JCPenney’s financial performance has been pretty much a black box ever since it came out of bankruptcy in 2020 as a private company owned by real estate investors.
But we may be getting a window into its finances now: an unknown number of vendors have received letters saying the retailer is going to 90-day payment terms next May which could be a telltale sign of cash flow problems and profitability. Standard payment terms are usually 30 days in retail and some, notably in the off-price sector, will pay as quickly as ten days.
“Going forward, our standard international merchandise vendor terms are Net 90 days,” it said in a letter dated July 11 that at least some vendors received last week. Penney said the change in terms would be effective for all orders with delivery dates starting on May 1, 2024.
The letter, from Penney executive vice president and chief financial officer Stephanie Plaines, said, “Looking forward, our entire organization remains focused on driving the growth of our brands through reinvestment of self-funded capital. Following extensive market research we have determined that to remain competitive in this environment, we will update and standardize our payment terms with all vendors.”
JCPenney’s media relations department did not respond to several inquiries from Warrensreport.com for additional comment on this new policy. Nor did the letter give any more details on the company’s “extensive market research.”
Vendors who do business with the retailer were not so quiet. One home vendor, who wished not to be identified because their company continues to sell Penney, called it a “one-sided notification” and said they had no intention of accepting the new terms. This executive said they would not accept any purchase orders from Penney that included 90-day terms.
Another vendor, who provided a copy of the letter his company received, said by sharing it he hoped to spur “some collective outrage to back them off.”
Retailers arbitrarily demanding more lenient payment terms is not unprecedented. From time to time retailing companies have extended their terms but it is often a “trial balloon” to see which vendors they can get to accept the new arrangement. The general thought is that suppliers who are desperate for a retailer’s business will go along just to keep the business. Often times the letter is the start of a negotiation and the end result could be terms somewhere between the standard 30 and the longer period the store is requesting. It is unknown what is driving the Penney move nor how many of its vendors received the letter with the new terms.
Penney, as part of Simon Properties and Brookfield Asset Managers — two giant operators of malls and other retail real estate – does not issue its financial results but when Simon released its finances earlier this year, it spoke briefly about Penney. “Despite not achieving the same profitability that we did in 2021,” Simon chairman, president and CEO David Simon told investors on a call, “we are pleased on how we and the management teams dealt with the unanticipated external environment.” Without any other specifics he seemed to imply that top-line revenues for Penney declined in 2022.
In a March, 2023 interview with Fortune, Penney CEO Mark Rosen, who came onboard in October of 2021, said the retailer was benefitting from its private ownership. “We have an ownership that is taking a long-term view of the business. In the past, you’ve seen the company chase shiny objects and try to devise a ‘big bang’ solution. This time, we’re saying we’ve got to fix the foundation.”
Rosen said the Penney turnaround strategy is focused on getting its current customers to shop its stores more often. “In a lot of the previous turnaround attempts, it was about trying to win a different customer. This time, it’s not about going and getting many new customers. We have 50 million customers who love the brand, so it’s about getting them to shop more with us.”
He said he saw the strategy working so far. “We’ve now seen an uptick in the frequency of our customers’ visits for the first time in five years. So it’s about fixing the fundamentals.”
And with possibly more working capital, courtesy of its suppliers, Penney may be buying itself more time to continue to fix those fundamentals.
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