Penney to close 75 stores, fire 4,900 workers But no Maryland facility is among those mentioned


January 28, 1998|By BLOOMBERG NEWS

PLANO, Texas -- J. C. Penney & Co. said yesterday that it will close 75 poorly performing department stores and fire 4,900 employees, or 2 percent of its work force, in a plan to rejuvenate a lackluster retail business.

The Plano, Texas-based operator of 1,200 stores said the firings will help it streamline costly distribution and inventory systems. The moves will contribute to fiscal fourth-quarter pretax charges of $225 million.

None of the stores identified for closing yesterday is in Maryland.

Poor sales since May and a disappointing holiday season prompted J. C. Penney to take the steps to get products to stores faster, keep inventories lean and reduce markdowns.

The restructuring is J. C. Penney's boldest move since it promised to cut costs last year. The moves are expected to save the company $105 million annually.

"They're taking a hard look at their costs; nothing's sacred, and that's the right attitude to have," said Thomas Buynack, money manager for Society Asset Management, which held 525,868 J. C. Penney shares as of September.

The company also said stronger inventory controls will allow it to meet fourth-quarter earnings expectations even though holiday sales were poor.

"The amount of revenue lost from the 75 store closings is about $200 million annually. Compared with the cost savings, it's small," said analyst Harry Ikenson of Rodman & Renshaw Capital Group Inc. He rates the stock a "buy."

To be closed are 60 smaller stores and 15 that are larger than its average department store, J. C. Penney said.

About 3,200 employees will be affected by the store closings and another 1,700, many of whom are management associates, will lose their jobs as the company streamlines back-office operations at its stores and catalog unit. All fired employees are expected to be offered severance packages, the company said.

J. C. Penney will speed up the time it takes to get goods to its stores by increasingly centralizing its distribution, analysts said.

Analysts said sales numbers suffered after J. C. Penney had to discount goods that arrived at stores as much as six weeks later than the competition experienced. "They were in a Catch-22 with bloated inventories and hits to their gross margins," said Society Asset Management's Buynack. "This program will lead to getting products to the marketplace quicker."

Pub Date: 1/28/98

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