The Bankruptcy of JC Penney May Be a Bellwether for Retailers

The bankruptcy of JC Penney could be a bellwether of things to come. The retailer is facing high debts and may have to go private. It is also losing tenants in its stores and malls. Despite the fact that both J.C. Penney and Nordstrom are based in Texas, they are not immune to the economic downturn.

JC Penney’s bankruptcy could be a bellwether for things to come

The bankruptcy filing by JC Penney, which has eighty-four locations and a staff of 85,000 people, may be a warning bell for retailers everywhere. The company faces declining foot traffic at malls and the rise of smaller and nimbler competitors. The company’s financial position was solid before the pandemic hit, and it was in the process of improving its operations. However, the company’s physical stores saw virtually no sales.

While the bankruptcy of the nation’s largest department store chain wasn’t a shock, its announcement is a warning that more retailers may be facing similar realities. The company owed nearly $2 billion to creditors and was facing a rapidly declining brand cache. It was also suffering from the coronavirus, which shut off nearly all of its revenue. The global crisis only compounded the situation, as consumers shifted more to online retail.

While talks to save Penney have been ongoing for weeks, some egos are getting in the way. In addition, lenders are preparing to make a credit bid for the retailer. Assuming that the sale of the retail chain is completed, the lenders will get their fair share of the company’s debt.

It could be a sign of things to come

JCP is one of the most hotly discussed turnaround stories of 2014, with vitriol on both sides of the aisle. The longs see a tremendous value play, while the shorts see a broken, mismanaged relic of a bygone retail era. So which group is right?

Bulls point to the new CEO as a possible catalyst for change. A new CEO could communicate a hopeful and optimistic plan. The stock may be in the low 30s, and the company could be able to boost profits by expanding its Sephora business and attracting higher-earning customers. It could also announce that it plans to cut SG&A costs.

It could be a bellwether for Nordstrom

With Nordstrom and JCPenney both reporting disappointing earnings, investors are looking for an investor reaction to the results. Nordstrom’s second-quarter results show that the company has caught up with eCommerce sales, but the company still lags behind competitors, as evidenced by its lack of eCommerce sales momentum. The stock fell nearly 12% on the news, but JCPenney’s stock did not.

But, Nordstrom is in better financial shape than JCPenney. It still has enough market value to attract a buyer, with a market cap of about $100 million. Meanwhile, investors have been trying to make sense of the company’s recent cost-cutting moves, which have temporarily improved its bottom line. In addition, investors have asked the bankruptcy court to create an official shareholders committee, which could add to the pressure on the company to sell off its remaining assets.