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From Home Furnishing Business

JCPenney to Close 130-140 Stores, 2 Distribution Centers

JCPenney announced Friday it will close 130 to 140 stores and two distribution centers in the next few months, allowing the retailer to focus its investments on stores with the greatest revenue potential.

The company said the closings will help align its brick-and-mortar presence with its e-commerce network.

Most of the stores will be shuttered by the end of the second quarter, and the company said it will release a list of the affected stores in mid-March.

“In 2016, we achieved our $1 billion EBITDA target and delivered a net profit for the first time since 2010; however, we believe we must take aggressive action to better align our retail operations for sustainable growth. During the year, it became evident the stores that could fully execute the company’s growth initiatives of beauty, home refresh and special sizes generated significantly higher sales, and a more vibrant in-store shopping environment,” said Marvin R. Ellison, chairman and CEO.

“We believe the relevance of our brick and mortar portfolio will be driven by the implementation of these initiatives consistently to a larger percent of our stores. Therefore, our decision to close stores will allow us to raise the overall brand standard of the company and allocate capital more efficiently.”

The company said the stores identified for closure either require significant capital to achieve the company’s new brand standard or are minimally cash flow positive today relative to the company’s overall consolidated average. Comparable sales performance for the closing stores was significantly below the remaining store base and these stores operate at a much higher expense rate, given the lack of productivity.

“We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce, while leveraging physical locations to minimize the growing operational costs of delivery,” said Ellison. “In fact, in 2016 approximately 75% of all online orders touched a physical store.

“Even with a reduced store count, JCPenney is competitively positioned to deliver a differentiated department store model that meets the expectations of a digital world with an inspiring, tangible shopping environment,” Ellison added.

The company also will close a distribution center in Lakeland, Fla., in early June, and is in the process of selling a similar facility in Buena Park, Calif. 

In conjunction with the closings, the company is offering a voluntary retirement package to about 6,000 employees. Depending on how many accept the offer by the March 17 deadline, the retailer may wind up hiring more workers after the stores are closed, Ellison said.

The annual cost savings resulting from these decisions -- primarily occupancy, payroll, home office support, corporate administration and other store-related expenses -- are approximately $200 million. During the first half of 2017, the company expects to record a pre-tax charge of approximately $225 million, primarily lease termination obligation expenses, non-cash asset impairments and transition costs, in connection with this initiative.

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