UPDATE: May 18, 2020: In a filing with the Securities and Exchange Commission, J.C. Penney said it plans to close approximately 242 stores, 192 of which are slated to close in fiscal year 2020, while an additional 50 are to close in fiscal year 2021. J.C. Penney also received court approval over the weekend for its initial bankruptcy motions, including a request to use $500 million in cash collateral.

J.C. Penney CEO Jill Soltau said in a press release that the company had "widespread" support from its lenders, a majority of which signed on to a plan that would reduce billions of dollars from Penney's debt load. The company is also looking to spin off some of J.C. Penney's real estate assets into a real estate investment trust (REIT) and seek out new equity or debt investors, as well as potential buyers for some or all of Penney's assets in bankruptcy, Penney CFO Bill Wafford said in court papers.

Dive Brief:

• J.C. Penney filed for Chapter 11 bankruptcy protection on Friday evening, citing disruption caused by the COVID-19 crisis.
• The department store went into bankruptcy with a reorganization plan that had the support of owners of 70% of its first-lien debt, according to an emailed press release. The company has commitments for $900 million in debtor-in-possession financing, including $450 million in new money.
• Penney said in the release it would reduce its store footprint but did not immediately disclose details on how many stores it would close.

Dive Insight:

Penney's road to bankruptcy goes back as much as a decade, or perhaps several decades depending on how you view it. 

The company tied its fate to the enclosed mall and the American suburb in the 1960s as it transformed itself from primarily a softlines retailer to a department store. In the feverish post-World War II years the retailer fanned out across the country along with Sears. Hundreds of malls being built in those years wanted Penney as an anchor to draw in foot traffic. 

But big-box stores, mass merchants and strip malls began uprooting the mall business in the 1990s. Off-price and e-commerce have done significant damage in the past decade as well, with department stores, Penney among them, in steep decline. 

Since 2016, Bon-Ton has folded; Macy's has closed a significant chunk of its footprint and plans to close more stores; Sears has filed for Chapter 11 and liquidated most of its stores; Stage Stores retreated rapidly from the department store business in favor of off-price, only to file for bankruptcy recently as it ran into liquidity shortfalls; private equity-owned Belk is under financial duress; and the list of woes goes on. 

But of course Penney has had plenty of problems of its own making as well. Much of its debt can be traced back to its stint under former CEO Ron Johnson, who took over the already struggling retailer with ambitious, untested and ultimately disastrous plans for a reinvention. Johnson's upended pricing schemes and store overhauls were met with plummeting sales and massive profit losses. Since then, the company has made halting runs at a turnaround, but has struggled to land on an identity and successful merchandising strategy.

The COVID-19 crisis has only made the environment for Penney and department stores more generally bleaker, accelerating trends already underway. "Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy — and our efforts had already begun to pay off," J.C. Penney CEO Jill Soltau said in a press release. "While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt."

"Before the pandemic, J.C. Penney was hemorrhaging sales," retail analyst Nick Egelanian, president of retail development firm Siteworks​ said in an interview earlier this week. "The chain was effectively done. They were testing a new concept in a suburb of Dallas, but it was way too late — too little too late. The only thing that they had was a lot of cash on hand."

The company's liquidity has been touted by executives in recent months of bankruptcy speculation, sales declines, profit losses and cratering stock value. And then the pandemic hit at a crucial time, as J.C. Penney was trying to engineer a long-shot turnaround. Even relatively healthy retailers have been scrambling to raise cash with their stores closed to sales. 

"It just puts into fast motion what was happening in slow motion," Egelanian said of the crisis. "[J.C. Penney] will declare bankruptcy and they will not re-open, in my opinion."

Yet the retailer made its pitch for its underlying value to the market and business prospects going forward. The company said it "remains focused on returning JCPenney to sustainable, profitable growth by reestablishing the fundamentals of retail, re-envisioning its merchandise offerings, and rolling out new innovations."