J.C. Penney closing up to 140 stores, two distribution centers

Jon Harris/The Morning Call - J.C. Penney Co. Inc. is slimming down its brick-and-mortar footprint as the department store chain continues its turnaround while navigating a tough climate in which traditional retailers are trying to grow online sales.

The Plano, Texas, retailer announced Friday it expects to close 130 to 140 stores and two distribution centers over the next few months. J.C. Penney plans to release a complete list of the planned closures in mid-March, with almost all affected stores slated to close in the second quarter.

The only J.C. Penney store in the Lehigh Valley is at Lehigh Valley Mall in Whitehall Township. The next closest stores are at Stroud Mall in Monroe County and Montgomery Mall in North Wales, Montgomery County. The retailer also operates 13 distribution centers — none of which are in Pennsylvania, according to the company's annual report.

Retail analyst Jeff Green, owner of Jeff Green Partners in Phoenix, said he expects the J.C. Penney at Lehigh Valley Mall to survive this round of closures. While the stores slated for closure represent 13 to 14 percent of the chain's 1,000 locations, Green noted those stores make up less than 5 percent of the retailer's annual sales.

"That's the key line," Green said, "because it tells me it's the underperforming, low-volume stores, of which they have a tremendous number in small markets throughout the U.S. It's markets much smaller than yours, and it will be locations that are not necessarily in the best performing malls in the country — of which Lehigh Valley Mall is certainly toward the top."

Lehigh Valley Mall, including its two-level enclosed shopping mall portion and its attached horseshoe-shaped outdoor lifestyle center, has a gross leasable area of 1.18 million square feet and an occupancy rate of 97.7 percent, according to Simon Property Group, which co-owns the mall with Pennsylvania Real Estate Investment Trust. J.C. Penney has a 207,292-square-foot space at the mall, a shopping center that was doing $570 in sales per square foot as of Dec. 31, up from $566 a year earlier, according to a public filing from PREIT.

Within PREIT's portfolio, only the J.C. Penney store at Willow Grove Park in Abington Township, Montgomery County, is slated to close, PREIT CEO Joseph Coradino said on a conference call Friday with analysts. That planned closing is despite Willow Grove's performance, which is trending toward $650 in sales per square foot, he noted.

"The Penney's store was a Penney's store that was one of the first [former J.C. Penney CEO] Ron Johnson prototypes," Coradino said. "I could stop there or continue. It really is not a traditional J.C. Penney. I think it never really regained the former J.C. Penney customer."

"We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers," J.C. Penney Chairman and CEO Marvin R. Ellison said in a news release. " ... It is essential to retain those locations that present the best expression of the J.C. Penney brand and function as a seamless extension of the omni-channel experience through online order fulfillment, same-day pickup, exchanges and returns."

To avoid net layoffs, Ellison said J.C. Penney is offering a voluntary retirement program to about 6,000 employees across the company. The number of full-time associates expected to take early retirement will "far exceed" the number of full-time positions affected by the store closures, he added.

J.C. Penney has made cuts in the Lehigh Valley before. The company closed its Phillipsburg Mall department store in 2014, and shed about 325 workers when it closed its Upper Macungie Township distribution center in 2012 — a year before Johnson was ousted following a significant drop in sales. In 2013, for example, J.C. Penney's total sales decreased about 9 percent and the company reported a net loss of nearly $1.3 billion.

By comparison, the company on Friday reported a 0.6 percent decrease in sales in 2016, a year in which it posted a $1 million profit, marking the first time J.C. Penney has achieved an annual profit since 2010.

Helping the retailer in its turnaround has been its decision to add cosmetic store Sephora into many of its locations and, more recently, re-enter home appliance sales. In late August, J.C. Penney debuted its major appliance showroom at its Lehigh Valley Mall store, a location that also has a Sephora.

In the fourth quarter, J.C. Penney said its top-performing merchandise divisions were home, Sephora, salon and fine jewelry.

While the store-within-a-store model has worked for J.C. Penney, Green said the retailer still has plenty of work to do, which it acknowledged by announcing store closures the same day as reporting its first profit in six years.

"That turn is continuing," Green said. "It hasn't quite made it where it needs to go to solidify, especially in this environment where department stores are being hit so hard."