When considering struggling department stores, perhaps no name comes to mind faster than J.C. Penney (OTC: JCPNQ). (Well, OK, let's not jump the gun and forget about Sears (OTCMKTS: SHLDQ), whose most useful purpose these days is to serve as a coronavirus vaccine center.) After years of heavy debt and financial mismanagement, the well-known mall mainstay finally filed for bankruptcy in May 2020, citing slashed profits during the coronavirus outbreak as the straw that broke the sluggish retailer's back.
Of course, it's easy to point a finger at the pandemic when it comes to retail-related woes, but J.C. Penney was in trouble well before anyone even heard of COVID-19: Its last profitable year was 2010. Since then, the company's net operating losses have reached roughly $5 billion.
In fact, if it weren't for a bailout by two major mall operators -- Simon Property Group (NYSE: SPG) and Brookfield Property Partners (NASDAQ: BPY) -- it's fair to say J.C. Penney perhaps would not be operating today at all. But the long-standing department store is trying to make its version of a comeback by launching a new activewear line. Will it be successful?
Does J.C. Penney have a shot at a comeback?
J.C. Penney recently unveiled a new version of its Xersion activewear line for adults and children. The line features performance fabrics and a wide range of sizes to accommodate different body types. Xersion items are priced between $12 and $70, and while the higher end of that range may not appeal to the typical J.C. Penney customer, the lower end should work for its typical consumer's budget.
What may give J.C. Penney an edge with its new product line is that the personal fitness trend has exploded in the wake of the pandemic. Since Americans have had little to do since late March, many have taken up exercise as a means of alleviating boredom as well as stress. And given that a lot of people have seen their weight fluctuate during the pandemic -- both up and down -- affordably priced activewear could be a huge draw for consumers across the board, including those who normally wouldn't set foot in a J.C. Penney store.
But while now is a good time to offer up an exclusive line of activewear, let's also remember that fitness apparel isn't exactly a limited commodity. Quite the contrary -- many retailers have launched fitness lines in the past few years, so J.C. Penney's move, while strategic in its own right, may not be successful due to the fact the workout gear market is already heavily saturated. Throw in that J.C. Penney recently lost its long-standing partnership with Sephora, which is taking its makeup line over to Kohl's (NYSE: KSS), and it doesn't paint a pretty picture for J.C. Penney at all.
The Millionacres bottom line
If this new line of fitness apparel really does a stellar job of bringing in new customers, there could be hope for J.C. Penney despite its ongoing struggles. But investors really shouldn't count on that happening, and if J.C. Penney goes under despite Simon and Brookfield's salvage attempts, it will result in a host of mall vacancies -- and a world of stress for mall REIT, or real estate investment trust, investors who understand just how detrimental it would be to lose another anchor tenant at a time when so many department stores are dropping like flies.