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JC Penney to shutter Baxter store

The J.C. Penney Co. storefront is shown Thursday in Baxter. This is one of 138 J.C. Penney stores closing. Steve Kohls/Brainerd Dispatch

Baxter's J.C. Penney Co. is among stores the company is closing, according to a list the retailer released Thursday morning.

The company is closing 138 stores with eight of those in Minnesota. Besides Baxter, other communities on the list are Fairmont, Faribault, Hibbing, Hutchinson, Red Wing, Thief River Falls, and Winona. Kay Pihlaja, J.C. Penney store manager in Baxter, referred all inquiries about the store's future to the corporate office, which released the list of stores Friday.

Recent speculation had the J.C. Penney store in St. Cloud on the short list for closing with expectations, even last week, that the relatively new Baxter store would survive and perhaps even benefit from St. Cloud's loss. J.C. Penney has been a long-time tenant of the lakes area, moving from Brainerd to a new facility along the coveted Highway 371 corridor in Baxter in 2008. The Central Lakes Crossing J.C. Penney seemed to be well placed in a growing retail and medical services area of the city. And the closing comes at a time when Baxter is experiencing increased retail expansion with a retail center with multiple stores currently under construction next to J.C. Penney.

Most stores will begin the liquidation sales on April 17 and close in June.

About 5,000 positions nationwide are affected by the store closings. J.C. Penney reported it is in the process of identifying relocation opportunities within the company for affected employees. The retailer reported it will provide outplacement support services for those employees who will be leaving the company. Employees affected will receive separation benefits, which includes assistance identifying other employment opportunities and outplacement services such as resume writing and interview preparation. The total store closures represent approximately 13-14 percent of the J.C. Penney's current store portfolio, less than 5 percent of total annual sales.

"The stores identified for closure either require significant capital to achieve the company's new brand standard or are minimally cash flow positive today relative to the company's overall consolidated average," J.C. Penney reported. "Comparable sales performance for the closing stores was significantly below the remaining store base and these stores operate at a much higher expense rate given the lack of productivity. Once cycled, these closures are expected to be net income neutral." The company stated the annual cost savings from the closures considering "primarily occupancy, payroll, home office support, corporate administration and other store-related expenses, are estimated at approximately $200 million.

New opportunity for Hobby Lobby?

For regular customers and store employees, and even those who simply appreciated having the national department store brand within reach, the store closing is more than unwelcome news. As J.C. Penney's store link to the lakes area ends, it opens the door to a new opportunity. A source knowledgeable about the development said there is already a tenant interested in moving into the Central Lakes Crossing store location, which J.C. Penney leases. Hobby Lobby, which has a host of recent store openings on its website, was named as a strong candidate for the space and one with a draw that diversifies the area and not offer the same type of merchandise available among existing department stores. Hobby Lobby, which began as a $600 startup, describes itself as the largest privately owned arts-and-crafts retailer in the world with 32,000 employees and almost 750 stores in 47 states. There is a Hobby Lobby in St. Cloud.

With corporate headquarters in Oklahoma City, Hobby Lobby notes it "is primarily an arts-and-crafts store but also includes hobbies, picture framing, jewelry making, fabrics, floral and wedding supplies, cards and party ware, baskets, wearable art, home accents and holiday merchandise."

Hobby Lobby has reportedly been looking for the right deal in the lakes area for years and has a history of taking over stores vacated by other tenants.

The source said this kind of turnover in retail is a natural evolution of retail that will make the other establishments stronger in the long run.

"Baxter has never been in better shape," the source reported. "The market draw has never been better."

A sign of the area's strength, the source noted, was when Costco chose to build its store in Baxter instead of St. Cloud, causing jaws to drop to the south. And there are continuing signs of a resurgent economy that has been back on a growth footing for several years and now has multiple projects either recently opened, breaking ground or moving through the permitting process. But those market changes to increase the micropolitan's draw here, even the potential to add home appliances to the Baxter J.C. Penney store, weren't enough to move the Baxter store off the closing list.

Mixed signals

J.C. Penney itself sent out somewhat mixed signals noting earlier it needed to compete with changing consumer expectations but that most of its e-commerce was linked to its brick and mortar stores. In 2016, about 75 percent of all online orders touched a physical store, the company reported.

Fortune reported that in 2015 J.C. Penney stated it would halt store closings, "saying that its physical stores were key to supporting its resurgent e-commerce. Indeed, some one-third of orders are shipped from, or picked up in a store. But with comparable sales expected to be unchanged in 2016, it's clearly hard for Penney to justify the same number of stores with annual sales at $12.6 billion as when they were $19 billion a decade ago."

The retailer operates 1,000 stores across the U.S. and Puerto Rico.

J.C. Penney previously announced it was "implementing a plan to optimize its national retail operations as part of the company's successful return to profitability. ... These strategic decisions will help align the company's brick-and-mortar presence with its omnichannel network, thereby redirecting capital resources to invest in locations and initiatives that offer the greatest revenue potential."

In a news release that announced the store closings would be pending, the retailer stated closing the 138 stores will allow it to raise the overall brand standard and allocate capital more efficiently.

"In 2016, the company delivered a net profit for the first time since 2010; however, we believe we must take aggressive action to better align our retail operations for sustainable growth," said Marvin R. Ellison, chairman and CEO of J.C. Penney, in a news release. "... We understand that closing stores will impact the lives of many hard-working associates, which is why we have decided to initiate a voluntary early retirement program for approximately 6,000 eligible associates. By coordinating the timing of these two events, we can expect to see a net increase in hiring as the number of full-time associates expected to take advantage of the early retirement incentive will far exceed the number of full-time positions affected by the store closures.

"We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers. ...

"While many pure play e-commerce companies are experiencing dramatically increasing fulfillment costs, we are pleased with the double-digit growth of jcpenney.com and how leveraging our brick and mortar locations is enabling us to offset the last-mile delivery cost. We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce, while leveraging physical locations to minimize the growing operational costs of delivery."

"I have a deep appreciation and respect for our associates who are on the front lines working tirelessly to serve our customers every day. Closing a store is never an easy decision, especially given the local impact on valued employees and our most loyal shoppers," Ellison said. "While any actions that reduce or exclude our presence in communities across the country is always difficult, it is essential that J.C. Penney continues to evolve in order to achieve long-term growth and profitability and deliver on shareholder value."

INFOBOX: Reasons for optimism

Recent lakes area retail and restaurant projects include the Tim Horton's construction in Brainerd, HJ Development's mall under construction to include PetSmart, TJ Maxx, ULTA Beauty to open in the fall and Dick's Sporting Goods to open in the spring of 2018.

Another three-tenant strip mall is proposed near Menards just off Highway 371.

A restaurant, along with a retail store, is proposed for the undeveloped northwest corner of the intersection of highways 371 and 210. The area is set for a new look with development planned at the Gander Mountain site as well. The next two years are shaping up to be the busiest construction seasons Baxter has witnessed since the Great Recession tightened its grip.

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