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Mall Owners Try to Rescue JCPenney

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The death of the department store has been a sad media narrative all year, as countless chains declared bankruptcy or insolvency against the coronavirus pandemic. Among the national brands filing for bankruptcy was JCPenney, the perennial mall anchor that had 800 national locations as of May. 

But JCPenney may find its way yet. This week, Simon Property Group and Brookfield Property Group, which own and manage shopping malls across the U.S., announced a deal to buy-out JCPenney. And the agreement looks mutually-beneficial.

Buy Out

For the meager price of $1.75 billion, Simon and Brookfield plan to acquire “substantially all of JCPenney’s retail and operating assets.” The company says it will make the purchase through a combination of cash and debt. But are they investing in a sinking ship?

Certainly the pandemic has made clear how delicate JCPenney’s bricks-and-mortar business model is. Amid lockdowns, most locations had to close or, at best, operate at limited capacity. Additionally, with so many out of work, fewer shoppers are looking for office attire and fewer are making discretionary purchases.

But JCPenney has been in danger for years. In fact, the department chain has not turned a profit since 2010, as consumer trends have changed and the shopping mall has seen decline. That’s where Simon and Brookfield see a chance to help themselves.

Life Support

The heyday of the great American shopping mall is behind us. As e-commerce and instant delivery have made it easy to shop from home, big department stores in big malls have withered. Even before the pandemic, a record 9,300 shopping mall stores closed last year, and CNN predicts that another 25,000 stores could shutter by the end of 2020. Even Macy’s, once a force in the mall economy, announced plans to close 125 more stores in the next three years. And that was before any state even issued a shelter-in-place order.

But groups like Simon and Brookfield, which own malls across the States, hope that they can stabilize a dying brand like JCPenney. By acquiring the store, the shopping malls will have more control over their own viability. And it’s been done before; Simon previously took part in a group buy-out of Forever 21 when it declared bankruptcy last year.

Still, even if the mall groups can keep JCPenney on life support, there is no guarantee that the 125-year-old franchise will survive the crisis. Pier 1, for example, filed for bankruptcy with the intention of staying in business. But the home furnishing chain is now in the process of closing all of its stores for good.

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