Department store chain J.C. Penney plans to make its biggest reinvestment since exiting bankruptcy nearly three years ago with plans to spend $1 billion over the next few years to upgrade its real estate portfolio and woo more customers.
The Plano, Texas-based company is self-funding the reinvestment plan approved by its ownership group led by Brookfield Asset Management and Simon Property Group. The funding is expected to come from the 121-year-old retailer's profits. It will be used to upgrade the once financially struggling retailer's 664 stores in 49 U.S. states and Puerto Rico.
"J.C. Penney has been looking for its next chapter for a number of years," Katie Mullen, chief customer officer at J.C. Penney, told CoStar News. "When we went to our ownership group, which includes Brookfield and Simon, about wanting to make investments and grow the business, they were wildly supportive of that and because of their support, we are able to self-fund all the investments in the business."
Mullen, who joined J.C. Penney in early 2022, said the retailer was "starved for investment for a number of years," making the reinvestment plan imperative as it seeks to give shoppers a "clean, modern and elevated" shopping experience. J.C. Penney plans to spend between $500,000 to the high single-digit millions on revamping a store's appearance, Mullen said.
About 100 stores in its real estate portfolio will go through a significant renovation, with other stores needing a light refresh, Mullen told CoStar News. Those in-store upgrades are expected to include new lighting, fixtures, display cases and point-of-sale systems. The upgrades to the brick-and-mortar stores are expected to be completed by the end of J.C. Penney's fiscal year 2025.
"We expect to continue to update all of our stores," Mullen said. "Some will be more fulsome overall versus other stores with more modest enhancements."
About 60% to 70% of J.C. Penney's business comes from its stores — making real estate an important part of its business — with the remainder of its business coming from online purchases, Mullen said.
Online Enhancements
J.C. Penney quietly began reinvesting in its customer experience on the retailer's website a year ago and quickly noticed the revamped online shopping experience led to customers buying more items, Mullen said.
J.C. Penney plans to continue to enhance its digital capabilities on its website and mobile app with new functions for customers. The company is also upgrading its supply chain operations to fulfill online orders faster and reduce delivery times.
Like other retailers, J.C. Penney struggled during the onset of the pandemic and filed for Chapter 11 bankruptcy as a public company loaded with debt. J.C. Penney's retail arm was acquired through the bankruptcy court by Brookfield Asset Management and Simon Property Group. J.C. Penney emerged from bankruptcy in December 2020 with new owners, less debt and about 200 fewer stores.
"Since the restructuring and the emergence of the new iteration of J.C. Penney, we are really focused on making sure we make it count for customers, and we are putting the right investment in the things our customers value," Mullen told CoStar News. "It's a privilege to work with a company with a strong balance sheet like we do and the flexibility to choose which places we invest in."
Mullen joined J.C. Penney in January 2022 as chief digital and transformation officer after a previous stint as chief digital officer at Neiman Marcus, according to her LinkedIn profile. She was promoted to chief customer officer at J.C. Penney in April of this year.
After working in temporary offices for a few years, J.C. Penney opened its renovated corporate campus earlier this year at The Campus at Legacy West in Plano to support its hybrid work strategy. Being able to collaborate in person made it easier for the team to reshape how the retailer planned to move forward and reinvest in its business, Mullen said.
Modernizing Fleet
The move by J.C. Penney to reinvest $1 billion in its business is "a step in the right direction" and shows a financial commitment to the future of its more than century-old business, said Neil Saunders, managing director and retail analyst for analytics firm GlobalData.
The only downside he sees is that the money invested in the business will pay for many basics — and deferred maintenance.
"They aren't doing anything too radical or exciting to their stores," Saunders told CoStar News. "They are smartening them up, and it remains to be seen how much of an impact it will have — but it's an important move for them."
Most of J.C. Penney's stores have seen a refresh with the retailer's new beauty section in more than 600 of its stores. The retailer replaced its beauty section after Sephora decided not to renew its partnership with the department store chain. If the refreshed look from the beauty department can be replicated in other parts of the store, Saunders said the renovations could be quite nice and take many of the stores in its portfolio away from what has been a "dilapidated" state, he said.
For comparison, Target plans to spend $4 billion to $5 billion this year in upgrading its store guest experiences. In J.C. Penney's case, the billion-dollar investment will likely go toward upgrading lighting and new carpet in stores, Saunders said. But, if they didn't invest, the retailer would be on "a one-way path to irrelevance."
With "property guys" being the owners behind the retailer, Saunders said he would expect J.C. Penney's reinvestment in its stores to focus on its mall locations to give it the biggest bang for its buck. The move could also add to J.C. Penney's top-line growth — putting it in a much more favorable position than other retailers that are cutting their forecast rather than growing revenue.
Asked if the Brookfield and Simon connection will help sway investment in certain stores, Mullen said J.C. Penney is lucky to have a partnership with such a strategic ownership group with some insight into its real estate portfolio. Still, they have always respected the management team's decisions to maximize the company's value.
"We've worked to make the party great for the last two years, and we are ready to send out the invitation in a bigger way," she said, adding this reinvestment in the business will be focused on enhancing the customer experience.