Bill Landauer/The Morning Call—J.C. Penney Co. Inc. said Wednesday it will close 33 underperforming stores, including its Phillipsburg Mall location, and cut 2,000 jobs as part of its turnaround.
About 50 people work at the Phillipsburg Mall store, which straddles Lopatcong and Pohatcong townships and is expected to close in early May.
J.C. Penney, which operates about 1,100 mid-market department stores in the United States, suffered a 25 percent drop in sales in fiscal 2012 after a failed attempt to go upmarket.
Asked why the Phillipsburg Mall store is being closed, Kate Coultas, a spokeswoman for the chain, said, “While I can’t provide specific financials on the store, these decisions are never easy, especially due to the impact on our valued associates and customers, but we do feel this is a necessary business decision.”
She said eligible employees will receive separation benefits and that the company will hold a two-day career-training session for workers and try to help them find jobs within the chain.
J.C. Penney also is closing stores at malls in Exton, Chester County, and Hazleton. Its branch at the Lehigh Valley Mall is not among those targeted for closure.
The Lehigh Valley Mall store may see a 5-10 percent increase in sales as J.C. Penney shoppers who used the Phillipsburg store out of convenience venture to the Whitehall Township store out of necessity, said retail analyst Jeff Green, president of Jeff Green Partners in Phoenix.
The Phillipsburg Mall has been struggling for a while, Green noted.
“This unfortunately makes that center even more distressed,” he said.
The 574,000-square-foot mall changed hands a year ago when Mason Asset Management of Great Neck, N.Y., bought it from Pennsylvania Real Estate Investment Trust for $11.5 million.
Mason Asset already has tenants interested in J.C. Penney’s space, said Marc Snediker, the mall’s general manager.
Reached at home Wednesday night, Snediker said he did not have the mall’s current vacancy rate on hand. He said Mason Asset Management bought the mall as a redevelopment property, which it plans to renovate and fill with tenants. He said the company is “confident” the mall will become a destination for shoppers.
In recent years, the Phillipsburg Mall’s vacancy rate has been as high as 36 percent, or four times the average for regional malls across the country. Shopper traffic was light at the mall Wednesday night.
Green said it’s not surprising that J.C. Penney opted to keep open its store in the Lehigh Valley Mall, which he called among the top malls in the country in terms of performance.
J.C. Penney has been trying to win back customers with deep discounts and the return of popular in-house brands. Sales started ticking up in autumn after nearly two years of monthly sales drops.
But a news release with scant details on December sales raised concerns that the turnaround stalled during the key holiday season. The chain is still clearing out unsold, discounted merchandise from last year’s failed reinvention, pressuring its gross margin.
Chief Executive Myron Ullman called the move an “important step” that “addresses a strategic priority to improve the profitability of our stores.”
The closings will generate savings of $65 million per year, beginning in 2014. J.C. Penney expects estimated pretax charges of about $26 million in the current quarter.
Billionaire Air Products investor William Ackman had been a key and controversial player in J.C. Penney’s attempt to reinvent itself.
After Ackman’s hedge fund, Pershing Square Capital Management, acquired nearly 18 percent of J.C. Penney stock in 2010, Ackman was elected to the board and led the push to hire a former Apple executive as CEO.
But the new Apple ethic, epitomized by discontinuation of discount sales, turned out to be a bad fit with J.C. Penney’s core customers. The company’s sales plummeted, declining $4 billion in a single year. In August, Ackman resigned as a director of J.C. Penney.
Ackman’s Pershing Square owns 9.8 percent of the Trexlertown-based Air Products’ stock.
J.C. Penney opened at the Phillipsburg Mall in 1990, a year after the mall opened. In those days, Hess’s Department Store and Kmart already anchored the mall. Of the charter Phillipsburg Mall stores, only Sears remains.
The stores closing include five in Wisconsin, three in Pennsylvania and two in Florida.
The struggling department store chain had 116,000 employees as of Feb. 2, 2013. That was about 40,000 fewer than a year earlier as the company tried to cope with lower sales.
Shares were down 0.8 percent at $6.95 in after-hours trading.