Giant Retailer J.C. Penney Files for Bankruptcy
J.C. Penney is the latest retailer to file for Chapter 11 bankruptcy protection. According to USA Today, the retailer expects to close almost 30% of its stores as it tries to emerge leaner and more competitive. In all, about 242 stores should close in the next fiscal year, leaving Penney’s with a little over 600 stores operating in the United States.
This bankruptcy filing is not unexpected. Many Penney stores are in malls which have seen a dramatic drop in foot traffic. Also, the company has made several missteps over the years, including having 4 CEOs in 7 years and trying to sell appliances, a strategy which it eventually abandoned.
J.C. Penney Will Continue to Operate
Retail has struggled for years, and the recent coronavirus pandemic has only accelerated the number of businesses seeking Chapter 11 protection. J.C. Penney experienced a 7.7% reduction in sales, year over year, which is testament to the headwinds that retailers face.
This filing follows hot on the heels of other retailers filing for bankruptcy, including J. Crew. Penney’s, however, is an iconic brand that has been in business for 118 years. Based on its bankruptcy filing, it had $500 million in cash (against $4 billion in debt). The company has also managed to secure commitments for an additional $900 million in financing. This money should allow it to continue operations as it proceeds through bankruptcy court.
Chapter 11 is the go-to bankruptcy for firms that want to continue to operate but need to restructure debt. Historically, only very large companies filed for Chapter 11, which was not really an option for small and family businesses due to complicated reporting requirements. Creditors also have rights in bankruptcy to reject any restructuring plan. Fortunately, the Trump administration has changed the rules so that Chapter 11 is now an attractive option for smaller businesses. Reporting requirements have been simplified, and we can discuss whether this is a better option for your company than liquidating.
Will Amazon Buy J.C. Penney?
The business press is reporting that Amazon is interested in purchasing J.C. Penney, which would certainly be an interesting acquisition for the online retailer. According to reports, Amazon representatives were visiting J.C. Penney’s headquarters to engage in talks soon after the company filed for Chapter 11.
Apparently, Amazon is interested in branching out into different sectors, including apparel. The company is also considering breaking into the movie theater business by purchasing AMC Entertainment Holdings. The recent economic depression has made many companies prime targets for companies like Amazon, which are looking to aggressively expand. Sometimes, filing for Chapter 11 is a sensible choice if a purchaser is on the horizon.
Let’s Talk about Business Bankruptcy
Retailers like J.C. Penney are not the only companies struggling in the current environment. If you are interested in options for the future of your small business, give us a call. Nowack & Olson, PLLC helps more than individual consumers; we also help entrepreneurs decide how to survive in a tough business environment. Call us today at 888-813-4737 to schedule a consultation with a skilled Plantation bankruptcy lawyer.