J.C. Penney is closing two distribution facilities and about 130 to 140 stores over the next few months "to optimize its national retail operations," the company announced Friday morning.
Marvin R. Ellison, chairman and chief executive officer of J.C. Penney, said in 2016 the company actually achieved its first net profit since 2010, but he wants sustainable growth.
"However, we believe we must take aggressive action to better align our retail operations for sustainable growth. During the year, it became evident the stores that could fully execute the Company's growth initiatives of beauty, home refresh and special sizes generated significantly higher sales, and a more vibrant in-store shopping environment," said Ellison. "We believe the relevance of our brick and mortar portfolio will be driven by the implementation of these initiatives consistently to a larger percent of our stores. Therefore, our decision to close stores will allow us to raise the overall brand standard of the Company and allocate capital more efficiently."
The store locations which will be closed have not been announced yet. The company said that information will be announced mid-March and that all of the stores closing are expected to shutter in the 2nd quarter of 2017. J.C. Penney has more than 1,000 store locations nationwide.
Here's part of the release explaining the impact on the company:
The total store closures represent approximately 13 - 14 % of the Company's current store portfolio, less than 5% of total annual sales, less than 2% of EBITDA and 0% of net income. The stores identified for closure either require significant capital to achieve the Company's new brand standard or are minimally cash flow positive today relative to the Company's overall consolidated average. Comparable sales performance for the closing stores was significantly below the remaining store base and these stores operate at a much higher expense rate given the lack of productivity. Once cycled, these closures are expected to be net income neutral.
The annual cost savings resulting from these strategic decisions, primarily occupancy, payroll, home office support, corporate administration and other store-related expenses, are estimated at approximately $200 million. During the first half of 2017, the Company expects to record an estimated pre-tax charge of approximately $225 million, primarily lease termination obligation expenses, non-cash asset impairments and transition costs, in connection with this initiative.
The Company plans to release a full list of planned closures in mid-March pending notification of all affected personnel. Nearly all impacted stores are expected to close in the second quarter of 2017.
"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. We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce, while leveraging physical locations to minimize the growing operational costs of delivery. In fact, in 2016 approximately 75% of all online orders touched a physical store. Even with a reduced store count, JCPenney is competitively positioned to deliver a differentiated department store model that meets the expectations of a digital world with an inspiring, tangible shopping environment," Ellison added.