J.C. Penney Is Closing Stores and Cutting Jobs, but Why Is Macy's Doing the Same?

It's no surprise why J.C. Penney is closing 33 stores and laying off 2,000 employees, but why did Macy's make a similar announcement days before J.C. Penney?

Feb 4, 2014 at 10:00AM

It's no secret that J.C. Penney (NYSE:JCP) has been struggling in recent years to not only capture the attention of consumers but to simply make a profit, while top competitor Macy's (NYSE:M) has continued to capture market share and reward its shareholders. However, earlier this month a surprising turn of events took place when Macy's, the top-performing department-store retailer as of late, announced that it will be closing a handful of its stores along with cutting jobs in the process.

This may seem strange at first, as most of the time struggling organizations are typically the ones to close locations and lay off employees. This was made all the more apparent when, a week later, J.C. Penney also announced its share of store closures and job cuts. Which can only lead one to wonder how two drastically different organizations -- one experiencing a great deal of success and the other fighting for its survival -- could be making the same business decision?

Staying on top of its game
On Wednesday, Jan. 8, Macy's made the surprising announcement that it will not only be closing five stores, but it will be cutting 2,500 jobs throughout the organization. The move was made all the more shocking when, on Jan. 15, struggling competitor J.C. Penney went public with its plans to close 33 stores throughout the United States and lay off 2,000 employees. When the announcement was made, Macy's CEO Terry Lundgren said of the move:

Our company has significantly increased sales and profitability over the past four years...We have identified some specific areas where we can improve our efficiency without compromising our effectiveness in serving the evolving needs of our customers.

Despite closing five of its underperforming stores, Macy's announced it will open five new Macy's locations and three new Bloomingdale's stores as well as create new positions within the company's omnichannel business; therefore, keeping the number of associates employed by Macy's around at 175,000. 

These many changes, which are expected to be completed in 2014, will save the company approximately $100 million per year going forward.This news was met with resounding applause on Wall Street, sending the company's shares soaring more than 5% in after-hours trading following the announcement.

Coming to terms with its current position
On the other end of the spectrum, J.C. Penney CEO Myron Ullman justified the company's plans to shutter 33 J.C. Penney stores and layoff 2,000 employees by saying,

As we continue to progress toward long-term profitable growth, it is necessary to reexamine the financial performance of our store portfolio and adjust our national footprint accordingly...While it's always difficult to make a business decision that impacts our valued customers and associates, this important step addresses a strategic priority to improve the profitability of our stores and position J.C. Penney for future success.

Once implemented, the move is expected to save the company $65 million a year in expenses. Strangely enough, however, the move was met with a much more muted response by investors, as the company's shares slid 0.6%. While both Macy's and J.C. Penney's next moves have a great deal in common, it is clear that both strategies have far different ramifications for each company in the eyes of investors.

Macy's continues to lead the pack
You might think that both retail chains are making these moves due to an unforgiving economy and losses for the organizations overall. However, by taking a look at their respective performances for the last three years, the picture becomes clear:

Company

Est. Sales Growth FY 2013

Sales Growth FY 2012

Sales Growth FY 2011

Sales Growth FY 2010

J.C. Penney 

-7.6%

-24.7%

-2.8%

1.2%

Macy's

1.3%

4.8%

5.6%

6.4%

Sears Holdings

-8.9%

-4.1%

-2.6%

-1.6%

Company Name

3 Year Average

Return on Equity

Current P/E

J.C. Penney 

N/A

N/A

Macy's

22.73%

14.1

Sears Holdings

N/A

N/A

Not only has Macy's been performing extremely well as of late, but it has been expanding its market share and actually taking customers away from the likes of J.C. Penney and Sears Holdings (NASDAQ:SHLD). It's no surprise that just last week, Sears Holdings announced the closing of its Chicago flagship store, which is set to be completed by April. Sears Holdings has stated that this move will not only lead to cost savings but will allow the company to focus on its online operations and sales growth in order to best prepare itself for changing consumer trends. 

The store closures announced by J.C. Penney are largely being carried out to decrease net losses within the organization overall. Macy's, meanwhile, is perhaps the most profitable department-store chain in North America, and its decision to close stores and layoff workers is being made to make a great brand even better. Its store closures are being met by store openings in more thriving areas, and its layoffs are being matched by hiring within the company's omnichannel division. In other words, Macy's is staying on top of things as it continues to look for more ways to improve its operations, whereas J.C. Penney and Sears Holdings are frantically trying to make company improvements to recover several years worth of lost revenue and profit. 

Foolish takeaway
Macy's shareholders should take heart in the fact that Macy's is actively searching for ways to better position the company's operations for continuous long-term profitability. While store closures are never easy to swallow for investors, often times, as in Macy's case, store closures are a good thing in order to create new growth elsewhere. For shareholders in J.C. Penney, these store closures are necessary for the company to cut costs and restructure parts of the business that are yielding no revenue.

Foolish investors currently invested in Macy's should make a note that the company is clearly still in good hands. J.C. Penney shareholders, however, should know that while these store closures are an important step, the company is not out of the woods yet.

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Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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