Silver lining to doom and gloom over bankruptcy of JCPenney

Silver lining to doom and gloom over bankruptcy of JCPenney. Photo: AFP

Trade publication Women’s Wear Daily reported that Amazon could be in talks with the struggling mid-priced department store chain about a deal. The potential explanation includes Amazon wanting to expand its own apparel business and to turn some of JCPenney’s properties into distribution centres.

Amazon has made no official comment about these plans but the potential deal could redefine the nature of US retailing.

As reported by CNN, JCPenney was the fourth national retailer to file for bankruptcy in May, following J.Crew, Neiman Marcus, and Stage Stores. JCPenney blamed the COVID-19 pandemic for its need to file bankruptcy. “Until this pandemic struck, we had made significant progress rebuilding our company,” CEO Jill Soltau said in a statement announcing the bankruptcy, adding that the company’s efforts “had already begun to pay off.”

“Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come,” Soltau said.

JCPenney’s bankruptcy filing sparks concerns among Vietnam-based apparel suppliers about late payment and cancelled orders. PI VinaDanang, a wholly-owned South Korean subsidiary under Poong In Corporation, is specialised in garment outsourcing for export. The company’s representative told VIR that all export orders for JCPenney have been suspended, and the company are waiting for a new announcement from the parent company.

Bui Duc Liem, deputy general director of Nha Be Garment Corporation, another supplier to JCPenney, said that the US groups’ move might help it stay afloat and get back on track, saving it from complete bankruptcy. “Thus, we still expect to remain a partner of the American retailer after the company restructures its operations,” Liem said.

Pham Xuan Hong, chairman of the Ho Chi Minh City Association of Garment Textile Embroidery and Knitting, told VIR that JCPenney is a major customer with a large number of orders for Vietnamese apparel suppliers. Therefore, any bankruptcy will have some impact on Vietnamese apparel producers in the supply chain of the American retailer.

“Fortunately, most Vietnamese companies are outsourcing suppliers for JCPenney. Thus, they will see less impact from a bankruptcy filing than free-on-board apparel manufacturers that are responsible for all production activities from raw materials to finished products,” he said.

On the same note, Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association, said that the failure of retail chains like JCPenney is inevitable in the midst of the coronavirus pandemic. “As the coronavirus spread fast across Europe and North America, governments have had to be tough in implementing lockdowns, which have led to mass shutdowns in the retail industry,” Giang said.

However, he believed that the collapse will not wreak havoc on Vietnam’s garment and textile industry.

According to Giang, the American retailer is sourcing garment orders from many countries around the world, not only Vietnam. In fact, JCPenney only accounts for 3-4 per cent of Vietnamese apparel export orders to the US market. Data from the General Department of Customs showed that the United States remained Vietnam’s largest importer of textiles and garments with a value of $3.95 billion in the first four months. It means the value of JCPenney’s orders to Vietnamese suppliers were worth around $158 million in the given period.

Since the coronavirus outbreak, Vietnamese garment producers have been struggling with supply chain disruptions amid China’s lockdown. After China eased its lockdowns, many European and American retailers began suspending or cancelling supply orders from Vietnam due to the rapid spread of coronavirus. The collapse of major retailers like JCPenney is simply rubbing salt into the wound.

Experts said that 2020 will be a tough year for JCPenney’s suppliers. However, the situation will become brighter with a new wave of orders from other foreign buyers who are looking to diversify their supply chains. For example, Walmart plans to shift its orders from China to Vietnam for outsourcing, which will be a measure of compensation for Vietnamese suppliers for the reduced orders from the 118-year-old American company.