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?

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

Corporates in general file Chapter 11 business bankruptcy if they want to reorganise and restructure their debt. It gives the debtor a fresh start.

J.C Penney has worked on a restructuring agreement that the lenders will hold 70% of the company's first line debt. It is essentially a retail chain which is currently looking at third party sale and exploring any other opportunities. As an Economist I would look at whether there is demand for J. C. Penny's products on the global scale, with all companies stressed because of the pandemic. Several middle class families are their customer base who have shifted to online purchasing platforms. It was facing trouble repaying its debt commitments even before the pandemic occured. And with the pandemic in full swing there is no hope of whether it will be able to revive its business which is essentially offline. It does have cash on its books and it has received refinancing, but doing it all alone would prove risky in these uncertain times as there is no ready platform available at this current stage, they will have to invest and start from scratch if they want to prosper going ahead.

Thus I would request to formulate a plan wherein it collaborates with global ecommerce companies such as Amazon, Alibaba, where it is able to sell its merchandise, a partnership and Amazon buying a stake in the business would play a key role in formulating a growth strategy as that seems the only plausible way ahead. Shutting down its business to repay the debt by selling all its valuable assets would turn risky as there would not be many takers, plus the sale will be at distressed value which will be loss making for the firm. By entering into a partnership with Amazon, it can sell on its online platform and save JCP as ecommerce will be the growth trend going ahead which will drive up demand. Amazon wants to expand its apparel business which matches perfectly with JCP profile.