amazon. “And the locations (of J.C. Penney stores) are terrible—B and C malls that no one was going to anyway, even before there was a pandemic.”
Colin Sebastian, an analyst with Robert W. Baird, said Amazon is always looking at potential acquisitions so this very well could just be exploratory. Beyond that, he said, the local distribution approach at Penney’s 30 freestanding U.S. stores could make sense for Amazon.
“I think in this case there would be interest in more local fulfillment and distribution capacity, and perhaps a larger presence in apparel,” Sebastian said. “Valuations are near rock-bottom in retail, especially department stores, and stores are still operational, so if they are interested in this type of footprint, now would seem to be the right time to make the move.”
James Thomson, co-founder of Amazon seller advisors Buy Box Experts, agreed with Sebastian that Amazon could be doing some strategic bargain hunting, especially to boost its apparel game.
“I agree Amazon needs a lot of help with apparel, so it’s logical they would look at J.C. Penney as a possible acquisition,” Thomson said. “But I don’t know anything of Penney’s total assets, like how many locations it actually owns vs. rents or how many sourcing relationships with apparel brands that may or may not stay if Amazon became the owner.”