What Amazon Could Gain by Buying J.C. Penney

It's unlikely that Amazon would buy the bankrupt retailer outright, but parts of J.C. Penney's portfolio could be attractive to the e-commerce giant.
By Annie Gaus ,

Amazon is going shopping, according to a new report.

The retail and cloud giant is exploring a potential bid for J.C. Penney, the distressed clothing retailer that filed for Chapter 11 bankruptcy last Friday. J.C. Penney is the third major U.S. retailer to file for bankruptcy in recent weeks.

According to Women’s Wear Daily, Amazon is in “dialogue” with Penney about buying some or all of the business. It would be an inexpensive deal for Amazon, given J.C. Penney’s bankrupt state and bargain share price of 15 cents as of Tuesday. Amazon declined to comment on the potential acquisition rumors.

Amazon  (AMZN) - Get Report shares rose 2.18% on Tuesday to $2,479.15.

“I wouldn’t be surprised if Amazon was interested in purchasing some of JC Penney’s assets," such as freestanding stores that Amazon could convert into distribution centers, said CFRA analyst Camilla Yanushevsky. An outright buy of J.C. Penney is less likely, she said, because of the struggling retailer’s high debt burden and the makeup of its real estate.

“A large portion [of JC Penney’s locations] are in the C-malls, where the mall itself may close down,” she added. Class C malls are considered those that are struggling or at risk of closure. And even as the pandemic subsides, consumers could avoid enclosed malls generally for some time; thus; buying that part of a retailer's portfolio may not make sense.

Amazon has shown a particular interest in apparel in recent years, however. It's launched more than 100 private label clothing, shoes and jewelry brands in recent years. According to an analysis by CFRA, though, Amazon's private label brands lag behind other brands sold on Amazon in customer satisfaction, suggesting that Amazon has room to evolve in selling apparel. 

The coronavirus pandemic has also highlighted the advantage of having brick-and-mortar pickup locations, in addition to e-commerce, added Frank Poore, CEO of commerce platform CommerceHub. 

"Given what’s going on, companies like Walmart  (WMT) - Get Report, Target  (TGT) - Get Report, Lowes  (LOW) - Get Report and others have done quite well in this pandemic -- they have the physical presence and the online presence," Poore said. "A lot of the new normal is going to include ship from store, pickup from store, curbside pickup, and those sorts of things." 

Amazon shares have risen 30% year to date. 

Amazon is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AMZN? Learn more now.

 

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