Question

The COVID-19 virus crisis has forced many retail companies to declare Chapter 11 business bankruptcy. Here is a short list: J.C. Penneys, Sears, Pier 1 Imports, J. Crew, Bed Bath & Beyond, Neiman Marcus, GNC Health stores, etc...

Let's say you were hired as an emergency economist by J.C. Pennys and were paying you $120,000 for a 6- month gig. Your mission is to formulate a "turnaround plan" to get JCP back on its economic feet. What would be some of the microeconomic recommendations? (Answering this question is the key to earning extra credit).

Rumor: Why has Amazon been negotiating with JCP over the last few days? What do they want? Could they play a role in saving JCP?

Answer 1

It's offering the debtor a new start. J.C Penney collaborated on a settlement plan where the borrowers would retain 70% of the company's first line debt. It is basically a supermarket company and is actively looking for third party revenues and pursuing all other possibilities.

As an Economist I will indeed look at whether there is demand for J. C. Penny's products on a global scale, all companies underscored by the pandemic. Several middle-class families are their customer base, which have moved to online purchasing platforms. It was faced with difficulties in repaying its debt obligations even before the pandemic occurred. And with the pandemic in full swing, there is no hope that it will be able to revive its essentially offline business. They have cash on their books, and they have received refinancing, but to do it alone would prove risky in these uncertain times, as there is no ready platform available at this stage, they will have to invest and start from scratch if they want to prosper.

I would therefore ask that a plan be formulated in which it collaborates with global e-commerce companies such as Amazon, Alibaba, where it is able to sell its goods, partnership and Amazon buying a stake in the business would play a key role in formulating a growth strategy as it seems to be the only plausible way forward. Shutting down its business to repay the debt by selling all its valuable assets would turn out to be risky, as there would not be a lot of buyers, plus the sale would be of distressed value, which would be a loss to the firm.

Whilst attempting to enter into a partnership with Amazon, it can sell on its online platform and save JCP as e-commerce will be the growth trend that will drive up demand. Amazon wants to expand its clothing business, which fits perfectly with the JCP profile.

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