NEW YORK — J.C. Penney Co.’s four-level, 150,000-square-foot flagship in the Manhattan Mall on Sixth Avenue and 32nd Street, is on the market. The unit is reportedly is among the retailer’s top four or five volume-generating stores along with the Queens, Bronx and Puerto Rico units. J.C. Penney is nonetheless seeking to unload the store, whose lease runs through July 2029.
According to real estate sources, the flagship’s total obligation, including rent, taxes and other fees, is $16 million annually.
“As part of a continuing effort to optimize our retail operations, J.C. Penney is exploring a potential sublease agreement for its space located within Manhattan Mall,” said a spokeswoman. “J.C. Penney continually evaluates its real estate portfolio to ensure its stores are effectively located in areas that offer long-term growth and profitability.”
“I think the rents are still high on West 34th Street,” said Gene Spiegelman, vice chairman of Cushman & Wakefield. “You have to look at Manhattan in the context of everything else. A 30 percent reduction in rent is still high. It doesn’t make a difference if the rent is $700 or $500 [if a tenant can’t make a profit]. It’s all in the math. It’s a complicated marketplace.”
J.C. Penney flirted with the idea of a Manhattan store in 2006, launching a pop-up shop in Times Square and took the plunge the following year.
The J.C. Penney flagship, which has 60 feet of frontage, is near three Herald Square subway stations, which are the third, fifth and sixth-busiest in the system with 100 million people in total passing through annually. The space is being marketed for a single tenant or it can be divided into two multilevel spaces.
Besides Macy’s, retailers on 34th Street include H&M, Gap, Old Navy, Uniqlo, Kmart, Victoria’s Secret and Urban Outfitters. Target is scheduled to open a smaller, flexible format store on the thoroughfare.
When the 110-year-old Plano, Tex.-based retailer unveiled the store in 2007, the company was in a growth mode, opening about 50 stores a year and then-chief executive officer Myron Ullman 3rd was in a market share battle with Federated Department Stores, which had purchased and was digesting its acquisition of Macy’s and the former May Co. stores.
Now, J.C. Penney and Macy’s, along with a host of other retailers, are struggling to find their footing in a radically changing market.
Despite a return to profitability in 2016, J.C. Penney’s chairman and ceo Marvin Ellison said in February that the retailer planned to downsize dramatically. J.C. Penney has closed 138 stores and two distribution facilities, and last month began liquidating goods at the majority of the planned closures. Meanwhile, Macy’s shuttered 66 stores last year and plans to close another 34 over the next few years, for a total of 100 closings.
“In 2016, we achieved our $1 billion EBITDA target and delivered a net profit for the first time since 2010,” Ellison said in February during the company’s fourth-quarter conference call with analysts. “We believe we must take aggressive action to better align our retail operations for sustainable growth.”
Ellison said stores that could fully execute the retailer’s growth initiatives, which include beauty, home refresh and special sizes, generated significantly higher sales and a more vibrant in-store shopping environment. “We believe the relevance of our brick-and-mortar portfolio will be driven by the implementation of these initiatives consistently to a larger percent of our stores,” he said. “Therefore, our decision to close stores will allow us to raise the overall brand standard of the company and allocate capital more efficiently.”
Net income in the fourth quarter reached $192 million versus a loss of $131 million in the year-ago period, and net sales at $4 billion were flat compared to a year ago. Comparable-store sales were down 0.7 percent. For the full year, net earnings came to $1 million, versus a $513 million loss in 2015, representing a $514 million improvement in net income. Net sales amounted to $12.5 billion compared to $12.6 billion in 2015, a 0.6 percent decrease. Same-store sales were flat for the year.
J.C. Penney’s performance during the 2017 first quarter was dragged down by apparel, its largest business, with net losses widening to $180 million, or 58 cents a share, from $68 million, or 22 cents, a year ago. Sales slipped 3.7 percent to $2.7 billion from $2.8 billion a year ago as comparable-store sales dropped 3.5 percent.