Amazon plans buying JC Penney and change retailing forever

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Amazon has been tipped to take over collapsed US department-store giant JC Penney in a move that could redefine the nature of US retailing. According to an exclusive report in WWD, Amazon has a team of senior management and consultants at JC Penney’s Texas headquarters going through the numbers and the store portfolio.

And while JC Penney says it is planning to permanently shutter 245 of its 846 stores across the country as part of a restructure under Chapter 11 bankruptcy protection, Amazon may take over as much as the entire fleet.

Amazon has made no official comment on its plans with the news leaked by people with close knowledge of the proceedings. That makes all of the following commentary speculation. But here’s how JC Penney may look after a takeover…

The Seattle-based company already dominates the US e-commerce market with a market share of around 49 percent. Small businesses across the US reportedly sell some 4000 items every minute on the platform.  However, as a digital-native company, Amazon has very little physical presence in the form of brick-and-mortar stores. It bought the upmarket Whole Foods grocery chain in 2017 which it has now expanded to 500 stores in the US and it also developed a high-tech, small-format hybrid grocery-convenience store model called Amazon Go which now numbers 26 outlets.

If Amazon was to buy JC Penney, it is hard to see the brand name enduring. Analysts estimate, on average, that Amazon has cash reserves of around US$43.7 billion, so buying the business, taking over the properties and completely reformatting stores would be a lesser challenge cost-wise than for any other retailer.

The vast majority of JC Penney stores anchor shopping malls, many of which are struggling to retain footfall and have relatively short life expectancies, worsened in a post-Covid-19 world where social distancing is likely to endure until a vaccine is found or the coronavirus dies out of its own accord.

Amazon could potentially convert the JC Penney stores into a tech-driven, hybrid model of fulfilment centre and retail showcase. This would give its online customers a place to view goods in a truly omnichannel business model similar to what traditional brick-and-mortar retailers around the world – and e-commerce giants like Alibaba and JD in China – have been trying to develop during the latter half of the last decade.

Many of the JC Penney stores are larger than they need to be, so Amazon is likely to hand back some of the space to landlords, a palatable solution to property owners who would have serious doubts about JC Penney’s ability to survive and continue paying rent long term and very few other opportunities to replace them with another anchor tenant. Some of the unwanted retail space could be kept and converted to storing stock, allowing faster delivery promises to online shoppers.

New Whole Foods stores could be opened and Amazon could sublease spaces to selected retail partners, including – for example – the Seattle’s Best Coffee which already has cafes in many JC Penney stores.

JC Penney also has its own warehouse and logistics systems which Amazon could absorb into its own.

One source told WWD that Amazon was interested in JC Penney for its strength in apparel in both range and brands. “I’m told it has a lot to do with Amazon eager to expand its apparel business — for sure,” the unnamed source said.

For now, this is all speculation, but it seems to be reliable information that Amazon executives are in “dialogue” with the stricken retailer.


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