J.C. Penney finally gave in to reality and said on Friday it was closing up to 140 stores in the coming months to focus on improving its locations with the most potential.
The announcement came as Penney (JCP) reported a 0.7% decline in comparable sales for the holiday quarter, the third period out of four last fiscal year to see business soften. The results are a setback for a retailer that had been coming back from the brink after an ill fated attempted to be hipper in 2012.
Penney, which operates about 1,000 stores, had halted store closings last year, saying that its physical stores were essential to supporting its e-commerce, given that about one third of orders are shipped from, or picked up in a store. (Earlier this week, Kohl’s said it would shrink rather than close stores for that reason.)
But as the retailer expands its chain of Sephora boutiques, new appliance sections, and upcoming Nike (NKE) boutiques, it has decided to concentrate its efforts on stores that can succeed, acknowledging it cannot keep all stores in such a massive fleet up to standard.
“Our decision to close stores will allow us to raise the overall brand standard of the Company and allocate capital more efficiently,” Penney CEO Marvin Ellison said in a statement.
In a Coins2Dayprofile a year ago, Ellison said that almost all Penney stores generated more cash than they consumed. But since then, rivals like Macy’s (M) and Sears (SOLD) have closed hundreds of stores, something that will decimate traffic at malls the three chains co-anchor.
What’s more, 1,000 stores is roughly the size of the fleet that Penney possessed when it had annual sales of $19 billion a decade ago. In 2016, they came in at $12.5 billion.
As detailed in an in-depth examination of department stores in the current issue of Coins2Day, chains like Penney are struggling with shifting consumer habits and an exodus of shoppers from malls.
The stores being closed, the list of which will be released next month, make up about less than 5% of total annual sales, Penney said. The retailer has about 600 mall-based stores and another 400 smaller standalone stores in smaller markets.
Though Penney had been making progress in 2014 and 2015, sales growth stalled last year (comparable sales, which include e-commerce but exclude newly opened or closed stores, were unchanged), and for 2017, Penney expects comparable sales to range from a 1% drop to a 1% increase.
That’s better than the forecasts from Macy’s and Kohl’s (KSS), but one that suggests Penney’s comeback has stalled.
On a more positive note, Penney reported its first year of profit, but just barely: net income was $1 million.