(CNN) -- JCPenney filed for bankruptcy on Friday, the latest retail giant to see its downfall hastened by the coronavirus crisis. The pandemic was the final blow to a 118-year-old company struggling to overcome a decade of bad decisions, executive instability and damaging market trends.
The company said it has an agreement with most of its lenders on the turnaround plan that will allow it to stay in business as a more financially healthy company, but will include closing an as yet unannounced number of its 846 stores. As part of the turnaround process JCPenney arranged to borrow an additional $450 million from those lenders to pay for operations during the reorganization.
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The company blamed the Covid-19 pandemic for the need to file bankruptcy.
"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," said CEO Jill Soltau. "Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come."
JCPenney is the fourth national retailer to file for bankruptcy just this month. On May 4, clothing retailer J.Crew filed for bankruptcy, followed by a filing at Neiman Marcus on May 7. On May 10 Stage Stores filed for bankruptcy.
How the mighty have fallen
JCPenney's history began in 1902 with its first store in Kemmerer, Wyoming. It grew to become one of the major national retailers, an anchor of many suburban shopping malls along with rivals like Sears and Macy's, which find themselves facing their own struggles today. JCPenney reached its peak number of stores in 1973, when it operated just over 2,000 locations nationwide.
Today, JCPenney has 85,000 employees, making the company among the largest US retailers to file for bankruptcy in recent years. It has more US stores than other troubled companies such as Sears, Toys "R" Us or Sports Authority did when they filed.
JCPenney has been struggling under a mountain of debt and red ink for a decade. But the last 10 years have been filled with one mistake after another, as a revolving door in executive leadership brought it four different CEOs. Radical changes meant to revive the company — including ending coupons and clearance sales in an attempt to capture more upscale shoppers, and introducing household appliances — proved to be spectacular failures that were quickly undone.
But the company was also struggling with the decline in the entire department store sector. More consumers are shopping online rather than in person, and JCPenney was also battered by the growth of big box discounters such as Walmart, Target and Costco, which provide shoppers with lower prices and a selection of items not found in department stores, such as groceries.
JCPenney's most recent profitable year was 2010, and its net losses have totaled $4.5 billion since then.
Since the summer of 2011 it has reported net profits in only five quarters, all of them in the holiday shopping season -- it has been unable to make money without that boost in sales. Since the start of 2011, JCPenney has closed more than 20% of its stores while cutting more than 40% of its staff.
Despite the history of mistakes and industry trends moving against it, there had been recent signs of hope at JCPenney before this crisis.
In November, as the holiday shopping season was just about to start, its losses shrank in the third quarter, and it raised its profit forecast, even as its sales continued to fall.
"We made significant progress on our efforts to return JCPenney to sustainable, profitable growth," Soltau said in a statement at that time.
But that optimism proved short-lived, as net income plunged 64% in its fourth quarter, which included the holiday shopping season, and the company announced another round of store closings.
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The coronavirus pandemic ultimately plunged the company into bankruptcy. Sales at department stores industrywide tumbled 47% in April, while clothing store sales plunged 89%, according to government figures reported Friday. Like other retailers, JCPenney announced on March 18 that it was closing stores and furloughing its employees during the crisis. It has only recently been able to reopen 41 stores to shoppers, less than 5% of its total.
Besides cutting off virtually all of JCPenney's revenue, it made the future outlook for the long-troubled retailer that much grimmer.
"The pandemic recession is ... accelerating consumers' shift towards online retail," said Kalinda Ukanwa, assistant professor of marketing at the University of Southern California's Marshall School of Business.
JCPenney had $3.6 billion of long-term debt on its books as of February 1. Although much of that debt won't come due until next year, the company disclosed on April 15 that it had missed a debt payment due that day. It said it was looking at strategic options that were available during a 30-day grace period before it is judged in default of that debt. On May 7 it missed another debt payment, and this one came with only a one-week grace period. But rather than go in default of that loan, it made that payment on May 14, giving it an extra day before deciding whether or not to file for bankruptcy.
A troubled retail sector
The company's bankruptcy filing doesn't necessarily mean JC Penney will go out of business. Many companies use the process to shed debt and other liabilities they can't afford while closing unprofitable operations and locations. J.Crew and Neiman both intend to stay in business. But Stage Stores said it plans to permanently close all of its nearly 800 small department stores if it can't find a buyer during the bankruptcy process.
But this is a unique time for a retail bankruptcy filing. Many stores have closed because of quarantines and stay-at-home orders, and many potential shoppers are nervous about venturing out to stores that are open.
Retailers frequently use store closing sales to liquidate inventory and raise cash they need to fund operations during a bankruptcy reorganization, said Reshmi Basu, an expert in retail bankruptcies at Debtwire, which tracks the finances of troubled companies. That only makes it even harder for a company to survive the bankruptcy process. Many retailers have entered bankruptcy intending to stay in business but have failed to do so.
UBS analysts said Monday that “retail store closures will accelerate in a post-Covid-19 world” and that the gap between well-positioned retailers and struggling chains will expand because of the outbreak.