Struggling retailer J.C. Penney (JCP) announced it will be closing 33 stores and eliminating 2,000 jobs as it continues to struggle with expenses and dwindling mall traffic. It’s a relatively small cut for the merchant which still runs more than that 1,000 stores across the country, but the move reflects the trend of so-called brick and mortar retailers shifting out of underperforming stores and emphasizing on the online shopping experience.
J.C. Penney is hardly alone. Competitor Macy’s (M) announced it was eliminating 2,500 jobs in its stores last week despite strong holiday results. Retail industry research firm Shoppertrack estimates overall sales grew 2.7% over the 2013 holiday season despite a stunning 14.6% decrease in mall foot traffic.
The lost jobs and store closures are obviously bad news for employees, but the decision to shutter underperforming locations in a controlled manner is actually a marked improvement for J.C. Penney as a company. Under former CEO Ron Johnson the chain had cut an estimated 20,000 jobs or roughly 15% of its total workforce in less than one year starting in April of 2012. Johnson also cut more than 1/3 of the 4,800 employees once working at the company’s Plano, Texas headquarters.
In the more cutthroat environment of 2014, mall-based retailers are going to be forced to scale back brick and mortar stores. Consumers shouldn’t be expecting their local malls to become ghost towns overnight but big box stores like J.C. Penney are often anchor tenants of shopping centers. Once the big stores close traffic dries up and the malls themselves go on life support.
The good news for J.C. Penney loyalists is that the remaining locations are going to be more efficient, cleaner and generally nicer places to shop. Had the chain been more proactive about cutting back poor performing stores in the past it likely could have avoided a lot of the pain employees and customers have had to endure over the last two years.
Wall Street isn’t cheering the move today but moves like today’s announcement are actually a sign of recovery at J.C. Penney. Investors and customers can expect a few more steps back along the way but a leaner, meaner, cleaner store base is going to be critical if J.C. Penney is going to survive for the long term.
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