JCPenney tight-lipped about fate of stores in Tri-State after recent closing announcement

Region lucky so far with department store downturn
Posted at 7:31 AM, Mar 08, 2017
and last updated 2017-03-08 13:53:14-05

CINCINNATI -- So far, Greater Cincinnati has survived unscathed as some of the country’s biggest department store chains shutter stores from Maine to Malibu.

The region dodged the most recent store-closing avalanche when Macy’s, which has corporate offices in Cincinnati and New York, announced plans last August to close 100 of its 730 stores in 2016 and this year; while the Sears Holdings Corp. said in January it would pull the plug at 42 Sears locations and 108 Kmarts that are losing money.

The list included seven Kmarts in Ohio and an equal number in Kentucky, as well as four Sears locations in Ohio. Macy’s has identified 68 of the stores that have closed or will close, including four in Ohio and two in Kentucky. All are outside Greater Cincinnati.

It’s now about two weeks and counting before another department store behemoth, JCPenney Co., discloses whether any of the five stores in the region will get bad news from the corporate office in Plano, Texas.

JCPenney announced Feb. 24 it would close as many as 140 of its 1,046 stores this year and offer early retirement to some 6,000 employees who qualify based on their age and years of service.

The list of store closings will be announced in mid-March, according to company spokesman Joseph Thomas. He declined to answer questions on which stores will go dark.

From all indications, Greater Cincinnati employees haven’t been tipped off about the fate of their stores, which seems to be information that’s guarded as closely as nuclear launch codes.

Penney store managers in the Bridgewater Falls Shopping Center in Hamilton, the Eastgate Mall, the Colerain Township store, Governor’s Plaza on Mason-Montgomery Road and the Florence Mall either said they had not received any information about the closings or didn’t return phone calls seeking comment.

“The list is not out, and nobody knows which stores are being closed,” said Tari Thomas, manager of the Hamilton store.

People who make a living by analyzing the retail industry say like many things, the biggest single factor in shutdown decisions will be money.

Penney’s stores that are performing well will survive. Struggling locations won’t be that fortunate for a retailer that reported a modest profit last year for the fist time since 2010 and estimated it will save $200 million a year by closing the stores.

Only Penney insiders are privy to data about how well individual stores perform, and that information is highly confidential for competitive reasons, said Howard Davidowitz, chairman of retail industry consulting firm Davidowitz & Associates in New York.

“Penney’s is in the worst segment of retailing -- department stores,” said Davidowitz. He pointed to recent store closing announcements by Macy’s, the Sears-Kmart combination and gloomy financial reports for the Bon-Ton Stores, a Milwaukee-based chain that has about 265 stores in the U.S.

The explosive growth of online retailing, the millennial generation’s aversion for suburban shopping malls, a shrinking number of middle class consumers and an overabundance of shopping venues all make it difficult for department stores to compete successfully, Davidowitz said. “We are over-stored. For example, we have three times as much retail space as England, Canada and Japan,” Davidowitz said.

“The percentage of stores that close will be higher than the percentage of (the company’s) sales that they produce,” Davidowitz said.

Much closer to Cincinnati, Mike Halonen shared Davidowitz’s opinion about how tough it is to gather bottom line information about a specific store and how important that data is in the store closing equation. Halonen is a partner in the Edge Real Estate Group, a commercial real estate firm that is headquartered in Covington and does business in a triangle bounded roughly by Lexington, Louisville and Columbus.

“We don’t have information about individual store performance, but it’s typically the case that underperforming stores will be scaled back or shuttered,” Halonen said.

He said he believes the Penney stores in the region are situated on valuable pieces of property and that these good locations could prove to be important to the company in the future. “If it (the real estate) was vacant, there would be a demand for it,” Halonen said.

Penney spokesman Thomas made it clear in an email that the company is trying to compete online as well as through traditional bricks-and-mortar locations.

“Even though we’re closing a larger number of locations this year than we have in the past, we continue to recognize the importance of physical stores in an ever-evolving retail landscape. … Plus, physical stores are key to our omni-channel strategy by providing e-commerce support through order fulfillment, same-day pickup, exchanges and returns.

“That said, it’s essential to adjust our store portfolio and invest in those locations that offer the best expression of the brand and can function as a seamless extension of the omni-channel experience,” Thomas said.

A research report from analyst Oliver Chen, who follows retailing for Cowen & Company, an equity research firm in New York, described Penney management as “stellar” and seemed cautiously optimistic about the company’s future.

Penney’s "remains committed to growing its omni-channel business as the retailer continues to successfully rollout BOPUS (Buy Online Pick Up In Store) and other initiatives,” Chen and members of his research team said in their February report. “Overall, BOPUS and ship-from-store penetration improved to 40 percent of sales in (the fourth quarter) while percentage of online orders that touched a physical store increased to 77 percent in 2016 … (The company) remains a pioneer in omni-channel innovation and we expect additional announcements around optimization of store and digital platform … further enhancing the shopping experience.”

In January, more than a month before Penney's store closing announcement, Chen predicted Penney would close between 100 and 300 of its stores inside of two years, according to reports by CNBC, Business Insider and the Dallas Morning News.

Mike Timmermann, a frequent contributor to the website of Clark Howard, whose syndicated radio show and website focus on saving money and finance, wrote a recent column that provided three tips about whether a Penney store may be on life support.

“Never have to worry about finding a parking space at your Penney's? There may be reason to worry about its future because all of the closing stores are underperforming,” Timmermann wrote. “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.”

He contends aesthetics also can be critically important.

“Does your (store) look like it was due for a remodel 10 years ago? That could be a problem as the retailer works to raise its ‘overall brand standard,’ ” Timmermann wrote. “(Penney chairman and CEO Marvin Ellison) added that it’s essential to keep stores that present the 'best expression of the brand.' ”

But don’t think for a minute that anything about Penney's plans has been chiseled in stone.

A year ago -- precisely on March 6, 2016 -- Fortune, the well-respected business magazine, interviewed Ellison, who insisted that the company had no plans to initiate “wholesale closings” in a chain that had shut down 83 stores in the previous three years.

The key question may be whether closing 140 stores -- about 13 percent of the Penney’s locations -- equates to a “wholesale closing.”