Last Friday, J.C. Penney, one of the largest apparel and home retail stores in America, announced it had filed for Chapter 11 bankruptcy. This means the store will reorganize its finances through court-supervised proceedings while continuing operations.
The massive retailer will shift to its bankruptcy plan, which includes the closure of 240 stores — 192 by Feb. 2021, and another 50 in 2022.
During the process, J.C. Penney plans to continue to operate as one of the nation’s largest retailers. The company has received $900 million from existing first lien lenders, $450 million of which is new money.
The decision comes days after CEO Jill Saltou received $4.5 million in bonus pay, a figure revealed in a May 10 filing to the Securities and Exchange commission. Other top executives received bonus payouts. The recipients waive their rights to any long-term incentive rewards, but the bonuses give them further motivation to stay on board as the company restructures.
When asked if the Montrose location would be part of the closures, Dione Martin, a J.C. Penney spokesperson, said it was still early in the process, and the company doesn’t have a list of stores yet that will be impacted by the restructuring.
However, this restructuring will allow J.C. Penney to accelerate its store optimization strategy, Martin wrote via email. The transformation will reduce the store footprint, which should better align the business with the current operating environment.
Throughout the Chapter 11 process, stores will close in phases, with the first phase of closures to be disclosed in the coming weeks. Specific stores and timing will also be announced at that time.
J.C. Penney wasn’t the only company that filed for Chapter 11 recently. Gold’s Gym on May 4 announced in a press release their plan to undergo a financial restructuring. COVID-19 forced the company to close 30 company-owned gyms, but locally-owned franchise gyms should not be impacted by the filing.
“The purpose of this filing is to maintain the strength and growth potential of the Gold’s Gym brand, as well as ensure the continued viability of the company for decades to come,” said Adam Zeitsiff, Gold’s Gym president and chief executive officer in a video message on the company’s website. “It is our intent to be on the other side of Chapter 11 by August 1, if not sooner, and emerge stronger so that we can continue to operate our company-owned gyms, support our global franchisees, employ our teams, and most importantly, serve our millions of members in nearly 700 gyms worldwide.”
Similar to J.C. Penney, the company is seeking court approval to continue paying suppliers, vendors and employees.
A letter posted to the Montrose Gold’s Gym social media page says it will be reopening as soon as state and local authorities allow.
“We know there have been multiple corporate Gold’s Gym closures and to be clear, this has been a very tough time for us as a franchise, but with the recent filing of Chapter 11 bankruptcy by Gold’s Gym Corporate, we want to reiterate that we as a franchise are not part of this filing and should not be affected or tied to this filing in any way,” the letter states.
Zeitsiff confirmed the reopening of the Montrose Gold's Gym in an email to the Montrose Daily Press.
“The filing does not have an impact on our franchisee-owned Gold’s Gym locations, including the gym in Montrose. Franchisees will make the decision on when to reopen their gyms when they get the greenlight from state and local officials and feel it is safe for their members, team members and communities,” said Zeitsiff.
Not only has the coronavirus impacted major retailers and global franchisees, but local businesses have seen changes as well.
Intrinzik, a live music venue in Montrose, announced on April 22 that it will not reopen when allowed to do so, citing a financial situation that is “simply too great.”
Russell Stover Chocolates, which was already departing Montrose, had to move up its departure date.
So what’s forcing such a swift and impactful change for businesses not just locally, but across the nation?
Well, for one, the coronavirus ground much of the economy to a screeching halt.
On May 8, the Labor Department reported the U.S. economy lost 20.5 million jobs in April. With millions unemployed, selective spending became even more prominent the past few months.
According to a consumer pulse survey conducted by McKinsey and Company, in the United States, consumers anticipated they would slash their spending on apparel by over 50%, and fitness and wellness around 40%.
It isn’t limited to in-person spending, either.
COVID-19 has forced consumers to carefully choose how they spend their money online as well, with a greater focus to spend on groceries, take out/delivery, and personal care products. The study was conducted from March 15 through May 3.
So, for many companies and local businesses who were already facing financial struggles, COVID-19 represented a serious blow.
On May 19, Pier 1 Imports announced it would close all 540 stores due to the COVID-19 pandemic. The home decor retailer filed for bankruptcy in February. Three months later, with temporary closures and an inability to find a buyer, the company opted to call it quits.
“Ultimately, due to the combination of a challenging retail environment and the new reality and uncertainty of a post-COVID world, the company and its advisors determined that an orderly wind-down is the best way to maximize the value of Pier 1’s assets,” the company said in the press release.
What J.C. Penney and Pier 1 have in common sheds some light on the recent developments: A decline in sales for both companies made sustainability difficult. With a pandemic, and even more drastic shifts in consumer behavior, the road to recovery can become too much to bear, as Pier 1 decided.
For the rest of 2020, the outlook is similar to those recent developments. Gita Gopinath, chief economist at the International Monetary Fund, in a press conference in mid-April predicted the global economy to fall by 3%.
Gopinath forecasts a 5.8% growth next year, but it will only be a partial recovery.