In Ernest Hemingway’s novel, The Sun Also Rises, a character named Mike Campbell is asked how he went bankrupt. He offers the sobering and famous line, “Two ways. Gradually, then suddenly.” J.C. Penney’s demise mirrors just that. It was a slow-moving retail trainwreck that lasted for years, then Covid-19 quickly pushed it over the edge into bankruptcy.
The saga of J.C. Penney is emblematic of the pandemic era. It’s the sad story of American entrepreneurism and Horatio Alger’s “rags to riches,” along with a Greek tragedy ending.
J.C. Penney’s history dates back to 1902 with its first store in Kemmerer, Wyoming. It grew to become a household name, major nationwide shopping retailer and well-known anchor at big malls. Back in the ‘80s, J.C. Penney was the go-to family retailer. It sold a wide array of products—ranging from fashion to homewares. Slowly and steadily, the giant retailer began to lose its way and fell out of touch with its core customers. By the late 1990s, it was seen as a relic of a bygone era.
The company was saddled with debt and spent the last decade with a continual turnover in CEOs, new store designs that couldn’t spark interest, initiatives and rebrands that didn’t resonate with customers. The once-beloved retailer has been unprofitable since 2010 with net losses of $4.5 billion.
The company survived the Great Depression, World Wars and the financial crisis, but just couldn’t contend with the confluence of aggressive competitors, such as Walmart, Target, online juggernaut Amazon and the forced closures of nonessential business in the wake of the coronavirus. Covid-19 was the straw that broke the company’s back after 118 years in business.
After more than a century in business, J.C. Penney filed for bankruptcy protection. It paid out millions of dollars to top executives right before it happened. Thousands of workers lost their jobs. Shareholders saw their investments in the company plumett. In a regulatory filing, it was disclosed that then-J.C. Penney CEO Jill Soltau received a $4.5 million bonus.
Ultimately, deep-pocketed mall owners Simon Property Group and Brookfield Asset Management bought out the remnants of J.C. Penney. In large part, it was done to protect their interests by not having empty malls. It was also a great way to get a well-known—but frayed—retailer at a huge discount with the potential for huge upside gains once the pandemic ends and people start going out shopping again.
Many J.C. Penney stock shareholders, long-term employees and retirees were furious over the bonus payments to corporate executives and the fire sale of the company. Their claim was that their interests had been ignored and were mistreated by the bankruptcy system. They vociferously argued that a small class of professionals, big-money institutions and Wall Street-type players exerted an oversized advantage in the proceedings—to the detriment of unsophisticated, relatively small shareholders, who are unfamiliar with the machinations of bankruptcy hearings.
Soltau, who only a few years before was heralded as the potential savior of the once-great retailer, exited a month after the company emerged from bankruptcy proceedings and the sale to Simon Property Group and Brookfield Asset Management. Executives haven’t officially offered a reason for her exit and it’s unclear whether Soltau quit or was fired.
Soltau was succeeded by Stanley Shashoua, the chief investment officer of Simon on an interim basis. The new owners have started an executive search for a replacement. The company said they are recruiting a new CEO who is “focused on modern retail, the consumer experience and the goal of creating a sustainable and enduring J.C. Penney.” The announcement seems like shade was thrown at Soltau. The former CEO left J.C. Penney Dec. 31. Her retention bonus of $4.5 million—that the board of directors granted Soltau right before the company filed for Chapter 11 bankruptcy—required her to pay back 80% if terminated for cause before Jan. 31, 2021.
In the meantime, employees have lost their jobs and shareholders saw substantial losses on their stock holdings. It will be interesting to see if the dated brand can be resuscitated and furloughed workers brought back with a little happier ending to this tragic story.