J.C. Penney plans store closings

J.C. Penney joined a growing number of retailers that plan to close stores because shoppers are increasingly doing more of their buying online.

The company said Friday that it will close approximately 130 to 140 of its more than 1,000 stores over the next few months as part of an effort to improve profitability and help align the company's store presence with its online sales.

A parade of closings began last month following a holiday season that saw store traffic fall, thanks to a 17.8 percent rise in online sales, according to eMarketer. Macy's and Sears were among the chains that announced store closings, and The Limited shut down its entire chain.

"People are becoming more comfortable with buying everything, even clothing, online," said local retail consultant Chris Boring. "Once they realize they can make a purchase online and it's not a hassle, they keep doing it. My prediction is that by 2030 we'll be buying most of our clothing online."

Penney posted a profit in 2016 for the first time since 2010, but that wasn't enough to keep the company from announcing a cutback.

"We believe closing stores will ... allow us to adjust our business to effectively compete against the growing threat of online retailers," said Marvin R. Ellison, chairman and CEO, in a statement.

Penney did not reveal which stores will close. The company plans to release a full list of planned closures in mid-March pending notification of all affected personnel. Nearly all affected stores are expected to close in the second quarter of 2017.

The retailer has four stores in central Ohio: the Mall at Tuttle Crossing, Polaris Fashion Place, River Valley Mall in Lancaster and Indian Mound Mall in Heath. Penney also has a warehouse and distribution center on the East Side. A store at Eastland Mall closed in 2015.

Only one of the central Ohio locations seems a possible target for closure, Boring said.

"I'm not worried about the Polaris or Tuttle stores," Boring said. "And my best guess is Indian Mound Mall will probably be safe, too. That mall still has other anchors, and although there have been reports that traffic has been down at the mall, there's also a Kohl's across the street. Penney's wouldn't want to cede that area to one of its competitors."

That leaves the Lancaster location.

"Sears has announced they're closing their store there," Boring said. "That's a good indicator for where Penney's will close — a mall or retail cluster where Sears will close."

The wave of anchor-store closings, along with the continued rise of online shopping, has weighed heavily on shares of real estate investment trusts (REITs) that own malls. On Thursday, the CEO of Washington Prime Group sought to reassure analysts on a conference call that the Columbus-based REIT is well-positioned to withstand these closings.

"With respect to last August's announcement of 100 Macy's closings, we fared better than the vast majority of our peer group," said Lou Conforti, CEO of Washington Prime, adding that the company has "reduced its exposure" to Sears stores by selling off lower-performing malls.

The remaining Penney stores will be a significant part of the retailer's strategy for the future, Ellison said. While many retailers that are strictly online are struggling with dramatically increasing delivery costs, Penney is using its stores to help offset delivery costs.

"Maintaining a large store base gives us a competitive advantage in the evolving retail landscape," he said. "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."

In 2016, approximately 75 percent of all online orders touched a physical store, he said.

To ease the impact of the closures, Penney said it is offering a voluntary early retirement package for approximately 6,000 eligible employees, Ellison said.

Penney will take a one-time charge of $225 million to close the stores. But the company will save $200 million annually from the closings.

"It's almost a no-brainer from a financial perspective," Boring said. "They can redirect that capital to their better stores. It totally makes sense."

The stores identified for closure either would have required significant capital to update them or are only slightly profitable. The stores represent approximately 13 percent to 14 percent of the company's store portfolio, but less than 5 percent of total annual sales and none of the company's net income.

In addition to the store closings, Penney also plans to close distribution facilities in Lakeland, Florida, and Buena Park, California.