J.C. Penney (JCP) won’t escape the store closing cycle this year after all.
The department store chain, which has been outperforming rivals like Macy’s (M) and Kohl’s (KSS) for a couple of years, is evaluating its store fleet right now and planning to shutter a few of its 1,014 stores.
The modest plan stands in sharp contrast to Macy’s plans to close 68 stores this year (for a total of 100 in the coming years) and Sears’ (SHLD) years-long shriveling. And this past weekend, The Limited said it was closing its entire store fleet altogether.
“We’re going through an analysis now,” Penney CEO Marvin Ellison said this week at a real estate conference, according to Dallas Morning News. “We have certain locations that we readily admit we have to downsize.” A Penney spokesman confirmed Ellison’s comments to Fortune.
Penney has closed 90 stores in the last four years as it adjusts to life as a smaller retailer in terms of sales. Just about five years ago, Penney announced a re-invention plan under former CEO Ron Johnson to be hipper, a scheme that failed spectacularly and cost the retailer 33% of its sales before business steadied.
Company sales should come in at about $13 billion for the fiscal year ending on Jan. 31, still well below the $19 billion pre-turnaround level. And with comparable sales falling 0.8% during the recent holiday season, putting Penney on track for a third quarter of declining business out of four this year, its turnaround is once again in question.
Last year, Ellison told Fortune that since taking the reins of the company in August 2015, he had rethought his position that Penney had far too many stores for its lower sales level, saying the physical locations were essential to supporting the company’s e-commerce rebound by offering Penney more distribution points to speed up delivery, and giving customers more options for retrieving online orders. Indeed, e-commerce was a bright spot for Penney in November and December. And Ellison said last year the vast majority of Penney stores were profitable.
Ellison largely stuck to that line as he speak on Wednesday at the Bush Center in Dallas for a question and answer session with real estate veteran Herb Weitzman. Still, he acknowledged that some Penney stores were not up snuff and needed to be shut down.
“There are some smaller market locations where we have to decide, does the mall or our store meet our brand standards,” he said. “If I wouldn’t want my children to work there or my wife to shop there, then we need to create standards with our mall partners to spend capital.”
And with sales slowing, it’s becoming clearer that Penney likely won’t ever get back to $19 billion. Sales per square foot are still roughly about 30% below where they were in 2011. Even though Penney is likely to pick up some business from Macy’s and Sears stores closing in malls they co-anchor, its rivals’ departures will almost certainly lead to lower traffic in those malls, hurting Penney. About one third of Penney’s 635 mall-based stores are in struggling shopping centers.
Still, offering stores as pick up spots helps Penney contain shipping costs from online orders. What’s more, some 40% of Penney customers who come in to retrieve an online order, pick up something else on the visit, Ellison has told investors. And many agree.
As Steve Dennis, a former retail executive and president of SageBerry Consulting, put it in a blog past last week: “Make it harder to get to a store OR make returns in a store OR order online and pick up in a store OR go to a store to research potential purchases OR learn about the brand, etc. and a retailer is almost certain to lose way more business.”
So don’t expect any wholesale store closings from Penney in the same vein as Macy’s anytime soon.
